ACQUISITIONS AND GREENFIELD INVESTMENT

 ACQUISITIONS AND GREENFIELD INVESTMENT

Acquisitions Meaning:

A merger occurs when two separate entities combine forces to create a new, joint organization. Meanwhile, an acquisition refers to the takeover of one entity by another.

 In an acquisition, a new company does not emerge. Instead, the smaller company is often consumed and ceases to exist with its assets becoming part of the larger company. Acquisitions, sometimes called takeovers, generally carry a more negative connotation than mergers. Due to this reason, many acquiring companies refer to an acquisition as a merger even when it is clearly not. An acquisition takes place when one company takes over all of the operational management decisions of another company. Acquisitions require large amounts of cash, but the buyer's power is absolute.

 One well-known acquisition in 2019 occurred when Xerox acquired 3D printing company Vader Systems, a company which manufactured liquid metal jet 3D printers. The startup was run by Zachary Vader and Scott Vader, in the Buffalo, New York, area. After the acquisition, Vader Systems was relocated outside of Rochester, New York, at the Xerox Webster campus. Xerox intends on tapping into a market worth $8 billion USD. 

Since mergers are so uncommon and takeovers are viewed in a negative light, the two terms have become increasingly blended and used in conjunction with one another. Contemporary corporate restructurings are usually referred to as merger and acquisition (M&A) transactions rather than simply a merger or acquisition. The practical differences between the two terms are slowly being eroded by the new definition of M&A deals.

Reasons for Mergers and Acquisitions: 

• Financial synergy for lower cost of capital 
• Improving company‘s performance and accelerate growth
•  Economies of scale 
• Diversification for higher growth products or markets 
•  To increase market share and positioning giving broader market access
• Strategic realignment and technological change 
• Tax considerations
•  Undervalued target 
•  Diversification of risk

4 Types of Mergers and Acquisitions 

Companies will merge together and acquire each other for a variety of reasons. Here are four of the main ways companies join forces: 

Horizontal Merger / Acquisition 

Two companies come together with similar products / services. By merging they are expanding their range but are not essentially doing anything new. In 2002 Hewlett Packard took over Compaq Computers for $24.2 billion. The aim was to create the dominant personal computer supplier by combining the PC products of both companies.

Vertical Merger / Acquisition 

Two companies join forces in the same industry but they are at different points on the supply chain. They become more vertically integrated by improving logistics, consolidating staff and perhaps reducing time to market for products. A clothing retailer who buys a clothing manufacturing company would be an example of a vertical merger. 

Conglomerate Merger / Acquisition

 Two companies in different industries join forces or one takes over the other in order to broaden their range of services and products. This approach can help reduce costs by combining back office activities as well as reduce risk by operating in a range of industries. 

Concentric Merger / Acquisition

 In some cases, two companies will share customers but provide different services. An example would be Sony who manufacture DVD players but who also bought the Columbia Pictures movie studio in 1989. Sony were now able to produce films to be able to be played on their DVD players. Indeed, this was a key part of the strategy to introduce Sony Blu-Ray DVD players.

click for differences between Merger / Acquisition 

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