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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Acquirer

What it is:

An acquirer is a person or company that purchases all or a portion of an asset or company.

How it works (Example):

Company XYZ wants to acquire Company ABC. Company XYZ might just start buying ABC shares on the open market, but once Company XYZ acquires 5% of ABC, it must formally (and publicly) declare how many shares it owns to the Securities and Exchange Commission. Company XYZ must also state whether it intends to buy ABC or just hold its existing shares as an investment. In either case, Company XYZ is an acquirer. The term is mostly used in the context of purchasing a majority of another company, however.

Why it Matters:

Acquirers often make acquisitions with cash, but they also use debt and their own stock as well, and there are often tax consequences associated with each form of currency.

Acquirers acquire other companies because they think they can create a bigger, more competitive, more cost-efficient entity. This synergy -- that is, the idea that the two companies together are more valuable to the shareholders than they are apart -- is elusive, but it is what justifies most acquisitions. After all, acquirers always have the much harder option of trying to "grow their own" by starting their own competitive ventures instead of buying someone else's. Targets sell their companies to acquirers because at the end of the day, the price is right. And on both sides, a well-executed acquisition can be the crowning jewel of a CEO's career.

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