tejas.gaikwad.1044
Tejas Gaikwad
A corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company's growth strategy whereby it is more beneficial to take over an existing firm's operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company's stock or a combination of both.
Acquisitions can be either friendly or hostile. Friendly acquisitions occur when the target firm expresses its agreement to be acquired, whereas hostile acquisitions don't have the same agreement from the target firm and the acquiring firm needs to actively purchase large stakes of the target company in order to have a majority stake.
In either case, the acquiring company often offers a premium on the market price of the target company's shares in order to entice shareholders to sell. For example, News Corp.'s bid to acquire Dow Jones was equal to a 65% premium over the stock's market price.
The acquisitions can be classified in two ways:- as public and private or as friendly and hostile.
1.Private acquisition:- An acquisition in which the company being acquired (target company) is not listed on a public stock exchange.
2.Public acquisition:- An acquisition in which the company being acquired (target company) is listed on a public stock exchange.
In friendly and hostile takeovers, the difference is only in the way the information is communicated to the target company.
1.Friendly takeover:- An acquisition in which the target company expresses an agreement of being acquired.
2.Hostile takeover:- An acquisition in which the target company does not explicitly express an agreement of being acquired whereas the acquirer acquires the target by purchasing more and more shares and getting a controlling stake.
There are three types of technology acquisitions :-
a) Talent :- When the acquirer just wants the team (generally just engineers and sometimes designers). As a rule of thumb, these acquisitions are priced at approximately $1M/engineer.
b)Tech :- When the acquirer wants the technology along with the team. Generally the prices for these acquisitions are significantly higher than talent acquisitions. Sometimes they are even in the hundreds of millions of dollars for fairly small teams (e.g. Siri). The calculation the acquirer uses to price tech acquisitions is usually “buy vs build”. An important component in this calculation is not just the actual cost to build the technology but the opportunity cost of the time it would take them to do so.
c) Business :- When the company is either bought on a financial basis (the acquisition is “accretive”) or bought based on non-financial but highly defensible assets (Google buying YouTube which had minimal revenue at the time but a huge network of producers and consumers of video).
As large companies mature they move from doing just talent acquisitions to doing talent and tech acquisitions to eventually doing all three types of acquisitions. Usually it takes a start up beating the large company in an important area for the large company to realize the necessity of business acquisitions. For example, Google seemed to dramatically change its attitude when YouTube crushed Google Video. Eventually every large company has a moment like this.
Acquisitions can be either friendly or hostile. Friendly acquisitions occur when the target firm expresses its agreement to be acquired, whereas hostile acquisitions don't have the same agreement from the target firm and the acquiring firm needs to actively purchase large stakes of the target company in order to have a majority stake.
In either case, the acquiring company often offers a premium on the market price of the target company's shares in order to entice shareholders to sell. For example, News Corp.'s bid to acquire Dow Jones was equal to a 65% premium over the stock's market price.
The acquisitions can be classified in two ways:- as public and private or as friendly and hostile.
1.Private acquisition:- An acquisition in which the company being acquired (target company) is not listed on a public stock exchange.
2.Public acquisition:- An acquisition in which the company being acquired (target company) is listed on a public stock exchange.
In friendly and hostile takeovers, the difference is only in the way the information is communicated to the target company.
1.Friendly takeover:- An acquisition in which the target company expresses an agreement of being acquired.
2.Hostile takeover:- An acquisition in which the target company does not explicitly express an agreement of being acquired whereas the acquirer acquires the target by purchasing more and more shares and getting a controlling stake.
There are three types of technology acquisitions :-
a) Talent :- When the acquirer just wants the team (generally just engineers and sometimes designers). As a rule of thumb, these acquisitions are priced at approximately $1M/engineer.
b)Tech :- When the acquirer wants the technology along with the team. Generally the prices for these acquisitions are significantly higher than talent acquisitions. Sometimes they are even in the hundreds of millions of dollars for fairly small teams (e.g. Siri). The calculation the acquirer uses to price tech acquisitions is usually “buy vs build”. An important component in this calculation is not just the actual cost to build the technology but the opportunity cost of the time it would take them to do so.
c) Business :- When the company is either bought on a financial basis (the acquisition is “accretive”) or bought based on non-financial but highly defensible assets (Google buying YouTube which had minimal revenue at the time but a huge network of producers and consumers of video).
As large companies mature they move from doing just talent acquisitions to doing talent and tech acquisitions to eventually doing all three types of acquisitions. Usually it takes a start up beating the large company in an important area for the large company to realize the necessity of business acquisitions. For example, Google seemed to dramatically change its attitude when YouTube crushed Google Video. Eventually every large company has a moment like this.