A business takeover is simply one business buying another business. Normally it will be a larger business buying up smaller businesses. There are a few different reasons why companies choose to buy up other companies:

  • Business to be acquired has a high and regular profitability - In other words, the company about to be bought knows how to make money and can keep doing it at a steady pace.
  • Business to be acquired considered a quality business - This asset may be in the form of convenient distribution capabilities, manufacturing capabilities, etc.
  • Buying up the competition - The result of this would be that the company could have a monopoly in their particular sector of business. Antitrust laws forbid such actions by any businesses, and can take legal action if such laws are broken.
  • Temporarily boosting revenue - Large companies buy up smaller companies in order to boost their revenue without giving sufficient regard to its profit, which generally declines during the acquisition because of all the costs.

Are There Different Types of Business Takeovers?

There are different types of takeovers, depending on the status of the acquiring business and the business being acquired, as well as the method used by the acquiring business to purchase the other:

  • Friendly takeover - This occurs when one business makes a bid to buy the other business, and the other business gladly accepts. The shareholders of the acquired company can receive cash, but more commonly they receive a certain number of shares in the acquiring company.
  • Hostile takeover - This is when one company moves to acquire a target company even if the target company does not want to be bought out. This strategy can only be accomplished through public businesses, because essentially what happens is that they acquiring company buys a controlling amount of shares of stock in the target company.
  • Reverse takeover - There are a few ways to conduct a reverse takeover. One way would be for a smaller company to buy out a bigger company. Another way would be for a private company to buy a public company. Finally, a private company may establish a shell public company and have that company "buy out"  the private company in order to bypass securities regulations that guide transforming a private company to a public one

If Another Company Wants to Buy Up My Small Business, Should I Consult a Business Attorney?

Whether or not you intend to sell your business, if you have been propositioned to sell a business you own to another company, you probably want to consult a business attorney who has experience with mergers and acquisitions. Your attorney can advise you of the laws and regulations that you must pay attention to if you choose to sell your business, or those laws that will protect your business if you should choose not to sell.