Does acquisition bring growth to a business?

Does acquisition bring growth to a business?

Sun Pharmaceutical and Ranbaxy are the companies that have been in news since last one week. Sun Pharmaceutical has decided to acquire Ranbaxy for $4bn. The deal amount includes the debt of Ranbaxy. Acquisition is not something new in the corporate world and every now and then there is news of some company acquiring the other. It forces the people to argue that does acquisition bring growth to a business?

Yes

• The company acquiring the other company gets the instant profit of the reputed brand name. The client base is transferred to the main company.

• Acquisition results into the increased market share. For example by acquiring Ranbaxy, Sun pharmaceutical will become largest pharmaceutical company in India.

• It offers competitive advantage over the other market players in the same industry. Company has more product offerings for its consumers.

• Investors benefits from acquisition. They expect the company to grow further and therefore are keen to invest more in the company.

• When a well reputed company is acquired then the company significantly saves on cost and resources and can enter into the expansion mode.

No

• The cost of acquisition always stays in the doubt. It is not necessary that the company is entering into a fruitful deal. In some cases only the second company gets the benefit.

• The cost of acquisition sometimes includes many other costs like old debts of the companies making the deal an expensive one.

• Acquisition is often accompanied by loss of management staff as they have already left the company to find other better and secure options.

• It becomes difficult for the company to look after the two different product lines and handle them well to generate profitability.

• The risk of diminishing synergy is quite high after the acquisition process and can create problems in the organization structure.

Conclusion

Acquisition is more about accepting the challenges from a point where the old company gave up. Problems will be there but that necessarily does not signify that acquisition is bad for company. Sometimes it is all about the conditions during which the deal is finalized.