An acquisition or takeover of a company occurs when one company purchases the majority or all of the shares of another, so becoming the majority shareholder or sole owner. As the majority shareholder, you have the authority to make decisions without the permission of other shareholders, allowing you to effectively run the business. There are a number of types of corporate acquisition and in this article, types of corporate acquisition, we take a look at these issues in more depth.
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What are the different types of corporate acquisition?
- Vertical Acquisition
Vertical acquisitions are quite common and straightforward. It is performed to unite two companies that provide similar or common goods or services, with the aim of integrating their respective supply chain operations.
The expectation is that the combination will result in synergies. This essentially means that the two organisations will operate more efficiently as a single entity, with the larger firm benefiting from the increase in assets and supply chain activities.
In other instances, it will be two companies that are not competitors, but their union makes logical sense. For instance, a car manufacturer may join with a parts supplier in order to carry out their shared processes with greater proximity and visibility. The automobile manufacturer gains greater control over the prices of parts, while the parts supplier enjoys a steady flow of business. Creating something that is bigger than the sum of its parts is the ultimate goal.
- Horizontal Acquisition
Horizontal acquisitions are a little different. In contrast to a vertical merger, which occurs between two organisations that may or may not be competitors, a horizontal acquisition occurs between two or more competing companies.
Typically, these businesses will operate in the same area and provide the same goods and services. These are more prevalent in industries with fewer firms offering the same product, where competition is greater. A successful acquisition in this market has the potential to yield substantial profits. Imagine Tesco acquired Sainsburys, for example. This would be a textbook example of a horizontal acquisition, involving two companies that operate in the same space and whose combination would result in a supersized market share.
Increasing market share and consolidating key businesses, such as manufacturing, may reduce total operating expenses. It’s a great method for smaller enterprises to gain access to foreign markets that may not have been accessible previously.
- Conglomerate Acquisition
A conglomerate acquisition occurs when a company from an unrelated industry acquires a company from an other industry. For example, imagine Nike decided to acquire Virgin Airlines. Typically, corporations form conglomerates as a means of hedging against market volatility. If you own many companies in unrelated sectors, it is unlikely that they would all experience a financial loss simultaneously.
The acquisition provides stability to the smaller businesses. They are no longer required to function as a small firm and can utilise the resources and experience of their new parent organisation.
It is difficult for conglomerates to become monopolies since they would need to own nearly every significant business within a single industry, as opposed to numerous businesses in multiple industries.
- Market Extension Acquisitions
This type of acquisition is quite similar to a horizontal acquisition in that both companies are in the same industry. However, they are not rivals because they operate in distinct markets.
Typically, the purpose of this acquisition is to purchase the competitor before it poses a genuine danger. Rather than fighting with a brand that is attempting to enter your market, you can keep them at bay by acquiring them.
Market extension purchases can assist organisations in entering new markets without having to compete with established brands. They will also not need to invest time and resources in establishing brand recognition.
- Product Extension Acquisitions
Product extension acquisitions are similar to market extension acquisitions. They involve two or more businesses that sell comparable or related products and compete in the same market.
How we can help
We have a proven track-record of helping clients with company acquisitions. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
How to Contact our Corporate Solicitors
It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of saving you money and ensuring you achieve a positive outcome.
To speak to a member of our new enquiries team today, simply call us on 0345 901 0445 or click here to make a free enquiry . We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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