Acquisition: Meaning, Types, and Examples

Key takeaways

• An acquisition occurs when one company buys most or all of another company’s shares to gain control—typically more than 50%.
• Acquisitions can be friendly (mutual agreement) or hostile (resisted by the target).
• Common motives include entering new markets, acquiring technology, increasing market share, achieving economies of scale, and eliminating competitors.
• Due diligence, valuation, legal and tax work, and regulatory approval are central to the process.

What is an acquisition?

An acquisition is a corporate transaction in which one company purchases a controlling interest in another, allowing the buyer to direct the target’s operations, assets, and strategy. While often amicable, acquisitions can also be forced if the target resists.

How acquisitions work

• The buyer and target negotiate terms, including price and which assets/liabilities will transfer.
• Investment banks and legal advisors typically assist with valuation, structuring, and regulatory filings.
• Due diligence examines financials, debt, litigation exposure, contracts, and other obligations.
• Closing may require shareholder and regulatory approvals and fulfillment of contractual conditions.

Factors to consider before acquiring

Key considerations for an acquirer include:
* Valuation — Is the asking price justified by industry metrics and future projections?
* Debt and liabilities — High indebtedness or contingent liabilities can undermine the deal’s value.
* Legal exposure — Excessive litigation or regulatory risk is a red flag.
* Financial transparency — Clear, auditable financial statements reduce post-close surprises.
* Integration capability — Cultural fit, systems compatibility, and operational synergies determine whether expected benefits materialize.

Reasons companies pursue acquisitions

Common strategic motives:
* Market entry or geographic expansion — Buying a local firm provides personnel, brand recognition, and distribution.
* Growth strategy — Acquisitions can be faster than organic expansion when capacity or resources are constrained.
* Reduce competition or excess capacity — Consolidation can improve pricing power, though regulators may intervene.
* Acquire new technology, talent, or intellectual property — Buying proven capabilities can be cheaper and quicker than developing them in-house.
* Achieve economies of scale and cost synergies.

Acquisition vs. Takeover vs. Merger

• Acquisition — Buyer purchases control of the target; generally implies the buyer remains the dominant entity.
• Takeover — Often used when the target resists; “hostile takeover” describes acquisitions pursued without or against the target’s consent.
• Merger — Two companies combine to form a new legal entity, typically when the parties are similar in size and agree a joint entity is more valuable.

Types of acquisition alignments

• Vertical — Buyer acquires a supplier or distributor (upstream or downstream in the supply chain).
• Horizontal — Buyer acquires a competitor in the same industry and at the same supply-chain level.
• Conglomerate — Buyer acquires a business in an unrelated industry.
• Congeneric (market expansion) — Buyer acquires a company in a related field with different product lines.

Notable examples

• AOL and Time Warner (2000): AOL acquired Time Warner in a blockbuster deal that aimed to combine media and internet distribution. The anticipated synergies largely failed to materialize amid the dot‑com bust; the companies separated years later.
• AT&T and Time Warner (announced 2016, closed 2018): AT&T acquired Time Warner to combine telecom distribution with media content. The deal faced antitrust scrutiny; the government’s challenge failed in court, but AT&T later reorganized and spun off media assets.

These examples illustrate that even high-profile, strategic acquisitions can struggle with integration, regulatory oversight, and changing market conditions.

Regulatory and fiduciary considerations

• Transactions that may harm competition can draw antitrust review and potential intervention.
• Company officers and directors owe fiduciary duties to evaluate deals carefully and perform thorough due diligence before recommending transactions to shareholders.

Bottom line

Acquisitions are a common corporate growth and restructuring tool. When executed with disciplined valuation, thorough due diligence, clear integration plans, and regulatory awareness, acquisitions can expand market presence, add capabilities, and create value. Poor pricing, overlooked liabilities, cultural mismatch, or regulatory obstacles can turn acquisitions into costly mistakes.