Many entrepreneurs in New York prefer acquiring another company to starting from scratch. This approach has many benefits, including finding an established client base, talents, and products or services to sell.
Business acquisition explained
The process of business acquisition involves one company buying another and establishing itself as a new entity. “Acquisition” is often used interchangeably with “merger,” but the latter entails combining forces and moving forward as one.
Types of business acquisitions
There are three types of business acquisitions: horizontal, vertical, and conglomerate. A horizontal acquisition is when you acquire a company that offers similar products or services as yours. For example, when Facebook bought Instagram.
A vertical acquisition is when you buy a company that offers complementary products or services to yours. For example, if you have an ice cream business and rely on a particular dairy farm for milk, you can acquire them to control your own supply.
A conglomerate acquisition is when you acquire a company that’s completely unrelated to yours. For example, when Louis Vuitton bought Hennessy in 1987. Conglomerate acquisitions help shield entrepreneurs from losses caused by market fluctuations because it’s highly unlikely for two separate entities doing totally different things to fail at the same time.
Laws that might affect you in New York during acquisition
The two main laws you need to be aware of are the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) and the Clayton Antitrust Act. The HSR requires companies to notify the Department of Justice (DOJ) and the Federal Trade Commission (FTC) before completing certain acquisitions. The notification allows the agencies to investigate whether the transaction would violate antitrust law.
The Clayton Antitrust Act prohibits acquisitions that may reduce competition or create monopolies. It also bars companies from doing things that would unreasonably restrain trade, such as entering into exclusive dealings or pricing agreements.
Acquiring a company can be a great way to grow your business, but it’s important to do your homework first. If you understand laws and other business-related circumstances that might affect you, it would be much easier to make a good decision.