Tuck-In Acquisition
| Tuck-In Acquisition |
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Tuck-in acquisition is an operation between two companies, when one bigger company acquires the second company which is usually smaller. With the acquisition, the acquirer takes advantage of the systems and structure of the acquired company. Companies involved in this kind of operation are usually familiar with their products and services. The acquisition is profitable for the bigger company, as the transaction allows it to gain market share with the services of the smaller company. Usually, after the acquisition, the smaller company can grow and benefit from bigger company infrastructure[1].
Types of company acquisition
There are two major types of company acquisitions, which differ from each other with the final participation of the acquired company in its way of functioning after the operation[2]:
- Bolt-ion acquisition
Those types of acquisitions are those when a bigger company is acquiring direct competitors or complementary product lines. It happens when the acquired company is the owner of some technologies, products or other things which can be profitable if used by the bigger company. Usually, after the operation, the smaller company loses its structure and impact on its way of functioning.
- Tuck-in acquisition
This type of acquisition operation is less common than a bolt-on. The purpose of the acquisition is not the elimination of competitive company, but to become an owner of some unique technologies or products of the smaller company. Possessing those valuables can lead to expanding the services of a bigger company. The smaller company can stay intact and still function as a part of the bigger company.
Features of Tuck-in acquisition
Operations of acquisition are carried because of will to make a profit from it. It can make benefits for both companies and some problems for smaller companies also[3][4]:
- New resources
Smaller companies, which were acquired by bigger, can make benefits from the infrastructure of the buyer. Younger, smaller companies usually have less experience in some services. If the acquisition happened because of their unique technologies, it can be developed more and merchandised better with the help of the buyer's company.
- New services
Tuck-in acquisitions are made to become an owner of some parts of the smaller company. Possessing it can give the bigger company new market shares, which leads to more profits.
- Dependency
If the small company is acquired by a bigger one, it can cause owners of smaller ones to lose some control, independence of the company. Although these operations give small companies new possibilities, they lose their self-reliance.
- Costs of acquisition
Every operation of acquisition is a kind of investment. Auditing the sense of the investment should be carefully made to provide risk and calculate profits. It is a complex operation to successfully invest in a small company to make their services gain profits. If the investment is missed, it can lead to financial problems for the bigger company.
- Easy investments
Acquiring small companies with interesting technologies and services is an easy way to make profits, as new technologies allow companies to gain new markets and attract new customers.
Examples of Tuck-In Acquisition
- In 2020, Amazon acquired Zoox, an American autonomous driving technology company. This acquisition was a tuck-in acquisition as Amazon wanted to expand its capabilities in the autonomous driving technology.
- In 2019, Microsoft acquired Express Logic, an embedded software development company. This acquisition allowed Microsoft to expand its capabilities in the embedded software development field.
- In 2018, Uber acquired Jump Bikes, a dockless electric bike sharing company. This acquisition allowed Uber to expand its capabilities in the area of transportation services.
- In 2017, Apple acquired Workflow, an automation app. This acquisition allowed Apple to expand its capabilities in the automation and workflow technologies.
Advantages of Tuck-In Acquisition
Tuck-in acquisitions are a type of corporate transaction where a larger company acquires a smaller one, allowing the larger company to benefit from the smaller firm's systems, structure, products, and services. There are several advantages to this type of acquisition:
- The acquirer can quickly and easily gain access to the target firm's existing market share and client base, without having to invest in creating its own.
- The acquirer can benefit from the target firm's existing infrastructure, such as its staff, technology, and processes, thus saving time and money.
- The acquirer can also benefit from any intellectual property or patents owned by the target firm.
- The acquisition can be beneficial for the target firm, as it can gain access to the larger company's resources, such as its capital, talent, and marketing reach.
- The transaction can also provide an exit opportunity for the target firm's owners, allowing them to monetize their investments.
Limitations of Tuck-In Acquisition
Tuck-in acquisitions come with some limitations, such as:
- The acquiring company must be familiar with the services and products of the acquired company. If the company is unfamiliar with the acquired business, it might be difficult to assess the current situation and the potential of the acquired company.
- The size of the acquired company must be appropriate for the acquiring company. If the size is too big, the acquiring company might face difficulties in absorbing the new business.
- The acquiring company must have sufficient resources to finance the acquisition and to absorb the costs of the transaction.
- The acquired company must be a good fit for the acquiring company. The acquired company should have a complementary business model and be able to leverage the resources and infrastructure of the acquiring company.
- The acquiring company must be able to maintain the corporate culture of the acquired company. It is important to ensure that the employees of the acquired company feel comfortable and able to work within the new organizational structure.
One approach related to tuck-in acquisitions is the "bolt-on" acquisition. This type of acquisition is focused on the purchase of a company that is complementary to the acquirer's existing operations, allowing the company to expand its scope in a specific market or industry. Another approach is the "synergy-based" acquisition, which involves the purchase of a company that is expected to bring cost savings and other benefits to the acquirer by combining the operations of the two companies. Additionally, the "divestiture" approach involves selling off parts of the acquirer's business in order to focus on core operations. Lastly, the "roll-up" approach is characterized by the successive acquisition of other companies in order to achieve economies of scale.
In summary, tuck-in acquisitions are a type of operation between two companies, usually a larger one acquiring a smaller one. Other approaches related to tuck-in acquisitions include bolt-on, synergy-based, divestiture, and roll-up acquisitions. Each of these approaches offers different benefits to the acquirer and helps to expand their operations in a specific market or industry.
Footnotes
References
- Booth C. (2014), Strategic procurement: Organizing suppliers and supply chains for competitive advantage, KoganPage, UK, United States, India
- Ellis T. (2018), Leading and Managing Professional Services Firms in the Infrastructure Sector, Routledge, United States
- Lawrence A. C. (2014), Berkshire beyond Buffet: the enduring value of values, Columbia University Press, UK, United States
Author: Anna Marzec
