Strategic and change management considers acquisition as a strategy of business expansion. Acquisition is the process of buying a firm either as a whole or partially that is part of the firm an option in its development and growth measure. The acquiring firm gains total control over the acquired firm, which ceases to exist after the transaction (Habbard, 2001). The acquisition may be either a friendly or hostile depending on the state of the agreement and the firm. After the acquisition of a firm, the managers may find themselves occupied in concentrating on the new firm that they neglect the core business. At times, the managers may concentrate much on the cost cutting that they make the firm suffer (David, 2004). This in essence may be costly and may cause the core firm to be less effective.
Acquisition has different types, which depend on the process of acquiring. They include; the first type is horizontal acquisition, which takes place between two firms in the same business line. The firms that are acquired and the one doing the acquisition provide must be providing the same products and services (White, 2004).This means that the two firms must be competing on the same direction. This is in terms of products and customers. The next type is the vertical acquisition, which entails expansion of a firm’s chain of distribution in either forward or backward in the direction of raw materials or consumers. This means that the firms’ major concentrations are in the materials that they use in providing the services and products to customers. Another type is the conglomerate acquisition of a firm that is unrelated to the firm doing the acquisition. This means that any firm without any connection with the services and products offered may acquire the firm and expand it operations in that direction (Stockder, 2009). Additionally, acquisition can be through purchase of voting stocks within a company. It could also be through a management agreement between the two firms (White, 2004). A firm may be acquired through costly transfer of title, which is a legal purchase of firms’ assets. This means that the firm control is the one that is acquired in this type of acquisition.
Various reasons are attributed to acquisition, which ensure the process is efficient and effective. They include; Increase in market power that give firms the ability to alter the prices of goods and services in the market. This is a possible measure in an imperfect competition (White, 2004). Market power gives a firm the chances of increasing its prices without losing clients to other competitors. A firm with market power has the capacity to influence the prevailing market prices in totality. This essentially enables a strong firm to acquire a firm easily without any difficulties.
Large firms that are well established enjoy the market crisis because they are able to lower their production costs without having to face major problems. Small firms as much as they do want to stand in the market realistically cannot beat the large established firms. This makes the market giants stand any form of barrier and give them the chance to acquire other firms that are not doing well in the market without any obstacles (Habbard, 2001).
Cost of new products and their development is a fact that most of the firms are not able to stand. The changes in market demand make the non-competitive firms be faced out. The well-established firms stand challenges, which make them more productive. Clients remain in a firm for their services and product due to the firm’s ability to cope with changes. The well-established firms are well able to provide this to the clients unlike the non-established firms. Therefore, the established firms acquire these non-performing firms effectively to expand their productivity and attract more clients.
Competition is a thing that most of the firms cannot cope. The speed in marketing affects them so much that they run far behind the market demand (White, 2004). In most cases, they are faced out of the market. For well-formed firms this becomes a good chance for their expansion. They effectively acquire the firms. Well-established firms’ managers understand that they need to diversify their firm. For them this is an efficient strategy for investment in a variety of assets with the aim of reducing risk (Markowitz, 1991). It becomes one of the most effective ways of acquiring a firm as a strategic measure of reducing the underlying risk.