An acquisition is a business transaction where one company purchases a controlling stake (ownership) in another company.
The acquiring company is called the acquirer or purchaser.
The company being purchased is called the target company.
Unlike a merger, where two companies combine to form a new entity, in an acquisition the acquirer continues to exist and the target may:
Continue as a subsidiary, or
Be completely absorbed into the acquirer.
Example: In 2008, Tata Motors acquired Jaguar Land Rover (JLR) from Ford. Tata Motors remained as the main company, and JLR became part of Tata’s operations.
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Nature of Acquisition
1. Purchase of Control – Acquirer gains majority control over the target (often 51% or more of shares).
2. Unidirectional – Only one company dominates, unlike mergers where both combine.
3. No New Entity – The acquirer remains; the target may survive as a subsidiary or cease to exist.
4. Strategic Move – Done for growth, diversification, or eliminating competition.
5. Legal Process – Governed by corporate, securities, and antitrust laws.
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Features of Acquisition
1. Two Parties Involved – Acquirer (buyer) and Target (seller).
2. Financial Transaction – Involves purchase of shares, assets, or business units.
3. Change of Control – Management and ownership shift to acquirer.
4. Consideration – Payment may be in cash, shares, or a mix.
5. Types of Acquisition:
Friendly Acquisition → Both companies agree (e.g., Disney acquiring Pixar).
Hostile Acquisition → Target resists but acquirer still gains control (e.g., Vodafone acquiring Mannesmann).
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Advantages of Acquisition
For the Acquirer:
1. Market Expansion – Entry into new markets or geographies.
2. Economies of Scale – Larger operations reduce cost per unit.
3. Access to Technology & Talent – Gain new R&D, patents, skilled workforce.
4. Quick Growth – Faster than building operations from scratch.
5. Competitive Edge – Eliminates or absorbs competitors.
For the Target:
1. Financial Security – Struggling companies may survive under a stronger parent.
2. Better Resources – Access to acquirer’s capital, network, and infrastructure.
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Disadvantages of Acquisition
For the Acquirer:
1. High Cost – Risk of overpaying for the target company.
2. Cultural Clash – Different management styles may conflict.
3. Integration Problems – Systems, processes, and employees may not blend well.
4. Regulatory Scrutiny – May be blocked by antitrust laws (to prevent monopoly).
5. Debt Burden – If financed with loans, financial risk increases.
For the Target:
1. Loss of Independence – Target may lose decision-making power.
2. Employee Uncertainty – Layoffs or restructuring may follow.
3. Brand Identity Loss – Target’s brand may be absorbed into acquirer’s name.
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Examples of Acquisitions
1. Tata Motors – Jaguar Land Rover (2008)
Tata acquired JLR from Ford for $2.3 billion.
Today, JLR is highly profitable and boosted Tata’s global presence.
2. Facebook (Meta) – Instagram (2012)
Facebook acquired Instagram for $1 billion.
This helped Facebook dominate the social media and photo-sharing market.
3. Microsoft – LinkedIn (2016)
Microsoft bought LinkedIn for $26 billion.
It strengthened Microsoft’s presence in the professional networking space.
4. Reliance Retail – Future Group Assets (2020 deal attempt)
Reliance announced plans to acquire Future Group’s retail assets, but the deal faced legal battles with Amazon.
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Conclusion
An acquisition is when one company takes over another by buying controlling rights.
It is mainly done for growth, diversification, competitiveness, and resource acquisition.
While it can be highly beneficial (e.g., Tata–JLR), it also carries risks like cultural conflicts, overvaluation, and employee backlash.
