Why acquire

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We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.

This compensation may impact how and where listings appear. 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. Tax and Legal Stock, Asset or Merger? Valuation Valuation is both an art and a science.

Uncover how to balance valuation methodologies with strategic objectives. Why Acquire? Follow Customers — Here, you are expanding on your existing customer base to achieve greater product breadth or deeper market reach Leverage Technologies — Acquisition can be fastest and most-effective way to add significant technologies you are lacking.

Consolidation — Purchasing a direct competitor can provide economies of scale and cost reduction, but may not change your overall strategic position. Stabilize Financials — Here, you may want to leverage your balance sheet or incorporate a higher margin business.

Expand Customer Base — You may acquire a company to simply buy a customer portfolio, or to accelerate your expansion into new markets Expand Talent — Sometimes an acquisition can be attractive because of the people it brings with it, such as technology innovators, or an exceptional sales team, or seasoned executives Defensive Positioning — You may acquire a company simply to prevent a competitor from owning it, so that you can protect your current and future market position.

Next Grow or Die! Exploring New Pathways to Success. Search keyword. Reply on Twitter Retweet on Twitter 1 Like on Twitter 1 Twitter Reply on Twitter Retweet on Twitter Like on Twitter Twitter And later in the month, it bought Frank, an online portal with content and tools that help students research and apply for financial aid. Before we get to the why and these predictions, it is worth noting that this idea and its implementation are not new.

Folks within the technology world have seen and discussed the merits of this strategy for a while. Armstrong also penned the post below, in which he highlights Tesla and Apple going direct.

Elon Musk is probably the prototype for going direct to an audience. Interestingly, in his case, going direct invites even more media attention for him and the company.

Most of the efforts to own media outlets are not driven by an acrimonious relationship with the media — the kind which Armstrong and, sometimes, Musk have. There are plenty available, and having one provides a good starting point—but you must begin honing it immediately to fit your particular business profile and issues. Third, use a consistent team to perform due diligence. Our team includes specific representatives from each of the corporate staff departments who work closely with our core corporate development people and the business unit sponsor.

Over time, this team has developed and deployed an extensive checklist of queries to put to a target company a sample section is shown here and has become quite skilled at ensuring that we receive complete and accurate information in response.

Fourth, use what you discover in due diligence to guide the integration effort that follows the acquisition. When Pitney Bowes acquires a company, the completed checklist becomes the foundation of the integration plan. It typically starts with a core acquisition think Charmin or Clairol , followed by aggressive expansion deeper into the product category think tissue or hair care. The wisdom of this approach was borne out by a McKinsey study that found that adjacent acquisitions correlate with increased shareholder value, whereas diversification into nonrelated areas actually reduces shareholder value.

Our own experience has taught us why adjacencies prove so valuable. First, they take advantage of the tacit strengths of an organization—management know-how, customer insights, and cultural orientation—that are often ignored by strategists. With an adjacent acquisition, these organizational attributes go a long way toward making the integration work and allowing the acquirer to capitalize on what it has bought.

But when an acquisition takes a company into remote territory, these strengths are neutralized—and can even be liabilities. Adjacencies also have the advantage of being brand consistent. For a business to succeed, it must not only be well managed, it must also be trusted by the marketplace. In a sense, customers must grant a company permission to enter a new space.

At Pitney Bowes we test our acquisition ideas by gauging the likely reaction of our existing customers. In many cases, this involves actively soliciting their input. In fact, a few of our most successful acquisitions have grown out of unsolicited customer suggestions. A few of them encouraged us to take on a specialized set of document management activities required by corporate trial lawyers. Two acquisitions grew out of that notion, and we are now a leader in a fast-growing segment.

We received equally good guidance from a few of our larger mailing-machine customers that were using mailing efficiency software to lower their postage costs; they told us how convenient it would be to have those two things bundled into one offering. We moved into that space aggressively with the purchase of Group 1 Software, the market leader in that niche. We test for adjacency at Pitney Bowes by asking ourselves: Can we really add more value to the target company than any other acquirer can?

The same consideration works for us on the other side of the deal. From our standpoint, the ideal situation is one in which we are the only logical acquirer. Naturally, this avoids a competitive bidding situation in which we might overpay; it also reaffirms the clarity and distinctiveness of our strategy.

For all these reasons, adjacent acquisitions make for a much more compelling growth strategy than diversification does. There is also this: Communications about an acquisition have to bring a lot of people—including customers, employees, and financial analysts—around to its logic.

My second rule is to manage acquisitions as you would a portfolio of investments. That is, rather than making one or two big bets and hoping for the best, a sound approach is to make multiple smaller acquisitions.

The notion that smaller is better is backed by research. A portfolio approach means that acquisitions will not only be of a manageable size but will also be of sufficient number to hedge the risk that any one will go awry. No one has a perfect record—not even the savviest private equity firms, which arguably are the consummate deal makers operating today and which, it should be noted, typically diversify each of their investment funds across multiple transactions.

Rather, we see them as proof that a diversified approach is critical and try to learn from them. The classic benefit of a portfolio strategy, whether for acquisitions or any other type of investment, is that it produces more-predictable financial results over time.

This is especially helpful for companies that, like Pitney Bowes, attract investors by being consistent performers in a broad range of macroeconomic environments. Diversification also helps us meet the investment requirements of businesses that are in varying stages of development. For example, when we purchased PSI Group a company that helps large mailers earn postal discounts , we knew that we would be investing in its national infrastructure.

And now that those investments are completed, we are enjoying their benefits as we find additional adjacent businesses to bring into the fold. Given all these benefits, why would anyone favor a single large acquisition over a set of smaller ones? In some cases, I suppose, egos are involved: Megadeals garner headlines that tend to hail the conquering hero.

I would respond to that argument, however, by noting that a company can also learn as much from smaller deals as from larger ones, and this learning curve experience is itself a valuable asset. Indeed, various studies indicate that frequent acquirers have better acquisition track records than companies that pursue larger, less frequent transactions.

In line with that thinking, we created a corporate development group early on, and it has matured into a capable and sophisticated function. They need to be the sources and owners of acquisition proposals. In my time as an investment banker, I never saw this; my involvement ended right after those few days of glory, and I never saw what it took to pull these things off.