Guide to Business Takeovers
Definition of a business takeover
A business takeover is when one company takes control of another company by buying a majority of its shares or assets. It can be thought of as a corporate ‘coup de force’; it’s a bold and decisive move that can have a major impact on the business landscape.
While the terms "takeover" and "acquisition" are often used interchangeably, people tend to refer to takeovers when they’re “hostile”, i.e. the acquiring company takes control of the target company without its consent. This can be done by buying a majority stake in the target company's shares, or by launching a tender offer directly to the target company's shareholders.
That said, the percentage of acquisitions that are hostile takeovers is relatively low. This is because they are difficult and expensive to execute.
Learn more: How do hostile takeovers work?
Types of business takeovers
Besides a hostile takeover, there are a few other types of business takeover to mention.
Reverse takeover
In a reverse takeover, the target company becomes a subsidiary of the acquiring company.
Backflip takeover
In a backflip takeover, the acquiring company becomes a subsidiary of the target company.
Leveraged buyout
A leveraged buyout is when the acquiring company finances the takeover primarily with borrowed money.
Management buyout
A management buyout is when the target company's management team acquires the company from the existing shareholders.
Reasons for and advantages of business takeovers
There are many reasons why a company might decide to take over another company. Some of the most common reasons include:
Increase market share
By acquiring a competitor, a company can increase its market share and become more dominant in its industry.
Enter a new market
Acquiring a company in a new market can give a company a quick and easy way to enter that market without having to start from scratch.
Gain access to new technologies or expertise
Acquiring a company with new technologies or expertise can help a company to innovate and improve its products or services.
Eliminate competition
Acquiring a competitor can eliminate a threat to the acquiring company's business.
Achieve economies of scale
By combining the operations of two companies, a company can reduce costs and achieve economies of scale.
Acquire intangible assets
Acquiring a company with valuable intangible assets, such as brands, patents, or trademarks, can give the acquiring company a competitive advantage.
Diversify into new industries
Acquiring a company in a new industry can help a company to diversify its business and reduce its risk.
Defend against a hostile takeover
A company may acquire another company in order to make itself a less attractive target for a hostile takeover.
Increase revenue and profits
A company may acquire another company in order to increase its revenue and profits.
Notable business takeover examples
Successful takeovers:
Google's acquisition of Android
In 2005, Google acquired Android for $50 million. This acquisition was considered a huge success, as it has made Android the most popular mobile operating system in the world. Android has helped Google to become a major player in the mobile market, and it has also generated billions of dollars in revenue for the company.
Facebook's acquisition of WhatsApp
In 2014, Facebook acquired WhatsApp for $19 billion. This acquisition was also considered a huge success, as it gave Facebook control of one of the most popular messaging apps in the world. WhatsApp has helped Facebook to expand its reach and influence, and it has also generated billions of dollars in revenue for the company.
Failed takeovers:
DaimlerChrysler merger
In 1998, Daimler-Benz and Chrysler merged to form DaimlerChrysler. This merger was seen as a way to combine the strengths of two major automakers. However, the merger was a disaster. The two companies had different cultures and business models, and they were unable to integrate their operations effectively. DaimlerChrysler eventually sold Chrysler to Cerberus Capital Management in 2007.
Hewlett-Packard's acquisition of Compaq
In 2002, Hewlett-Packard acquired Compaq for $25 billion. This was the largest merger in the IT industry at the time, and it was seen as a way for HP to solidify its position as a leading provider of computer hardware and software. However, the merger was also a disaster. HP struggled to integrate the two companies' operations, and it lost market share to rivals such as Dell and IBM. HP eventually split into two companies in 2015: HP Inc., which focuses on PCs and printers, and Hewlett Packard Enterprise, which focuses on enterprise IT solutions.
See also: Examples of Mergers and Acquisitions
Reasons for failed takeovers
Reasons for the failure of takeovers are complex and varied. Some common reasons include:
Poor planning and execution
Takeovers are complex transactions, and they require careful planning and execution. If the takeover is not well-planned or executed, it is more likely to fail.
Integration issues
Integration poses many risks. When two companies with different cultures merge, it can be difficult to integrate the two companies' operations and create a unified culture. This can lead to conflict and confusion, and it can also make it difficult to achieve the goals of the takeover.
Synergy failures
The main goal of many takeovers is to achieve synergies. Synergies are cost savings or revenue enhancements that are expected to result from the merger of two companies. However, synergies are often difficult to achieve, and they can be overestimated. If the takeover does not achieve the expected synergies, it is more likely to fail.
Unexpected events
Takeovers can be affected by unexpected events, such as economic downturns, changes in government regulations, or technological advances. These unexpected events can make it difficult for the acquiring company to achieve the goals of the takeover.
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FAQs
What is business takeover?
A business takeover is a bold type of acquisition in which a company takes control of another company by buying a majority of its shares or assets.
What is a disadvantage of a business takeover?
The biggest disadvantage of a takeover is the cost involved. Takeovers can be very expensive, as the acquiring company must pay a premium to acquire the target company. This can strain the acquiring company's finances and make it difficult to invest in other areas of the business.
Who benefits from a takeover?
There are many possible beneficiaries of a takeover. The shareholders of the target company often benefit from a takeover if the acquiring company has to pay a premium for the shares. The acquiring company will also benefit from the takeover if it’s able to achieve the synergies and goals of the deal.
What happens after a company takeover?
Post acquisition integration happens after a takeover, as the acquiring company attempts to achieve the synergies that were anticipated at the start of the deal.