Acquisition is the buying of one company by another company. This corporate action occurs in public and private sectors. As a strategy, acquisition is considered because it helps companies to grow rapidly without having to open another company. The acquisition process is difficult with because it has many considerations, and many expected outcomes, which involves a variety of structures used in taking control over the possessions of a company with different tax and regulatory deductions.
Usually, a bigger company acquires the ownership of a smaller company as part of its growth strategy. However, DePampilis (2008) argues that at times the smaller company might acquire control over management of the bigger company, which is usually called reverse take over.
An acquisition may be perceived as friendly or hostile depending on if it is taken in and communicated to by the other company’s board of directors and shareholders. In a friendly transaction, both companies cooperate in transactions. If an unfriendly transaction occurs, the smaller company might be unwilling to accept the offer, or its board has no earlier knowledge of the offer.
Google is an example of a company which acquires new companies to strengthen its market position. For example, when Google acquired YouTube and DoubleClick, it made use of their extensive search technology because it knows what is best for its target customers.
To determine whether to acquire a company, Google considers the following factors: the audience size, the rate of growth of the company been acquired, the company’s, potential in the market, the investors, the competitors, and interrelated technologies. Google’s acquisition of DoubleClick enabled it to have access to the DoubleClick’s advertising software, its customers, and network, hence becoming more competitive, and acquiring more resources because it was able to reach many customers.
Likewise, in 2005, Sun Microsystems, which develops software such as Java, Solaris, and SPARC, acquired StorageTek. The acquisition was essential to the company because it created a big storage of their data and software businesses. StorageTek gave Sun the industry leading product line in automation of tape because it was a customer focused company. Thus, Sun’s strength in storage increased sales and services.
Their expertise was to the advantage of Sun, and capabilities of both companies combined brought about the proper management of products and growth of Sun Microsystems. In essence, customers are served well and they feel more stable working with a bigger, more established company.
According to Harwood (2006), for the acquisition of a new business to take place, several steps should be considered. First, gaining access to the market worth of the target company – this involves its financial performance and its estimated future market worth, its products, the group structure and the business history as well; this is called business assessment.
The second step is proposal, which is given after the analysis of the target company. The third step is the exit plan, which comes in when the target company agrees that it may be in full sale or part sale. The target company then tries to get the highest selling price, and when the buying deal is made, the purchase agreement is written down. The final stage is integration, where the two companies are incorporated.
Additionally, Straub (2007) outlines that there are several factors to consider before the acquisition of a new company. First, the growth rate of the company: it is important to take time and know the type of business being purchased. For most of the times, existing business relationships can make a negotiation easier, just like the case of Google and Sun Microsystems.
In addition, buying an investment banker will increase the chances of success. The dealer of the company being sold should be a person who is able to give a clear legal and financial detail. The buyer should also understand how to structure the deal because few deals are done in cash and most buy outs require a mix of cash, seller financing, and earn out.
Cartwright and Schoenberg (2006) conform that the most important asset, which is the workforce, should be taken care of; for example, bonus arrangements and other benefits.
Business transaction plan should begin early; this involves the incorporation of products, operations, and technology. Processes which have been integrated should be taken care of because they will determine whether the cost savings of the transactions are realized. In company acquisition and merger, it is also good to consider the benefits that it will bring to customers.
This is what Google and Sun are doing to expand their market share. Furthermore, there are also some poor reasons for acquiring a company, such as revenge, where a big company buys another company which it was competing with, and which was not successful. Also, it is inappropriate to acquire a new company using excess cash. A company which is on sale should not be considered, or just to impress shareholders.
In conclusion, business acquisition is an excellent way for businesses to form one firm and work as one. With acquisition, products and marketing are improved; there is better market profitability, increased profits and sales, and acquiring valuable information about certain products.
Employees from both companies give different thoughts of making and improving business processes. If a company with stronger market existence buys out the weaker company, then a more competitive and cost competent company is generated. Customers feel secure when they are associated with big companies like Google and Sun Microsystems.
References
Cartwright, R. & Schoenberg, R. (2006). Thirty Years of Mergers and Acquisitions Research: Recent Advances and Future Opportunities. British Journal of Management, 17 (S1), S1-S5.
DePamphilis, D. (2008). Mergers, Acquisitions, and other Restructuring Activities. New York: Elsevier, Academic Press.
Harwood, I. A. (2006). Confidentiality Constraints within Mergers and Acquisitions, Achieving Insights through a ‘Bubble’ Metaphor. British Journal of Management, 17 (4), 137-359.
Straub, T. (2007). Reasons for Frequent Failure in Mergers and Acquisitions: A Comprehensive Analysis. Wiesbaden: Deutsche Universitats-Verlag.