Understanding the different types of acquisitions companies become involved in

As one might expect, an acquisition generally isn’t some sort of punt on the market by business leaders. With some of these deals being worth hundreds of millions of dollars, a great deal of thought tends to be put into them and there is always an end goal.

Unfortunately, there’s never any guarantee that an acquisition is going to be successful. There are occasions where things just don’t quite work out, yet the likelihood is that this isn’t necessarily due to the acquisition itself – there might have been pre-existing problems which meant that failure was always going to be possible.

Nevertheless, let’s now take a look at some of the different types of acquisitions that companies tend to become involved in. The list isn’t exhaustive, but should give a good idea on the acquisitions process in general.

Making the market easier for the target company

One of the most popular types of acquisition comes when a business uses their own advantage in an industry, to provide leverage for their target company.

To pluck a real-life example out, this could have been something which ran through the mind of Ram Chary when Global Cash Access acquired Multimedia Games. Already, the former was established in casinos and was the leading cash access provider. Their decision to enter the gaming market may have raised some eyebrows at the time, but their status might have provided Multimedia Games with more of a platform to deliver their expertise.

Improving the target company

Alternatively, an acquisition may have just been put together to improve the performance of the target company. Again, this may have been the case with GCA and Multimedia Games, although usually the best examples in this form are associated with private equity firms who are specialists at reducing costs and creating more value in companies they take over.

Removing capacity from the industry

Some may also view this next type of acquisition as something whereby a company is removing competition from the industry.

There are plenty of occasions where deals take place just so that excess capacity can be removed from the whole marketplace. Generally, a firm will take over another company and will shut down areas of it over time. While some might assume that the best approach would be to simply keep all operations against all companies under the same entity going, it’s worth pointing out that this results in an increase in costs.

The most effective route for a business is to have fewer operations and at times, this might mean buying for the sake of closing down operations.

Acquiring skills

Rather than acquiring a business, some companies see acquisitions as opportunities to acquire skills. In other words, a company might have conducted vast research in an industry over the years and has technology available that competitors just don’t have. It’s here where they are in prime position to be taken over; they have something which rival firms need, even if their balance sheets aren’t particularly healthy.