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Acquisition refers to the process of acquiring a company at a price called the acquisition price or acquisition premium. The price is paid in terms of cash or acquiring company's shares or both.
There are two types of business acquisitions, friendly acquisition and hostile acquisition. In a friendly acquisition, a company invites other companies to acquire its business. In a hostile acquisition, the company does not want to sell its business. However, the other company determined to acquire the business takes the aggressive route of buying the equity shares of the target company from its existing shareholders.
As the motive is to takeover someone else's business, the acquiring company offers to buy the shares at a very high premium, that is, the gaining difference between the offer price and the market price of the share. This entices the shareholders and they sell their stake to earn quick money. This way the acquiring company gets the majority stake and takes over the ownership control of the target company.
Acquiring an existing business enables a company to speed up its expansion process because they do not have to start from the very scratch. The target company is already established and has all the processes in place. The acquiring company simply has to focus on merging the business with its own and move ahead with its growth strategies. However, in reality, it is not as simple as it seems. Most of the acquisitions fail miserably due to poor implementation attitude and strategies.
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