What are the Reasons for Acquisitions?

An acquisition is a business venture that can be beneficial or detrimental to a company. It can change everything from popularity and success to the way the business is managed – for better or for worse.

It’s important to know why you’re considering an acquisition before you sign off on it. In line with this, it’s helpful to know what the reasons for acquisitions are. In this article, we’re going to go over a few of the most common reasons.

Most Common Reasons for Acquisitions

Expanding into Uncharted Markets

One of the most common reasons for acquisitions is because a company wants to expand into a different market. For example, a company will likely start in their own country but years later, they may decide to try their luck in a new country’s market. Generally, these acquisitions happen in countries that are close to the parent country, with the company looking to acquire a small company that is already successful in the country they want to branch out into.

Going along with this, the acquiring company might also be looking to expand into a certain customer base that the company to be acquired already has. By acquiring the company, they are effectively gaining the customers that they desire.

Expanding Talent

Another reason that a company may want to acquire is because of the talent that another business comes with. A neighboring company may have a more efficient marketing team or a larger pool of technological developers that appeals to another company. As a result, the company with the desired talent is acquired.

For example, a business with a top-tier management team may be acquired by a law firm that’s looking to improve its own management.

To Put Down a Threat

If a company’s competitor seems to be outdoing them, they may want to acquire the company. This is a tactic used to defend themselves since, once a company has been acquired, it can no longer be a threat because it’s part of the company that it was once competing with.

This isn’t necessarily a good reason to acquire a company but it is, unfortunately, a reason that does exist and is put into motion more often than you’d expect.

In this same vein, is the reason that is taking up a defensive stance. Acquiring a company may also be a result of a company’s attempt to prevent a competitor from acquiring it first. Should the competitor acquire it first, they would be able to use it to leverage themselves against their competitors, which could have negative effects on other companies in the industry.

Assets

Sometimes, companies want to acquire another company’s assets. This is most common when bankruptcy is involved and has the buying company bidding on various assets of the company that is being liquidated.

These assets can be physical – vehicles, land, computers, or furniture – or intangible. Intangible assets can include everything from patents to genius new ideas and inventions. Basically, intangible assets are anything that can’t be physically held in the hand but are of value to a company.

Growth

When a company acquires another, it grows. Obviously. This can be a big motive for many companies — especially when it comes to doing the heavy lifting that is involved in organic company growth.

In the case of acquisitions, the heavy lifting has already been done by the acquired company. The company buying can simply acquire and gain a ton of employees, property, and wealth without doing any of the hard -often costly- work.

This also allows a company to grow more quickly than it would by relying on its own organic growth, which can be highly beneficial for a number of reasons including cost reduction, market shares, and popularity.

Popularity is surprisingly important when it comes to acquisition. Why? Because a company that acquires a currently popular competitor will see much of the acquisition’s traffic and, as a result, conversions.

Consolidation

Acquiring a competing company can do wonders for the acquiring company’s budget. It can effectively reduce various company costs by allowing the company to take a step back from the heavy marketing that was necessary to compete with the acquired company before the process.

Cost Reduction

Another incredibly popular reason for an acquisition is cost reduction. Cost reduction is important to any business because, in general, all businesses want to operate at the lowest possible cost while reaping the most financial benefit possible.

Acquiring a smaller company can help reduce costs in a number of areas including hiring new employees, securing product distribution channels, and advertising. By acquiring another company, most of these costs are cut drastically since the company being acquired already has its own resources that the buyer can use.

In addition, the sharing of budgets is also beneficial and, of course, is something that comes with a successful acquisition. Sharing budgets means that the acquiring company may only have to cover half of a certain cost instead of the full cost, saving them money.

Conclusion

An acquisition can happen for a number of reasons; the reasons we listed above are only a few of them. They range from self-defense to budgetary issues but, regardless of the reason, acquisitions are almost always beneficial in some way. Most of the time they also benefit the acquired company, which makes the process somewhat symbiotic.