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· Posted on
August 30, 2021

What's an acquisition?

Acquisitions are when big companies buy out smaller ones. Like Square and Afterpay.

What's the key learning?

  • An acquisition is when one business buys all - or a majority of - another business’ shares, so they can gain control of that business.
  • It’s often a big business acquiring a smaller business. 
  • While there are some big success stories, acquisitions don’t always work out.
  • Which is why companies often have to do a tonne of background research - called due diligence - to make sure they're going to work out.

An acquisition is when one business buys all - or a majority of - another business’ shares, so they can gain control of that business. It’s often a big business acquiring a smaller business. 

Once they acquire that business, they can then make strategic decisions about it.

Companies do this for a number of reasons, including:

  • If they want to grow their company or expand into a different country
  • If they want access to that company’s customers or assets
  • If they think they’re a similar company, and they want to grow and reduce costs through cost synergies.

We’ve seen tonnes of mergers and acquisitions recently, and it’s all thanks to low interest rates. Just like we need to borrow money from the bank to buy a house, companies need to borrow money to buy other companies. And when rates are low, repayments are low. 

We recently saw Square acquire Afterpay for a huge $39 billion, Salesforce acquire Slack and Sydney Airport swat away offers from big institutional investors. 

M&As are exciting…

While there are some big success stories, acquisitions don’t always work out. Ya know, it’s not me it’s you…

Which is why companies often have to do a tonne of background research - called due diligence - and analyse each other’s books, governance, culture and basically everything else, to make sure they’re going to be a good match. Just like your mates FB stalk a new partner to scope them out before they let you fully commit.


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