What Are the Different Types of Acquisition Strategy?

Acquisition strategy is the basic route to achieve the company's acquisition purpose. There are two types of active strategies and opportunistic strategies. Active strategy refers to the situation where the acquirer formulates an acquisition plan and actively seeks and selects the target company accordingly. This strategy is costly in the short term, but in the long term, it is easy to produce long-term synergies because it is consistent with the company's overall strategy. Opportunistic strategy refers to the situation where the acquirer does not specifically formulate an acquisition plan, and only captures opportunities that occur randomly. In the short term, the possibility of a transaction is high and the cost is low, but in the long run, because the acquisition activities may be inconsistent with the overall development of the company, it will easily have a negative impact on the company's operations. ^[1]

Acquisition strategy

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Acquisition strategy is the basic route to achieve the company's acquisition purpose. There are two types of active strategies and opportunistic strategies. Active strategy refers to the situation where the acquirer formulates an acquisition plan and actively seeks and selects the target company accordingly. This strategy is costly in the short term, but in the long term, it is easy to produce long-term synergies because it is consistent with the company's overall strategy. Opportunistic strategy refers to the situation where the acquirer does not specifically formulate an acquisition plan, and only captures opportunities that occur randomly. In the short term, the possibility of a transaction is high and the cost is low, but in the long run, because the acquisition activities may be inconsistent with the overall development of the company, it will easily have a negative impact on the company's operations. ^[1]

The acquisition strategy of listed companies can be divided into strategic acquisitions and financial acquisitions.

1. Strategic acquisitions

At present, the industry of many domestic companies has developed to a certain scale. The cash flow of these companies can ensure the normal development of the existing industry, but based on the consideration of scale effect or the consideration of industrial synergy, there is a need for expansion. The demand for such expansion is the acquisition demand for companies in the same industry or upstream and downstream companies in the industry chain. The author positions such acquisitions as strategic acquisitions, which include two types of industry integration and industry chain integration.

Industry integration refers to the purchaser's acquisition of enterprises in the same industry. This type of acquisition is usually based on the consideration of expanding market share and occupying the leading position in the market. A major feature of the domestic industrial market is that the market concentration is very low. The concentration of most industries has not reached 20%, and the expansion of market demand is in an increasing trend. This is in line with that of the United States 100 years ago. The industrial market is very similar. The biggest problems of low industry concentration are low industry entry barriers, disorderly markets, and poor competition methods. Due to the lack of industry leaders, "big brother" -level enterprises raise the industry threshold, maintain market order, and formulate industry rules It is very detrimental to the normal development of the entire industry.

The first wave of mergers and acquisitions in the United States was based on this market background. The results of mergers and acquisitions have created global giants such as AT & T and Rockefeller. Many domestic companies' "playing horses" like acquisitions (such as the acquisition of Huayuan Group, TCL's external expansion) is a typical industry integrated acquisition.

Industrial chain integration is based on the acquisition of upstream and downstream of the industrial chain based on reducing the operating cost of a single industry and increasing the company's resistance to industry system risks. The expansion strategy of Shanghai Sugar Tobacco Group is a typical integration of the industry chain.

The company's strategy of up-controlled energy, centrally controlled logistics, and down-controlled network clearly reflects the expansion model of synergistic integration of different links in the entire industrial chain, reducing costs and increasing economies of scale. If the industry integration is point radiation, then the industrial chain integration is more like a chain radiation, and the scale effect is more obvious, but the characteristics of the system engineering of the acquisition are more obvious and more complicated. In the current domestic M & A market, industry integration or industry chain integration through the acquisition of listed companies has begun to emerge, and the continuous expansion of market demand in various industries will inevitably lead to a large number of similar acquisitions.

2. Financial acquisitions

Financial acquisitions are relative to strategic acquisitions. Domestic companies have limited access to financing, and the lack of market-oriented financial instrument support for the development of the company's industry is a bottleneck in the current corporate financing market. This bottleneck is caused by a variety of reasons: banks "repay loans" and take differential treatment of private enterprises, the corporate bond market is continuously shrinking, and trust products are "newborns". In this case, through listing The company's solution to capital needs has become the last choice for most companies. At the same time, the limited capacity of the IPO market has led many companies to choose to acquire listed companies to enter the capital market. The acquisition of listed companies based on the above reasons is a financial acquisition. Financial acquisitions typically have the following characteristics:

(1) Provide financing platform for the acquirer's existing industries

(2) Increasing the competitiveness of the industry and raising the profile of the company

(3) Special industries cross the regional threshold-such as real estate companies

(4) The "intelligence" effect of private enterprises

Here I emphasize the importance of the acquisition strategy in the preparatory work of the acquisition, because the acquisition strategy will lead the acquirer's consultant team and the acquirer's every move in the acquisition process. From the determination of the target company's standard to the search and determination of the final target company, from the proposal of the transaction conditions to the later integration of the target company, the correct acquisition strategy will become the context of the M & A integration process.