When one company decides to take over another one, it is referred to as an acquisition. The acquiring company will do this by purchasing either the majority or entirety of the ownership stake of the company being taken over.
There are two types of acquisition: hostile and friendly. A hostile takeover is the term for when a company is bought by another without its consent, usually when the buying company purchases a majority amount of its shares to get a controlling stake. When both companies agree to the terms of the acquisition, it is referred to as a friendly takeover.
Acquisitions are usually made as part of a company’s growth strategy, with the targeted company having something that the buying company wants but either cannot or does not wish to develop internally. They are mostly made in exchange for cash, stock in the buying company, or a mixture of the two.
Mergers and acquisitions
When both companies see synergy in combining forces but wish to come together as equals, it is referred to as a merger. Traders will often refer to both under the same umbrella term: mergers and acquisitions, or M&A for short.