Takeovers in business can reshape companies, industries, and markets - so it's important to know what they are and why they happen. In this guide, we’ll explain what takeovers are, explore the main types and provide real-life examples. We’ll look at the advantages and challenges of a business takeover for those in the business sector.
What are takeovers?
A takeover happens when one company gains control of another by purchasing a significant share of its stock. This gives the acquiring company the power to make decisions and manage the operations of the business it has taken over. Takeovers are a common strategy for business growth, helping companies expand, enter new markets, or boost competitiveness. They can be friendly, where both parties agree, or hostile, where the target company resists the acquisition.
💡 Editor's insight: "If your company is going through a takeover, it can be unsettling. However, employee rights are usually protected under Transfer of Undertaking Regulations (TUPE) regulations, ensuring job security in most cases."
Why do takeovers in business happen?
Takeovers happen for lots of different reasons, but typically because the buyer sees a good opportunity. Here are just some of the key reasons why takeovers occur:
Growth and expansion: Takeovers allow companies to expand into new markets. It lets them add new products and services and increases their customer base.
Eliminating competition: A takeover can help reduce competition by obtaining a rival company.
Access to resources: A company can gain access to valuable assets like technology and intellectual property.
Improving efficiency: Takeovers can enable businesses to streamline operations and reduce costs.
Financial gain: Some companies see a takeover as an opportunity to increase profits.
Market share dominance: A takeover can help the acquiring company strengthen its market position.
Types of takeovers
You can classify takeovers into several categories based on the level of cooperation between the companies. Here are the most common types:
Welcome or ‘friendly’ takeovers explained
A friendly takeover is a situation where the target company agrees to the acquisition by the company. Both companies collaborate to ensure the process is smooth and beneficial to both,
Key features
The target company’s board of directors approves the offer after careful evaluation.
The shareholders find out and are often offered financial incentives such as a premium price for their shares.
The process is transparent and less disruptive.
Negotiations are amicable, and the transition is simpler for employees, customers, and operations.
Why friendly takeovers happen:
The offer is beneficial for shareholders and the company’s long-term growth
The acquiring company may offer resources, expertise, or access to new markets.
Example:
In 2016, Microsoft’s $26.2 billion acquisition of LinkedIn was a classic example of a friendly takeover. LinkedIn’s management and board welcomed the offer. Shareholders gained a significant premium and it worked for their growth strategy.
Hostile takeovers explained
A hostile takeover occurs when the company bypasses the target's company management. They meet the shareholders to gain control. In this scenario, the target company’s board of directors would likely oppose the acquisition, leading to conflict and the need for a corporate lawyer.
Key features
The acquiring company purchases shares on the open market. They also could make a public offer to shareholders.
The target company may go into defence measures. They could issue new shares to dilute ownership or increase debt to make themselves less attractive.
Hostile takeovers can lead to tension, legal challenges, and disruption for the target company
Why hostile takeovers happen
The acquiring company believes it can deliver significant returns under new management.
The target company’s board may resist the takeover due to opposing visions, financial concerns, or fears about job security.
Example
The attempted takeover of Cadbury by Kraft Foods in 2010 was hostile. Cadbury’s board rejected Kraft’s offer, but Kraft persisted and acquired Cadbury. This was a prolonged battle and shows how acquiring companies can succeed in hostile takeovers.
Reverse takeovers explained
A reverse takeover occurs when a smaller company acquires a larger company. This gives them access to resources, stock market listing, or property.
Key features
Reverse takeovers allow private companies to become publicly traded. They don't need to go through the traditional Initial Public Offering (IPO) process in most cases.
They are often used as a faster, more cost-effective route to enter the stock market.
The smaller company may have strong leadership and innovative products.
Why reverse takeovers happen
A private company may want to gain the credibility of a public company by acquiring a listed business.
Smaller companies may seek to gain immediate access to the larger company’s operations, market share, or customer base.
Example
In 2018, US-based company Aurora Cannabis used a reverse takeover to acquire CanniMed Therapeutics. Aurora, a smaller entity at the time, acquired CanniMed to expand its operations and strengthen its market position. This shows how reverse takeovers can serve as a strategic growth tool.
Real-life example of a business takeover
Takeovers are common in the corporate world, and there are many high-profile examples. One notable example is:
The Disney acquisition of 21st Century Fox
In 2019, The Walt Disney Company completed its $71 billion takeover of 21st Century Fox.
This allowed Disney to gain control over Fox’s film studios, TV networks, and popular franchises like X-Men and The Simpsons.
The takeover helped Disney strengthen its market dominance. They could expand their content portfolio, and compete in the growing streaming industry.
What are the benefits of a takeover?
Takeovers can offer advantages for businesses looking to grow or improve their operations. Here are some of the key takeover benefits:
Rapid growth: Takeovers allow companies to expand quicker without starting from scratch.
Access to new markets: Acquiring a business in a different region or industry enables companies to enter new markets.
Increased market share: By acquiring a competitor, businesses can boost their market dominance.
Cost savings: Takeovers can cut costs by combining resources, reducing redundancies, and streamlining operations.
Gaining assets: Acquiring a business provides access to valuable assets such as technology and staff.
Diversification: Takeovers allow companies to diversify their products, services, and revenue streams.
Improved profitability: Companies can increase their revenue and shareholder value.
Enhanced competitive edge: Businesses can stay ahead of competitors by gaining innovative technology.
Recap: Pros and cons of takeovers
Pros ✅ | Cons ❌ |
|---|---|
Faster growth and expansion | Takeovers can be expensive |
Access to new markets, assets, and resources | Integration challenges may arise |
Reduced competition and increased market share | Employee resistance or job losses could occur |
Cost savings and operational efficiencies | Hostile takeovers may create legal and financial complications |
Final thoughts
Takeovers are a powerful tool for businesses looking to grow, innovate, and gain a competitive edge. Whether they’re friendly, hostile, or reverse, takeovers can transform organisations.
Understanding the motivations and benefits of takeovers can help you make an informed decision. However, it’s essential to weigh the potential challenges, costs, and risks involved. By doing so, companies can plan takeovers that lead to long-term success.
Looking for business? Get in touch today to see how our buy a business solicitors can help.
References
Microsoft buys LinkedIn for $26.2 Billion by The New York Times
Timeline: Cadbury's fight against Kraft by The Guardian
Aurora wins shareholder support for CanniMed purchase by Reuters
Disney seals $71bn deal for 21st Century Fox by The Guardian
Disclaimer: This article only provides general information and does not constitute professional advice. For any specific questions, consult a qualified accountant or business advisor. Bear in mind that tax rules can change and will differ based on your circumstances.