Business acquisitions are fast-becoming headline-making news in the real and fictional world. Whether it’s Next and their recent purchase of Cath Kidston’s brand name, Tesco and Paperchase, or even the main storyline of HBO’s hit Succession – it’s hard to ignore just how big business acquisitions can be.
If you’re a big fan of Succession, you’ll likely know what a business acquisition is – but in case you haven’t heard of Logan Roy and Waystar RoyCo, a business acquisition is when one company purchases another company – whether that’s buying most of it (over 50%) or all of it. It’s how some businesses choose to grow, develop and expand.
You might think that business acquisitions are more likely in larger companies – but you’d be wrong. You’ll definitely hear more about the larger ones in the news, but it’s much more common between small to medium sized businesses.
Examples of Business Acquisitions
It’s important to realise that there are different types of ways of businesses doing this. Acquisition is likely to be the least hostile, whereas a takeover can show an uneven balance of power. Mergers are also different, as this is where two companies come together to create a whole new identity.
There are different types of acquisition depending on who is buying what:
- Horizontal: This is when a company purchases another company that offers similar products or services to them. A good example of this is STEAMhouse Business Incubator members D/Gauge
- Vertical: This is when a company buys another company that makes a product in its existing supply chain. An example of this is when Amazon purchased Whole Foods Market so it could sell food directly
- Congeneric: This is when a company purchases a business who sells a product or service that’s different to their current offering but appeals to a similar audience they already sell to. An example is when Coca Cola purchased drink company Glaceau in 2007
- Conglomerate: This is when a company purchases a company in a completely different industry. An example of this is when Microsoft purchased LinkedIn back in 2016
Why do businesses acquire other businesses?
So, what’s the point in businesses buying other businesses?
In the case of D/Gauge, it meant that their parent company could expand their reach into the UK market more easily. Sometimes it can be easier to acquire an established business with a great reputation in the industry than trying to squeeze yourself in as competition.
In the case of Tesco and Next, who purchased Paperchase and Cath Kidston’s brand names respectively, it can be about having ownership of a well-known brand name without the economic risks of owning their stores.
Other reason is to simply grow – if you own more of the market you’re targeting, you’ll face less competition and be able to set the trends, prices and future of that industry. However, there are laws in place to stop businesses from having complete monopolies.
What are the benefits and drawbacks of business acquisition?
If you’re thinking about acquiring a company, there are some really great reasons why. It’s one of the quickest ways for you to get into a new market (if you go for a Congeneric or Conglomerate acquisition), and it can help lower manufacturing costs as you are now able to produce more. It can also reduce competition if it’s quite a busy marketplace for your business.
However, with benefits come drawbacks too. Acquisitions can take a long time as there’s lots of moving parts, including legal, audits, reviews and negotiations. That means it could take months or even years to get your hands on that business. It’s also likely to cost a lot of money too. You’ll have to take on paying for the company, as well as legal fees, tax and more.
