An Acquisition is the purchase of a business and its assets by another entity. The company buying the other business may pay for the assets or ownership equity in cash, stock, or some other consideration. The process differs from a merger, which involves two companies combining to form one business.
M&A can enable businesses to expand and access new products, markets, and resources more quickly than they could have done on their own. However, it can also increase risk and cost. Moreover, M&A can be difficult to execute well. It can lead to cultural clashes, the inability to reach anticipated synergies, and misaligned corporate objectives.
There are a variety of reasons why businesses choose to make an Acquisition. These include diversification, economies of scale, and accelerating growth. Diversification allows businesses to reduce their reliance on a single product or market, which can help them better weather economic downturns and volatility.
Economies of scale are the cost reductions that occur as a company increases its production or sales. M&A can enable businesses to achieve these savings by acquiring companies that produce similar products or services in large volumes.
M&A can also improve a company’s competitive edge by giving it a dominant position in the industry and deterring new competitors. For example, when Facebook bought Instagram in 2012, it eliminated a potential competitor and solidified its presence as a leading social media platform. It also gained access to cutting-edge technology. Lastly, M&A can be used to consolidate the industry and gain bargaining power with suppliers and customers.