Why do businesses takeover

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Investopedia does not include all offers available in the marketplace. Related Articles. Friendly Takeover. Career Advice Acquire a Career in Mergers. Partner Links. Hostile Takeover Definition A hostile takeover is the acquisition of one company by another without approval from the target company's management. Pac-Man Defense The Pac-Man defense is a defensive tactic used by a targeted firm in a hostile takeover situation. Acquisition An acquisition is a corporate action in which one company purchases most or all of another company's shares to gain control of that company.

Stock Swap Definition A stock swap is the exchange of one equity-based asset for another. How Takeovers Work A takeover occurs when an acquiring company makes a successful bid to assume control of a target company.

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Organic growth, ie the existing business plan for growth, needs to be accelerated. Businesses in the same sector or location can combine resources to reduce costs, remove duplicated facilities or departments and increase revenue.

In this guide: Introduction Benefits of mergers and acquisitions Is your business is ready for a merger or acquisition? Identify targets for a merger or acquisition Assess the target business for a merger or acquisition Assessing business value for a merger or acquisition What can go wrong with a merger or acquisition? Printer-friendly version. Also on this site. They could be voluntary by a joint agreement between the two companies.

In other situations, they can be rejected, in which case, without indicating, the larger organisation goes after the target. An acquisition, which merges two firms into one, will bring major organisational advantages and performance improvements for shareholders. In the business world, takeovers are relatively common.

They are similar to mergers because both processes combine two firms into one. Where they differ, a merger involves two equal companies. In contrast, an acquisition generally involves inequalities—a larger company targeting a smaller one. There are several reasons why companies could initiate a takeover.

An acquiring company will attempt an opportunistic takeover where it thinks the target is priced well. Some firms may opt for a strategic takeover. It helps the acquirer to reach a new market without any additional time, resources, or risk-taking.

The acquirer may also be able to reduce rivalry by going through a strategic takeover. Therefore, it becomes very expensive trying to beat this competition and gain a larger market share with the existence of all the competing brands and businesses. It is very hard to increase sales of products and services with all businesses jostling for market space. The end result of this competition usually is reduced market shares which initiate low product and service sale rates.

Initiating a takeover of the competing firm can help a business gain a larger market share in the market and reduce the pressure of completion in the market. By assuming the control and management of the competing firm in the market, it becomes possible that all the products and services offered by the acquired firm are controlled by the acquiring firm and all sales and profits are attributed to the acquiring firm. Once a business has been taken over by another business, the competition that previously existed between the two firms dies off as the two businesses become a single entity in the market competing against other businesses in the market.

For businesses to be assured of ultimate success in the market, they must diversify products and services. Products and service diversification allows businesses to be assured of high sales at all times. However, it is not easy to effectively diversify products and services in a single business.

It is very expensive and very time consuming for a single business to offer more than three to five types of products and services. Given this difficulty, it becomes necessary that the business in question takes over the operations of other businesses offering different types of products and services.

Taking over a business with an aim of diversifying products and services comes with a notion of profitability. Logically, a business dealing with many different types of products and services will most likely remain significantly profitable when compared with those that offer just a single product or service. However, legal statutes regulating the practice business in relation to takeovers try to discourage instances where takeovers may create monopolies.

Therefore, before assuming the control of businesses that will see a company being in control of most of the products and services in a niche within the market, the business in question must fully meet all set procedures and guidelines.

Business operation, especially in the modern market, is very expensive. Costs are often incurred from almost every sphere of operation. For a business to attain profitability, it must effectively cater for production costs, management costs, and other miscellaneous costs. Taking over another business provides a window of reprieve from where it is possible to control business management costs. The fact that the two businesses become merged, there is availed an ample opportunity through which the acquiring business expands without incurring huge costs that are involved during the expansion of a single business.

Taking over another business enables efficient production of goods and services given the increased manpower. The reduction of costs is even maximized if the merging businesses deal with the production of the same product. In this case, the total costs of production and management will be lowered while production yield will be increased. Through this kind of merging, businesses combine locations, integrate and streamline support functions which in turn help greatly in reduction of costs, a precursor to profitability.

A takeover is generally viewed as an important tool in the economies of scale business strategy. In this strategy, it is theorized that when production costs are lowered as production volumes increase, the involved businesses are guaranteed of maximized profits. There comes a time when a business needs to change its leadership. However, leadership changes in business are often complicated. In most cases, they are intertwined with a haven of legal and procedural issues that demand strict adherence to.

This strict adherence to such procedural and legal requirements often becomes a challenge that is likely to hinder maximum business performance. Therefore, the best way to bypass the issue of business leadership incase of a crisis is to initiate a takeover. Since taking over another business is the only window which allows easy manipulation of business procedures, the management team of the business taking over the business in question can effectively initiate the hiring of new leaders whom they believe that can provide effective leadership for the acquired business.

However, leadership change in business is a very critical issue that demands strict adherence to business ethics and legal frameworks in order for success to be attained.

Therefore, the acquiring firm ought to ensure all procedures involved in leadership change are exhaustively adhered to avoid a scenario where the business fails due to ineffective leadership. There are four main phases that ought to be followed during the initiation and completion of a takeover. These four phases make up the cyclical process of conducting takeovers in that they are repetitive for all takeover transactions. These phases are:.