Mergers and Acquisitions

Why Do Companies Acquire Other Companies?

Acquisition is a tried and true way to grow a company. Why do companies acquire other companies? We take a look at the rationale for acquisitions.

An acquisition strategy is primarily a speed strategy.

Acquiring a company is much faster than building a company from scratch.

By acquiring a company, the acquirer gains speed to market, speed to positioning, speed to competitive mass, and speed to viability.

Pursue Acquisition When It Is A Superior Tactic Relative to the Alternatives

The main alternatives to an acquisition strategy are internal growth and alliances.

However, in many instances, these strategies will be inferior to acquisitions. For example, internal growth or alliances might have a lower chance of success than an acquisition. They might be more expensive than acquisition. They might take much longer to execute than acquisition.

So, why do companies acquire other companies?

They do so when it's the best way to achieve a business goal.

Business Goals Drive the Need for an Acquisition

When defining an acquisition strategy, smart companies always start with a fine-tuned business strategy.

Once the business strategy is defined, they then look at acquisitions as a potential tactic that can help fulfill the business strategy.

Once you are set on doing something as part of overall business plan execution, you need to evaluate whether build or buy is your best option.

In short, the rationale for pursuing an acquisition boils down to the acquisition being a better option than building a company from scratch or achieving an objective through joint ventures and other alliance strategies.

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