Acquisitions Examples

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Top 4 Examples of Acquisitions

The acquisition takes place when the financially strong entity acquires the entity which is less strong financially by acquiring shares worth more than fifty percent. The acquisition example includes Amazon's purchase of Whole Foods in 2017 for $13.7 billion. In addition, the company AT&T bought Time Warner Inc. in 2016 for $85.4 billion.

Examples-Acquisitions

The following acquisition examples outline the most common types of acquisitions. Since there are thousands of such acquisitions, it is impossible to provide a complete set of cases that address every variation in every situation. Instead, each example offers an overview of the acquisition, the relevant reasons, and additional comments as needed.

An acquisition is when a company buys more than 50% ownership in its target. With gaining more than 50% in the target company, the acquisition company acquires the right to make decisions without the consent of the stakeholders of the target company. The acquiring company gets this ownership by purchasing the stock or the assets. The target company expects a premium paid over and above the current rate.

This article will provide you with the top 4 examples of acquisitions.

Table of contents
  • An acquisition occurs when a financially strong entity acquires more than fifty percent of the shares of a financially weaker entity. 
  • Synergies are crucial in acquisition transactions, particularly strategic acquisitions focusing on achieving combined benefits and increased value. 
  • During an acquisition, the acquirer aims to expand their business or gain valuable assets to enhance their operations further. Conversely, the target company seeks to secure control over operations or generate profits for its shareholders.

Example #1 - Amazon acquires Whole Foods Market

Amazon acquired Whole Foods Market for a total of $13.7 billion deal. It made the e-commerce giant move into many physical stores. Also, it will make Amazon continue its long goal of selling more groceries.

Amazon paid $42 per share in an all-cash deal for Whole Foods Market, including debt. The premium paid was ~27% of Whole Foods Market's closing price on Thursday, June 15.

Amazon paid $9 billion of the total $13.7 billion deal acquisition price. It means that Amazon paid nearly 70% for future growth prospects and only the remaining 30% based on the current business of Whole Foods Market. After the acquisition, the goodwill balance of Amazon was at $13.4 billion at the end of the fiscal year 2017, which was the largest in history and had more than 10% of the total assets.

Acquisition Example 1

As highlighted above, the grocery sector average, including whole foods, over the last twelve months before the acquisition was 8.4x. It was before the announcement of Kroger's lower earnings announcement.

This news led to lowering the average multiple to 7.8x. The implied EV to EBITDA multiple of Amazon and whole foods was about 10.4x LTM EBITDA. It means Whole Foods Market acquires at a 30% premium compared to its previous multiple, and the multiples of the other companies in the industry went down.

Example # 2 - Sun Pharmaceutical Industries Ltd. acquires Ranbaxy Laboratories Ltd.

This pharmaceutical deal is an example of a share swap deal. According to the deal, Ranbaxy Laboratories Ltd.’s shareholders would receive four Sun Pharmaceutical Industries Ltd. shares every five. It leads to a 16.4% dilution in the equity of Sun Pharmaceutical Industries Ltd. The deal size was $3.2 billion and was an all-share deal. The consolidated turnover of Sun Pharmaceutical Industries Ltd. was â‚ą11,326 crores. It acquired Ranbaxy Laboratories Ltd., a company with a turnover of â‚ą12,410 crores. Thus, Ranbaxy Laboratories Ltd. achieved a sales valuation of 2.2x last twelve months. The beauty of this deal is that a smaller company acquired a bigger company.

Ranbaxy Laboratories Ltd.'s share value was â‚ą457 per share; this represents an 18% premium to the thirty-day volume on the weighted average share price.

Reasons for acquisition – This was a strategic acquisition for Sun Pharmaceutical Industries Ltd. It would help them fill gaps in the U.S. and help them get better access to emerging markets, and gain a strong foothold in the domestic market. In addition, due to this acquisition, Sun Pharmaceutical Industries Ltd. also had the opportunity to gain the number one position from the current third position in the dermatology space.

Acquisition Example 2

As you can see in the above table, the net sales of Sun Pharmaceutical Industries Ltd. increased to 2,72,865, which shows the benefit it gained after the merger. Similarly, there is an increase in gross profit, EBITDA, and net profit. In addition, the balance sheet highlights the strengthened position of the company after the merger in every aspect. The fixed assets have doubled, and the cash balances have also increased considerably.

Example # 3 - Microsoft and LinkedIn

Microsoft acquired LinkedIn for $196 per share in a $26 billion deal and fought with its competitor Salesforce.com, Inc. The shares of LinkedIn rose 64% after the announcement. It was an all-cash deal and included all of LinkedIn’s net cash. It represents a 50% premium to LinkedIn's last closing price, which amounted to $9 billion. In addition, Microsoft bought LinkedIn at a lower price by 25% than its all-time high.

Microsoft financed this deal with the issuance of new indebtedness. As a result, the deal may dilute ~1% of the non-GAAP EPS.

This deal is mainly the 433 million LinkedIn subscribers and professional clouds. The core idea was primarily to boost data productivity.

Example # 4 - Disney and 21st Century Fox

Disney acquired 21st Century Fox for $71.3 billion, a real shakeup for the entertainment business. This deal brought together two major giants of the entertainment world. Disney won this deal from its competitor Comcast, which took nine months to get approval. It is one of the biggest deals in recent times. However, this deal may lead to laying off more than 4,000 jobs.

Assets changing hands in the deal include:

  • 20th Century Fox
  • Fox Searchlight Pictures, Inc.
  • Fox 2000 Pictures – Fox Family
  • National Geographic Partners, LLC
  • Fox Networks Group International
  • Indian channels like – Star India
  • Fox’s percentage interests in Hulu, Tata Sky, and Endemol Shine Group.

(Source- Company website)

Conclusion

There are various methods by which one can conduct acquisitions. It can either be friendly or hostile. As seen in the above examples of acquisition, only a large company does not need to have the capacity to acquire a small company. It is also possible the other way around, as highlighted in the Ranbaxy Laboratories Ltd. and Sun Pharmaceutical Industries Ltd. deal.

The company needs to take various pre-and-post steps before proposing the acquisition. The most crucial aspect to look at while going for an acquisition is the synergies, especially in the case of strategic acquisitions. The acquirer is looking to expand his business or gain assets and then use them to expand the business further. On the other hand, the target is looking for either control over operations or gains for its shareholders.

Frequently Asked Questions (FAQs)

1. What is acquisition vs. amalgamation?

Acquisition and amalgamation are both forms of a business combination, but they differ in terms of legal structure and accounting treatment. An acquisition refers to one company purchasing another company or a portion of its assets, resulting in the acquiring company gaining control over the acquired company. Amalgamation, on the other hand, refers to merging two or more companies into a new entity, with the original companies ceasing to exist.

2. What are the two types of acquisitions?

The two main types of acquisitions are asset acquisitions and stock/share acquisitions. In an asset acquisition, the acquiring company purchases specific assets and liabilities of the target company. In a stock/share acquisition, the acquiring company purchases the majority of shares or ownership interest in the target company, gaining control over its operations, assets, and liabilities.

3. Is an asset purchase an acquisition?

Yes, an asset purchase is a type of acquisition. In an asset purchase, the acquiring company buys specific assets and liabilities of the target company rather than acquiring the entire company or its stock. This allows the acquiring company to acquire specific assets, contracts, intellectual property, or other desired elements without assuming all the liabilities or legal obligations of the target company.