Question

Generally speaking, do acquiring firm's shareholders benefit from acquisitions? Explain in full detail. Thanks

Answer 1

Acquisition- It happens when one company purchases most of or all of the shares of another company for taking control. There are two parties in Acquisition:

Target company that is being acquired and Acquiring company that is acquiring the target company.

In Favor- Yes, Shareholders benefit from the acquisition, it also depends upon these factors:

1. If the size of target company is big.
2. If the business is good and company has good market share
3. If company is growing and its expected future growth is higher.

These factors will benefit the shareholders as when target company has potential and after acquisition, there will be synergy and profitability, shareholders will get higher dividends and company's share price will increase in the stock market that will give capital appreciation to shareholders.

Against- No, Shareholders do not get benefit from acquisition. Shareholders of both companies may face dilution of voting power due to increased number of shares, per share value will come down. Shareholders of acquiring company face marginal loss in voting power.