This technique is adopted bybusiness alliance in order to expand or to grow their businesses. Due to competitive environment in the market, companies are in continual fight to compete successfully and reinforce their position. The companies can also make better their position due to mergers and acquisitionsin UAE, which permits enterprises to modify the nature of their businesses, growth, diversification, expansion, and shrinking.
In such type of business approach two entities are significant i.e. buyer and the targeted company. The buyer acquires the targeted company and turn in to a new owner resulting in the non-existence of the targeted company. This procedure will make the stocks absent from the trade. We can also define acquisition as an effective and tested technique to strengthen the position of a company and leaving behind its main rivals and acquiring an exceptional position in the market. The acquisition makes the access of big giants toward capital easier.
Types of acquisition: Generally there are two types of acquisition that might occur:-
In this condition the acquiring firms gain the whole stocks of the rival company by directly dealing with the stockholders without the permission or consent of the company. This approach needs the majority of the stocks of the company and to take over the company. Indeed a time-consuming activity because many stockholders may hold their stock for a specific period.
This procedure or technique involves in buying key assets of the targeted company rather than stock or shares. Main objective is to acquire the targeted firm, just in case if the company is bankrupt and has valuable assets that might be fruitful to other companies. It is very significant to have a strong and extensive knowledge of the market and all its information.
It happens when two different companies of almost same size agree to join as one unit. Mergers results in the reduction of competition, the new company will have a high market share value leading toward enhanced prices for the products and services for customers.
1. Horizontal Mergers: The type of merger occurs between competitors that have almost same products and services in the market. Actual intention is to acquire enhanced market share.
2. Vertical Mergers: This type of merger occurs between those companies or enterprises that have different goods and services as outcome but for same finished product. This technique will help in increasing the synergy and effectiveness to perform their tasks in the market.
3. Product Extension Mergers: this allows the companies and businesses to access a bigger set of consumers and to gather their products. This merger takes happens between those two organizations that work in the same competitive market and their products are related to each other. This methodologypermits access to a larger client base, big profits, and a large market share.
4. Market Extension Mergers: this type of merger occurs when two companies deal in the same product and services and in the same market. This will allow both companies to earn higher profit and more consumers.