Stock Investing 101

Why Do Companies Make Acquisitions?

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Acquisitions and mergers are very important to big businesses. It helps their competitive advantage by keeping competitions low and company power high. But why are they so important?

Being in control of more assets give you power, it’s simply how the rich get richer.

Yesterday, AT&T won big with the approved merge with Time Warner for a bid of $85 billion dollars. This partnership means they gained more ownership, popularity, and more money. Being in control of more assets give you power, it’s simply how the rich get richer. These large corporations are looking to “join forces” as a united team, but who are they targeting?

Acquisitions don’t always work in a companies favor, yet it can be a good sign of positive cashflow.

Who’s Their Target?

Small businesses in the “growing phase” are a target for large corporations. With flourishing popularity, these small businesses get acquired for their innovative products or services that will help the large corporations grow beyond its capacity. Acquisitions and mergers don’t always work in a companies favor, yet it can be a good sign of positive cash flow (if the large corporation is lucrative). On the other hand, it is not uncommon for large corporations to merge together. For example, there is a lot of talk about CMCSA (Comcast, $32.06) and DIS (Disney, $106.95) placing a bidding war for FOX (21st Century Fox, $43.36). Also, MSFT (Microsoft, $101.94) recently acquired a large technology company, GitHub for over $7 billion dollars.

There are many factors that may fall into place before a large corporation buys another business, but these deals are happening constantly and won’t always appear on the news. To find a companies acquisitions, you can go to their Quarterly/Annual reports or visit the company’s website. Acquisitions bring a whole new meaning to the popular phrase, “If you can’t beat them, join them”.

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