Companies issue shares in exchange for finance from shareholders. These shareholders become part-owners of the company’s operations. Usually, these shares also include a voting right, which provides shareholders with the right to vote in matters. Apart from the above, these shares also come with several other rights and privileges.
A company’s shareholders usually include individuals who acquire them in the market. However, other companies can also purchase these shares as, legally, they are a separate entity. In most circumstances, when this process occurs, the objective for acquiring shares may differ. For most individuals, the goal when buying shares is to receive rewards. For companies, however, it may include the intention of acquisitions.
However, acquisitions require a company to buy out all of the subsidiary or acquired company’s shares. There are two parties involved in every acquisition transaction. These include the acquirer and the acquired company. The terms clarify what each party does in this transaction. In practice, there is more explanation associated with each of them. Before discussing what acquirer means, it is crucial to understand acquisitions.
What is an Acquisition?
An acquisition is a transaction in which one company acquires any or all shares of another company. This process occurs for the acquirer to obtain ownership of the acquired company. In most circumstances, buying more than 50% of the target company’s stock is sufficient to gain control over it. By doing so, the acquirer receives the right to make decisions about the newly purchased assets.
An acquisition represents a strategic move from one company to buy another by acquiring major stakes. There are several reasons why companies choose to acquire others. Usually, these include increasing customer base, operations, and market presence. More specifically, these transactions allow companies to expand significantly in other market areas.
In general, acquisitions involve two scenarios. The first includes a company taking control of a target business. In this scenario, the acquirer only buys 50% or more shares of the target company. However, it does not involve the acquirer absorbing the other company’s operations. Instead, the target company becomes the subsidiary of the acquirer company. The target company continues its operations, although the acquirer gets control of it.
The second scenario involves the acquirer buying all of the target company’s shares. In this case, the acquirer may choose to continue owning those shares and become the parent of the subsidiary company. However, it may also dissolve the target company and absorb its operations. Overall, it is the acquirer’s decision what it will do after the process completes.
In short, acquisitions involve one company buying some or all of a target company’s shares. In this process, the buyer becomes the acquirer. Two types of acquisitions may occur. This first involves an agreement between both companies to go through the acquisition process. The second, in contrast, encompasses a forced transaction.
How Do Acquisitions Work?
The process for acquisitions involves various steps. Usually, this process gets initiated by the acquirer company, which identifies a need for expansion. Once it does so, it will devise a strategy on the best way to achieve that expansion. One of these strategies may include acquiring another company. There are several ways in which this process may occur.
Once the acquirer finalizes an acquisition decision, it will determine the selection criteria for a target company. These criteria will differ from one company to another based on its needs. In most circumstances, it will involve choosing requirements that help in the objective to expand. Based on these criteria, the acquirer will identify potential targets.
Once the acquirer selects potential targets, the next step will involve planning for the acquisition. This process will differ from one company to another. During the planning process, the company will also acquire a valuation of the target company. This way, it can determine whether the benefits will exceed the costs from the acquisition.
Subsequently, the acquirer and target company will discuss the terms for the acquisition. However, the acquirer may also choose to go through the process without consulting the target company. Once this process is over, the target company will conduct due diligence. This process is crucial in avoiding any unwanted losses and identifying critical areas missed in previous steps.
Lastly, once the process is over, the acquirer will start acquiring the target company. This process will involve raising sufficient finance to fund this process. Once everything goes through smoothly, the acquirer will close the deal. Through this process, the acquirer will purchase the target company. In exchange, the target company’s owners will receive compensation for their shares.
What Does Acquirer Mean in Acquisitions?
From the above definition of acquisitions and how they work, it is straightforward to understand what acquirer means. The term acquirer represents a company that obtains rights to another company through a transaction. This transaction, as mentioned, will be an acquisition or merger. In most cases, acquires buy out a target company and take control over its operations.
In most circumstances, any acquirer will be a large company that buys out a smaller company. However, some small companies may also acquire other larger companies. Acquirers obtain ownership of the target company through the acquisition or merger process. As mentioned, these processes involve purchasing a significant portion of the target company’s shares.
For most acquisition transactions, the acquirer takes over the target company’s operations. However, the opposite may also apply where the former doesn’t interfere in those operations. Either way, this process allows the acquirer to expand its operations without entering a market organically. Acquiring a target company’s shares also provides resources that are suitable for expansion.
Overall, the term acquirer in acquisitions refers to a company that purchases another company’s shares. This process involves several steps, as mentioned above. The target company usually becomes the subsidiary of the acquirer company. Through this process, both companies may benefit, although the former get more advantages.
What Does Acquirer mean in Electronic Payments?
While the term acquirer is a prominent term in acquisitions, it can also apply to another context. This term can also describe a financial institution that acquires rights to service and manage a merchant’s bank account. An acquirer, in electronic payments, signs up the merchant and offers to manage their bank account. This way, the merchant can then accept payment card transactions from clients signed up with various card associations.
In electronic payments, acquirers allow merchants to accept and process payment card transactions. These transactions come from card-issuing banks within a card scheme or association. For example, they may include VISA, Mastercard, etc. In this case, the acquirer resembles an intermediary in the transaction between the merchant and a customer.
An acquirer receives card transaction details from a merchant’s terminal. Once it does so, it passes this information to the card issuer through the card scheme for authorization. This process allows the merchant to complete the processing of the transaction. The acquirer also credits the merchant’s bank account with the funds received per the service agreement.
Acquirers usually connect with a network of several payment card processors. This way, they allow merchants to accept various credit and debit cards. If the acquirer does not permit a specific brand, the merchant will miss out on receiving payments from it. In exchange for these services, the merchant pays a fee, which both parties agree upon in advance.
The term acquirer may come from two contexts. Usually, its most prevalent usage generates from the acquisition process. During this process, a company purchases the shares from a target company to control its operations.
The former party in this transaction becomes the acquirer. In contrast, this term may also apply to electronic payments. In that context, an acquirer is a party that facilitates transactions between merchants and payment card processors.