Reasons for acquisitions
Reasons for acquisitions
Companies follow acquisition strategies for a variety of reasons, including: 1) Increased Market Power
A primary reason for acquisitions is that they enable companies to gain greater market power.
While a number of companies may feel that they have an internal core competence, they may be unable to exploit their resources and capabilities because of a lack of size. A company may be able to gain the size necessary to exploit its core competence by becoming larger in terms of the size of its market share. And, an increase in market share enables the company to increase its market power. Because of this, acquisitions to meet a market power objective generally involve buying a supplier, a competitor, a distributor, or a business in a highly related industry. 2) Horizontal Acquisitions
Buying a competitor or a business in a highly related industry--which increases the company's market power--provides the company with the size it needs to exploit its core competence and gain a competitive advantage in its primary market. When a competitor in the same industry is acquired, a company has engaged in a horizontal acquisition. 3) Vertical Acquisitions
A vertical acquisition has occurred when a company acquires a supplier or distributor, which is positioned either backward or forward in the company's cost/activity/value chain. 4) Related Acquisitions
When a target company in a highly related industry is acquired, the company has made a related acquisition. Recent evidence indicates that horizontal acquisition of companies with similar characteristics--strategy, managerial styles, and resource allocation patterns--results in higher performance because generally it is difficult to successfully integrate the merged companies. Companies that are able to gain greater market share or that gain core resources that can be used to gain a competitive advantage have more market power that can be used against
Companies follow acquisition strategies for a variety of reasons, including: 1) Increased Market Power
A primary reason for acquisitions is that they enable companies to gain greater market power.
While a number of companies may feel that they have an internal core competence, they may be unable to exploit their resources and capabilities because of a lack of size. A company may be able to gain the size necessary to exploit its core competence by becoming larger in terms of the size of its market share. And, an increase in market share enables the company to increase its market power. Because of this, acquisitions to meet a market power objective generally involve buying a supplier, a competitor, a distributor, or a business in a highly related industry. 2) Horizontal Acquisitions
Buying a competitor or a business in a highly related industry--which increases the company's market power--provides the company with the size it needs to exploit its core competence and gain a competitive advantage in its primary market. When a competitor in the same industry is acquired, a company has engaged in a horizontal acquisition. 3) Vertical Acquisitions
A vertical acquisition has occurred when a company acquires a supplier or distributor, which is positioned either backward or forward in the company's cost/activity/value chain. 4) Related Acquisitions
When a target company in a highly related industry is acquired, the company has made a related acquisition. Recent evidence indicates that horizontal acquisition of companies with similar characteristics--strategy, managerial styles, and resource allocation patterns--results in higher performance because generally it is difficult to successfully integrate the merged companies. Companies that are able to gain greater market share or that gain core resources that can be used to gain a competitive advantage have more market power that can be used against