There are various avenues for growth and expansion for companies. A takeover is an impactful strategy to help companies improve their market presence and ensure long-term sustainability. Unlike organic growth, a takeover adopts a different route to expansion. Let’s find out how this strategic manoeuvre works and why it stands out as a powerful tool for companies striving to secure their position in the ever-evolving business environment.

What is a takeover?

A takeover refers to the acquisition of one company by another. In a takeover, one company assumes control over another by acquiring a majority stake in the company or, sometimes, acquiring the entire entity. Takeovers are typically initiated by larger enterprises and are aimed at gaining dominance over smaller businesses that may be struggling to survive in the market.

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The takeover process involves a comprehensive analysis and review of the target company. If the acquiring entity believes the action can enhance its business operations and overall profitability, it purchases a significant stake in the target company. The smaller company sells the acquired stake at a predetermined price. Takeovers can manifest through various forms, such as acquisitions or mergers.

What happens in a takeover?

The acquiring company typically buys a controlling stake, often 51% or more, by the acquiring company, giving it significant decision-making power. A takeover can be completed by exchanging equity, cash, or a mix of both. Both companies must agree on the terms and conditions before finalising the deal. After the takeover, the target company may operate independently or merge with the acquiring company. This is usually decided based on brand recognition and market presence.

Why do companies opt for takeovers?

Here are some reasons why companies opt for takeovers:

• Acquiring companies may pursue takeovers to expand their market presence.
• Companies seek takeovers to achieve cost efficiencies through increased scale of operations.
• Companies use takeovers as a strategic move to enter new markets without risking extensive time, money, or resources.
• Acquiring competitors enables companies to eliminate competition, increase market share, and maximise profits.
• Takeovers allow companies to combine their strengths and resources and enhance overall performance.
• Some takeovers are driven by the belief that the target company is undervalued. This presents an opportunity for long-term value and increased profitability.
• Shareholders may initiate takeovers to obtain a controlling stake so they can instigate change or gain significant voting power.
• Certain companies become attractive takeover targets due to unique products and services, geographic proximity, etc., and may attract attention.

Types of takeovers

There are three common types of takeovers, as explained below:

• Friendly takeover: Both companies agree to the acquisition terms in a friendly takeover. The acquiree openly expresses its intention to sell. The takeover occurs smoothly with strategic discussions and negotiations. There are no disagreements or disputes.
• Hostile takeover: This is the opposite of a friendly takeover. The acquiree does not agree with the takeover terms and resists the acquisition. In such a situation, the acquiring company purchases a majority of shares from the open market without the acquiree’s consent. Hostile takeovers can often be complex, and there may be several disagreements between the boards of directors of both companies. Many leadership members of the acquired company may also leave to show their disapproval during hostile takeovers. The funding for acquisitions is typically done through cash, debt, or the issuance of new stock.
• Reverse takeover: This happens when a private company aiming to go public acquires a controlling interest in a publicly listed company. Reverse takeovers allow private companies to save on expenses associated with raising capital through an Initial Public Offering (IPO). A reverse takeover can be either friendly or hostile.
• Merger: As the name suggests, a merger involves two entities coming together to establish a new entity. When two companies merge, they combine their management, operations, and assets. Mergers can also be of two types – friendly and hostile. In the former case, the merger is voluntary, and both companies benefit from it. In the latter's case, one company is forcibly acquired by the other. The funding mechanisms for mergers typically include cash, debt, or the issuance of new stock for the combined entity.

To sum it up

In conclusion, takeovers are strategic actions undertaken by companies aiming to expand and flourish in the business realm. It occurs when one company acquires another with the objective of enhancing its market presence and increasing profitability. This acquisition process can take various forms, ranging from amicable takeovers, where both parties agree to the deal, to hostile takeovers, characterised by resistance from the company being acquired. Additionally, mergers offer companies the opportunity to combine forces and resources to create a stronger, unified entity.

Companies pursue takeovers for several reasons. Firstly, they seek to grow larger and gain a greater market share, enabling them to reach more customers and generate increased revenue. Furthermore, takeovers can lead to cost savings through economies of scale, allowing companies to operate more efficiently. Additionally, by acquiring competitors, companies can eliminate rivals and solidify their position as industry leaders, ultimately enhancing their competitive advantage. However, executing a successful takeover requires meticulous planning, negotiation, and coordination to ensure a smooth transition and alignment of goals between both parties involved.

Understanding the different types of takeovers provides insight into how companies strategically position themselves for success in the dynamic business landscape. By leveraging the right approach and considering factors such as market conditions, regulatory requirements, and organizational compatibility, companies can navigate the complexities of takeovers and emerge stronger and more resilient. Ultimately, takeovers serve as catalysts for growth and transformation, enabling companies to adapt and thrive in an ever-evolving marketplace.

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