An acquisition is a transaction in which one company (the acquirer) obtains control of another company (the target) by purchasing either its shares or its assets. Unlike a merger of equals, an acquisition has a clear buyer and seller.
What the buyer acquires
Acquisitions are generally structured in one of two ways, with significant legal and tax consequences (see deal structure):
- Equity (stock) purchase — the buyer purchases the target's shares and takes the company as a whole, including its assets and liabilities.
- Asset purchase — the buyer acquires selected assets and assumes only specified liabilities.
Friendly and hostile acquisitions
A friendly acquisition is negotiated with and recommended by the target's board. A hostile acquisition is pursued without the board's support, typically through a tender offer made directly to shareholders or a proxy contest to replace the board.
Control premium
Acquirers almost always pay a premium over the target's pre-announcement trading price to persuade shareholders to sell and to secure control. This control premium is one reason valuations based on past deals tend to be higher than those based on current trading multiples.
Examples of acquisition types
- Bolt-on / tuck-in — a small target absorbed into a larger platform.
- Platform acquisition — a sizeable initial purchase by a private-equity buyer, later expanded with bolt-ons.
- Reverse takeover — a private company gains a public listing by acquiring, or being acquired by, a public shell.
See also
- Mergers and acquisitions — The umbrella term for transactions that combine the ownership of companies or their assets.
- Merger — The combination of two companies into a single surviving legal entity.
- Deal structure — How an acquisition is assembled — chiefly the choice between buying stock or assets.
- Hostile takeover — An acquisition pursued against the wishes of the target company’s board.
- Tender offer — A public offer made directly to shareholders to buy their shares, usually at a premium.