Why do companies acquire Start-up?
An acquisition of a company means purchasing all or a part of the company’s shares and gain control over the company. If the acquirer purchases more than 50% of the shares and assets of the other company then it will give leverage to the acquirer to make independent decisions about the acquired company. There are many reasons why companies acquire other companies. The most common reason being financial growth of the company. Some of the benefits of acquisition are that this gives access to a lot of new ideas and opportunities, access to more capital and more market power among more other reasons.
A start-up is a company founded by one or more entrepreneurs to develop a product or service. Talking about acquisition, big companies often tend to buy start-ups. There are many reasons why they do so. Some of which are mentioned below.
Big companies can create their own new propositions and create more opportunities for themselves. But that will take a lot of time and resources. Instead they acquire start-ups where they see some potential and it helps their company as well.
With the start-up, the business idea and the best business minded people come under this company. Buying the start-up would be an efficient way to do so.
The high-end companies have the capital and start-ups have new and exciting business ideas and have potential to grow but need money, so acquisition work best for most start-ups.
Another major reason is that, they want to be ahead in business and reduce their competition as less as possible.
Most of the company’s business runs due to its existing customers. Especially in niche markets, acquiring a start-up can be an efficient way to get hold of the loyal customers and run the business efficiently.
Most start-ups do not receive proper funding and fall apart within a few years. It becomes easier for big companies to approach them and acquire them. It also helps the start-ups with cash inflow and helps them focus on the work they want to do or on something else they want to go for.
Acquisition is not only about buying a company but it is also about investing and taking a responsibility. There is an amount of risk involved as well that will this acquisition be the right decision or what would be the clauses or if it would help in the growth of the company or not. But if done in the right way then it can bring a change in the company and help it become more successful in the industry.