What is Takeover? Definition, How They're Funded, and Example

What is Takeover? Definition, How They're Funded, and Example

Every business starts off with a small amount of funding along with a tonne of effort and dedication. These firms are primarily propelled by the funding they raise, which is measured in crores and enables them to grow quickly. The major goal of the expansion is to quickly increase market share, client base, and new territory to test out more goods and services. The established firm could be required to swiftly alter its business strategy in order to remain viable given the possibility that new startups would increase the level of competition. 

What do these businesses do to assure sustainability, though? The obvious solution is growth through a takeover. A takeover is one of the best ways for businesses with large cash flows to combat competition and ensure long-term viability. This blog will provide all the information you need regarding takeovers and how businesses are employing them given that India has the second-largest startup environment.

Takeover Meaning

A takeover is the purchase of a target company with or without the management's consent. The winning bidder purchases a sizable portion of the target company. Usually, bigger businesses want to buy smaller ones.

Takeovers frequently take the form of favourable mergers. It could be a friendly conflict or a mutual accord. In a hostile takeover, the acquirer surreptitiously purchases the open market shares of the non-controlling owners. The acquirer gradually gains control of the target by holding more than 50% of its stocks. Management and the board of the target company are ignorant of these changes.

Depending on the parties' consent, takeover agreements may be settled in cash, stocks, or a combination of the two. The most often used tactics include mergers, acquisitions, and subsidiaries. Why do buyouts occur? Sometimes an acquirer will consider a target company as having enormous potential for long-term development and value. In such cases, the acquirer wants to quickly and cheaply enter a new market. Among other goals include gaining a sizable market share, collecting priceless resources and assets, achieving economies of scale, and maximising profits.

Additionally, a bigger business can be eager to take out a smaller one in order to minimise rivalry. In an activist buyout, the acquirer wants to take over and make changes after acquiring a controlling interest. When a prospective firm is for sale for a bargain, the rationale for a purchase can occasionally be as absurd as a fantastic offer. I hope the meaning of takeover is clear over here, let’s now discuss the types of takeovers. 

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Table of Content

  1. Takeover Meaning
  2. Types of Takeover
  3. Motivating factors for a Takeover
  4. Funding of Takeovers
  5. Examples of Takeover in India 
  6. Conclusion

Types of Takeover

The many forms of takeovers are as follows:

Friendly Takeover

A friendly takeover occurs when the management of the target company and the majority of its stakeholders willingly agree to sell a substantial portion of the business to the prospective buyer.

Hostile Takeover

Acquirers occasionally purchase shares of non-controlling stakeholders off the open market in secret. They gradually acquire a majority interest in the target firm over time. Such developments are unknown to the target firm's management and board.

Reverse Takeover

It's a tactic used by private companies to go public. Instead of investing a lot of money, they acquire a publicly traded firm. It enables businesses to sell shares without having to go through the difficult IPO process.

Bailout Takeover

Under the rehabilitation plans outlined by the financial institutions, struggling companies are saved. The financing institution must receive a proposal from the acquirer outlining his or her plan to purchase the target business.

Motivating factors for a Takeover

Companies may start a takeover for a variety of reasons. If an acquiring business thinks the target is reasonably priced, it may go for an opportunistic takeover. The acquirer could believe there is long-term value in purchasing the target. These acquisitions typically result in market share growth, scale economies, cost savings, and profit growth through synergies for the acquiring business.

A strategic takeover may be chosen by some businesses. This enables the acquisition to expand into a new market without investing more resources, time, or risk. Through a strategic takeover, the acquirer may also be able to reduce competitors.

Activist takeovers are a possibility as well. With these takeovers, a shareholder aims to get a controlling ownership stake in order to bring about change or obtain a controlling voting interest.

Listed below are some businesses that make good takeover targets:

  • Those who have a specialisation in a certain item or service.
  • Small businesses that offer good products or services but lack adequate funding.
  • Similar businesses in close proximity where collaborating might increase efficiency.
  • If a larger firm with superior credit took over, the debt would be refinanced at a cheaper rate for the otherwise viable enterprises that pay too much for it.
  • Businesses with high potential value yet difficult management.

Funding of Takeovers

Takeover financing can take many different forms. The acquiring firm may purchase stock in the target company on the secondary market if it is a publicly listed corporation. An offer is made for all of the target's outstanding shares in a friendly merger or acquisition. A favourable merger or acquisition will often be financed by cash, debt, or the issue of additional shares of the merged company's stock. 

Leveraged buyouts occur when a corporation borrows money. New credit lines or the issue of new company bonds may serve as the acquirer's source of debt capital.

Examples of Takeover in India 

In the Indian share market, takeovers are rather rare. The following list includes some of India's most notable takeover cases. 

Takeover attempt on L&T Finance by Reliance Industries Limited in 2011. Without L&T's consent, the former bought a 14.98% share in the company that belongs to the engineering giant. To stop the acquisition of L&T Finance, the two businesses engaged in a protracted court fight. 

Another example of takeover in India was Mahindra Tech's acquisition of Satyam Computer Services. The former was embroiled in significant fraud problems, and Mahindra Tech had taken over the business to win back investor trust.

Other  takeovers that have occurred in India include Adani Group's purchase of NDTV, India Cements' purchase of Raasi Cements in 1998, Emami's purchase of Zandu in 2008, and Larsen & Toubro's purchase of Mindtree Limited via VG Siddhartha of Cafe Coffee Day.

Conclusion

For a business that doesn't want to start from scratch and compete with its present competitors for market share, acquisitions can be profitable. In order to extend their user base, eliminate competition, and generate profits based on the goodwill and future growth potential of the acquired firm, businesses might employ takeovers to efficiently spend their capital and purchase existing running enterprises. However, because hostile takeovers might occur, businesses must watch out for one another and safeguard themselves from any unethical business practices.

Additionally, with the blinkX share market app, investors can stay up-to-date on the share market and make informed investments. The app provides real-time market data, and analysis, enabling investors to monitor their investments.

Takeover FAQs

When a company successfully tries to buy out or replace another, it is called a takeover. A takeover strategy involves purchasing the vast majority of the shares of the target firm.

The acquire firm can utilise the money to pay off debt while the acquirer company can grow and eliminate rivals.

The simple meaning of takeover is one firm purchasing another. The goals are to grow, reduce competition, and boost profitability.

Takeover strategies are potential takeover methods that a business might use to acquire another business. These strategies might be neutral, hostile, or reversing.

A takeover involves one business purchasing a majority interest in another business, either on mutually acceptable terms or by forcibly purchasing the shares on the open market.