Acquisitions are great for shareholders, but they’re pretty bad for regular folks


When businesses compete against each other, consumers get to reap the benefits. If two companies are in the same business or product space, they often lower prices, build better products, and pull out all the stops to woo potential buyers by any means necessary.

Businesses, however, H-A-T-E competition. If a similar company is selling a similar product or service, that company is cutting into their competitor’s maximum potential revenue. This forces each company to spend more money just to keep up with their competitor.

That’s why businesses often buy the competition through an acquisition. After all, if you can absorb your competitor and make sure they’re no longer on the market, you’ll spend less, make more, and not have to try as hard since there’s less of a choice for your type of product.

Acquisitions happen when a company purchases another company, or the division of a company.

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A notable example of a recent company acquisition is Verizon buying AOL and Yahoo. An good example of a division acquisition is sale of Motorola from Google to Lenovo.

A company acquires another company by paying for them in cash, a combination of cash and stock, or paying for the company with debt that they raised.acquisitions-2

When a company acquires a public company, the shareholders often get a set amount of money for each share of stock they own. When a company acquires a company for cash and stock, they pay for part of the acquisition with shares of the acquiring company’s stock. Acquisition with debt is complicated and usually involves the acquiring company borrowing large sums of money to finance the acquisition.

Companies often acquire other companies that are similar to them.

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This drives down costs and decreases competition.

Companies can also acquire other companies for their assets (like patents or land) or to move into an entirely different business sector.acquisitions-4

Verizon is a telecommunications business. They make a lot of money selling phone services and  internet. AOL and Yahoo are (surprisingly) mostly content businesses. Verizon acquiring both companies lets them become more than a telecommunications business. They’re a media brand now, too!

When a company wants to acquire another company, the company being purchased must vote on the acquisition.

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Their board of directors votes on whether or not to join the acquiring company. If they agree to the acquisition, then they move forward and — barring any government or regulatory interference — become part of the acquiring company. If the board votes no, the acquisition won’t go through…unless, of course, the acquiring company buys enough shares from shareholders on the open stock market and gets a majority ownership by force. This scenario is called a hostile takeover.

Investors and investment firms also acquire companies to simply turn a profit.

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Say an investment firm thinks a software company is undervalued and could be doing a lot more to make money. They decide they’re going to buy that company and make a few changes. Once their changes result in the company becoming more profitable and valued higher on the stock market, they’ll then sell their existing shares of that company and turn a profit themselves.

In the end, an acquisition means fewer companies in a product space, less competition, and (hopefully) stronger, more profitable companies.

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If you’re a company owner or shareholder, this is great. Your stock might go up, your sales might increase, and your costs will generally be lower. If you’re a worker, it might not be as good, as your position could overlap with another existing position at the other company and one of you (or both) might get laid off. If you’re a consumer, acquisitions could mean a decrease in quality, an increase in price, or nothing at all.


Corporate acquisitions sound scary, especially when multi-billion dollar companies acquire other multi-billion dollar companies and come a bit closer to being a monopoly. While it might not always be great for consumers, it’s a real hoot for shareholders. Even a rumor of an acquisition causes a stock to increase in value. If the acquisition falls through or doesn’t go as planned, however, those shareholders are in for a bad time.

Share this story with your friends on Facebook…before the acquire another company!