Q&A - Explain what is meant by acquisitions or takeovers

Acquisitions (often also called “takeovers”) are the main method of external growth for firms. They are also a source of significant change for businesses – both the business being acquired and the business doing the buying!

What is an acquisition? Here is a definition:

“Where one business acquires a controlling interest in another business”

As you look through the business media you should come across many examples of acquisitions. Here are some for you to look at:

December 2005
Buyer – ITV plc
Target – Friends Reunited
Price - £175million
http://www.telegraph.co.uk/finance/2927757/ITV-buys-Friends-Reunited-for-175m.html

December 2006
Buyer – First Choice
Target – Late Room
Price - £120million
http://www.manchestereveningnews.co.uk/news/business/s/231/231640_first_choice_snaps_up_120m_lateroomscom.html

March 2004
Buyer – WM Morrison
Target - Safeway
Price - £3bn
http://news.bbc.co.uk/1/hi/business/3542291.stm

January 2007
Buyer – Tata
Target - Corus
Price - £5.8bn
http://news.bbc.co.uk/1/hi/business/6315823.stm

The reasons for a firm making an acquisition vary enormously. A good way of thinking about the type of acquisition made by a firm is in terms of its direction:

Forward + vertical: Acquiring a business further up in the supply chain – e.g. manufacturer buys a distributor.
Backward + vertical: Acquiring a business operating earlier in the supply chain – e.g. a retailer buys a wholesaler
Horizontal: Acquiring a business at the same stage of the supply chain – e.g. a manufacturer buys a competitor
Conglomerate: Where the acquisition has no clear connection to the business buying it