Acquisition Meaning – Acquisitions are also called as takeovers. Acquisition or takeover is different from ‘merger’ though some people use these words as equivalent and hence they make no difference between the two. Acquisition implies that a company unilaterally relinquishes its independence and adapts to another firm’s plans. That is, acquired firm loses its legal status and totally becomes a part and parcel of acquiring firm.
In simple terms, one company takes over the control of another company. This is done either through the mutual agreement between acquiring and acquired company which is called as friendly take over\or against the wishes of the acquired company which is better known as hostile takeover. There are Manglore Refineries and Petrochemicals Ltd. (MRPL) India’s first joint sector refinery has been acquired by Oil and Natural Gas Corporation Ltd. (ONGC) a public sector undertaking in March 2003.
Nature of Acquisitions
- They form part of a well considered company development plan.
- The process of acquisition is unilateral.
- The structure of top management will have fewer problems.
- Contractual regulations are simpler and consist mainly of price and a number of guarantee clauses.
- Time taken for an acquisition is shorter than for a merger.
Types of Acquisitions
(1) Amalgamations – The intending companies will voluntarily go into liquidation form a new company that will take over agreed assets and liabilities of the both at an agreed purchase consideration. Thus, A and B will be dissolved to form a new company C which takes over the A and B net assets.
(2) Acquisitions/Takeovers – It is a case where one company acquires another company’s total or controlling interest. Subsequently, the acquired company operates as a separate division or subsidiary. Here no firm dies but will be under the full control of acquiring company.
(3) Sale of Assets – A company can sell its assets to another company and cease to exist. If company A sells its assets to B company, it is acquired and A companies goes out of existence.
(4) Holding Company Acquisition – It is a quasi form of merger. It involves the acquisition of either the total or the majority of firm’s share capital or stock by a company. The purpose is to manage and control another company. If A company buys 66.67% and more of the equity capital in B, B company is the subsidiary of A company where B does not go into liquidation but its management and control is resting with company A.
Steps in Successful Acquisitions
(1) Screening – Well before acquisition, it is but essential to screen and investigate the main stays of the firm such as financial status, product market position, physical conditions of production facilities, human resources, prevailing corporate culture, managerial compatibility of the acquired company. In depth and critical screening enhances the acquiring company’s knowledge of the strengths and weaknesses and the risk factors so that the firm can come to sound conclusion.
(2) Negotiation – The negotiation is the process of arriving at just price for the takeover of the firm. In a bid to bring about the deal, there is a possibility of making unwanted higher commitments. The timing of acquisition is very important. The acquiring company should negotiate to finalise the deal when the acquired company is facing a short-term problems or it is facing a down turn in the business. It is this opportune time which makes the acquiring company to pay a reasonably low price.
(3) Cleaning and Founding – Generally the acquired unit is in bad shape featured by low productivity, low employee morale because of poor management. This unwanted shambles are to be removed, cleaned up, primed up into shape. To configure a desired shape the activities involved are –
- Removal of existing top management and installation of new and strong team taken from next layer of management.
- Installation of an effective financial reporting system in the acquired company at earliest.
- Cocktail the financial strength and the purchasing power of acquiring company to reduce procurement costs and wastes.
- Utilise the idle capacity to earn revenues that guarantee sufficient cashflows.
(4) Strategic and Organisational Revival – This phase is to do with the convalescence or regaining the strength lost. In this period the acquiring firm is expected to –
- redefine the vision, values and vital principles which should be pursued.
- develop management in the light of vision values and vital principles.
- rationalize the work force and negotiate with the trade unions for mutual benefits.
- invest in core technology, quality and distribution net-works.
- upgrade the organisational skills.
(5) Integration of People and Operations – Unto the last stage, the integration was controlled with a few persons interfacing each other. In this stage, however, this interface is broadened with more two way flows of people to forge ahead the acquiring and acquired company. This warrants management to –
- integrate the functional areas namely, production, marketing, purchasing financing and the like.
- implement integrated information technology system or enterprise reengineering process (ERP).
- streamline the two way flow of people at different levels. This way the acquired and acquiring firms are integrated in systematic way to ensure the success of integration. Any integration is hardly complete unless and until the people and their culture is unified and harmonised.