A tuck-in acquisition is a type of acquisition where a larger company acquires a smaller company and fully absorbs the smaller entity into its business.
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What Is A Tuck-In Acquisition
A tuck-in acquisition refers to a type of acquisition in business where a large company acquires a smaller company and integrates it into its operations.
Typically, the acquirer’s objective is to absorb the target company and integrate it into its technological platform, operational platform, or inventory distribution system.
In the context of a tuck-in acquisition, the target company is fully absorbed into the acquirer’s operations.
The target company will no longer maintain its pre-acquisition structure.
The main reason why tuck-in acquisitions take place is to allow companies to increase their market share, access additional resources, or take advantage of the target’s trade secrets or intellectual property.
How Tuck-In Acquisitions Work
A tuck-in acquisition is a type of acquisition where an acquiring company purchases a target company allowing it to integrate the target’s resources, know-how, or processes.
The acquirer’s objective is to fundamentally increase its market share with the acquisition.
Typically, the target company is much smaller and has resources, know-how, technologies, or a niche market that is highly valuable to the acquiring firm.
With the larger company’s financial power and resources, it could take the target’s business and take advantage of synergies, economies of scale, and scope.
For tuck-in acquisitions to be successful, the acquiring company and target company are generally in the same industry and target a similar market.
The main difference between the acquirer and the target is that the acquiring company is much larger, has more resources, a larger distribution channel, and access to greater capital.
For example, a company looking to expand its offerings, provide complementary products and services, or acquire a specific technology can acquire a smaller company allowing it to achieve these goals rather than spending years to implement it on its own.
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Tuck-In Acquisition Example
Let’s look at an example of a tuck-in acquisition to better illustrate the concept.
Let’s assume that Company A, a large software company, offers a suite of software products to businesses.
A much smaller software company, Company B, develops a new application that could be offered as an add-on feature or module to Company A’s software suite.
Rather than spend years investing in research and development, Company A acquires Company B and integrates Company B’s product into its software suite.
With this tuck-in acquisition, Company A is able to sell Company B’s products and upsell its current customer base.
In addition, since Company A has a much larger customer base, it will have a much easier time selling Company B’s product to its already loyal customers.
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Tuck-In Acquisition vs Bolt-On Acquisition
What is the difference between a tuck-in acquisition and a bolt-on acquisition?
A tuck-in acquisition is a type of acquisition where a larger company acquires a smaller company in the same industry or space and fully absorbs the target into its operations.
The target company loses its structure and original systems.
On the other hand, a bolt-on acquisition is a type of acquisition where a company acquires another company but allows the target company to operate as a distinct business entity within the group.
In this context, the target company maintains its identity and operations.
To illustrate the difference between a tuck-in acquisition and a bolt-on acquisition, let’s look at some acquisitions made by Facebook.
In 2015, Facebook acquired TheFind.com, which was an online shopping platform.
The following year, in 2016, Facebook completely terminated TheFind.com’s operations and launched Facebook Marketplace.
This is an example of a tuck-in acquisition.
On the other hand, in 2021, Facebook acquired Instagram for $1 billion USD.
However, Facebook decided to continue operating Instagram as is considering it had brand recognition and value.
This is a bolt-on acquisition.
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Takeaways
So there you have it folks!
What is a tuck in acquisition?
A tuck in acquisition is a type of acquisition where a small company is acquired by a larger company and that gets fully integrated into it.
This type of acquisition is typically seen between companies operating in the same industry and targeting similar markets.
The main difference between the acquirer and the target is that the acquirer has greater financial resources, a larger market share, a stronger infrastructure, and the necessary resources to scale.
The smaller company typically has a unique technology, platform, know-how, resource, or capability that the larger company does not have but it lacks market share, resources, and the infrastructure to quickly scale.
If you’re looking at a potential tuck-in acquisition or are the target in an M&A deal, you may want to consider retaining the services of business lawyers that understand the inner workings of such acquisition and can support you in the process.
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