Acquisition

Acquisition

When a firm buys another firm.

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acquisition

The purchase of an asset such as a plant, a division, or even an entire company. For example, the Walt Disney Company made a major acquisition in 1996 when it purchased Capital Cities/ABC, Inc., in order to extend its reach in the entertainment industry.

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Acquisition

An investment in which a company or person buys a publicly-traded company, or, more commonly, most of the shares in that company. For example, if Corporation A buys 51% or more of Corporation B, then Corporation B becomes a subsidiary of Corporation A, and the activity is called an acquisition. A single investor may buy out a publicly-traded company; one calls this "going private." Acquisitions occur in exchange for cash, stock, or both. Acquisitions may be friendly or hostile; a friendly acquisition occurs when the board of directors supports the acquisition and a hostile acquisition occurs when it does not. See also: Antitakeover measure.

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Acquisition. If a company buys another company outright, or accumulates enough shares to take a controlling interest, the deal is described as an acquisition.

The acquiring company's motive may be to expand the scope of its products and services, to make itself a major player in its sector, or to fend off being taken over itself.

To complete the deal, the acquirer may be willing to pay a higher price per share than the price at which the stock is currently trading. That means shareholders of the target company may realize a substantial gain, so some investors are always on the lookout for companies that seem ripe for acquisition.

Sometimes acquisitions are described, more bluntly, as takeovers and other times, more diplomatically, as mergers. Collectively, these activities are referred to as mergers and acquisitions, or M&A, to those in the business.