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What is an Acquisition?



An acquisition, sometimes referred to as takeovers, is when one company takes over another and they become one. This is commonly confused with a merger, but the difference is that a merger is two companies that combine to form a completely new company where an acquisition is where one company absorbs the other. The buying company is always in a position of power and will consume the bought business by taking over their operational management decisions.


Acquisitions hit home for me because my company participated in an acquisition in early 2017. This acquisition took part with two hosiery manufacturing companies. One, was much larger and had a presence in the outdoor world, and the other being a more fashion-based company. When the outdoor company absorbed the fashion company, the company hit many barriers. One is when a company is absorbed, the products for the absorbed company still have to be made. This was confusing for the outdoor company because they didn’t know anything about the fashion side of the hosiery business; the knitting machines are different, the yarns are different sizes, and the product itself is made for a completely different consumer. Eventually the factories merged as well as where the product was made. Another issue besides the knitting itself was the staffing. The outdoor company bought out the fashion company, so they let everyone go in the factory since they now only had one factory. But, since they let go most of the fashion-based company, the knowledge of that business went with them.


Here we are two years later and now just recovering from the large hit our company took from merging the two businesses. This is not to say that an acquisition cannot happen without such difficulty, but in my experience, acquisitions can be messy. One of the positive things that did come with the acquisition were new customers. Both companies had an extremely different customer base, which allowed for portfolio diversification and growth potential. Because of the new category that the fashion-based company offered, new private label opportunities arose as well as possible sales potential. When acquiring another company, the knowledge and expertise of their business comes with them. This allowed for our single factory to add new machinery in order to create a wider range of hosiery products. With the larger portfolio and wider product range, the acquisition also allowed for almost instant growth. Once thought of as two tiny hosiery companies, our now one company is thought of as a key leader in the hosiery industry in the United States.


Acquisitions are a great strategy when trying to grow at an excessive rate, branch into other industries, or acquire new technology. But with this quick growth can also come growing pains such as clashing cultures, the letting go of overlapping employees, and possible rising of unexpected expenses.


References:

https://www.entrepreneur.com/encyclopedia/acquisition

https://www.investopedia.com/ask/answers/021815/what-difference-between-merger-and-acquisition.asp

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Winston Salem, NC