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Acquirer: What It Means and Types

By
Julia Kagan
Julia Kagan
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Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

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Updated January 16, 2024
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David Kindness
David Kindness
Reviewed by David Kindness
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David Kindness is a Certified Public Accountant (CPA) and an expert in the fields of financial accounting, corporate and individual tax planning and preparation, and investing and retirement planning. David has helped thousands of clients improve their accounting and financial systems, create budgets, and minimize their taxes.
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Acquirer

Investopedia / Paige McLaughlin

What Is an Acquirer?

An acquirer is an entity that obtains the rights to a company or business relationship through a friendly or hostile transaction. These deals are usually mergers, acquisitions, takeovers, or other structured agreements. Acquirers typically buy out a company and take over their ownership typically through a purchase of a large portion of the target company's stock. An acquirer may also be a financial institution that acquires the rights to a merchant account to allow them to service and manage the merchant’s bank account.

Key Takeaways

  • An acquirer can refer to either a corporate acquirer or a merchant acquirer.
  • A corporate acquirer is a company that obtains the rights to another company or business relationship through a deal.
  • A merchant acquirer is a merchant bank utilized by a merchant to process electronic payments for their customers.
  • Corporate acquirers purchase other companies because they believe some benefit is to be achieved. They do this through either a cash purchase, share purchase, or exchange of shares.
  • Merchant acquirers facilitate electronic payments through their merchant network and manage the communications, settlements, and deposits of the merchant's account.

Understanding Acquirers

As noted above, an acquirer is an individual or company that makes a bid to take over another entity, such as a financial interest, company, or business relationship. The acquirer may seek out a target and take action to take them over, including:

  • Mergers: Mergers are agreements where the target voluntarily chooses to be acquired and merged into the acquiring entity.
  • Acquisitions: This involves making a direct purchase to take them over. Acquisitions may be friendly, where the target does not resist being taken over.
  • Takeovers: This kind of venture can often be hostile and unwanted. This means that the target takes steps to avoid being acquired. To succeed, the acquirer may choose to buy a majority stake in the company to gain control and voting rights.

There are plenty of reasons why a company would be interested in acquiring another company. These reasons can include a reduction in competition, the creation of synergies, and access to a new market.

Acquirer relationships can vary by the type of deal in place. Corporations can acquire another company through a deal process that allows them to pay an agreed-upon price for the rights to take ownership of another company and integrate it with their current business operations. This can take the form of a cash purchase, purchase of stock, exchange of stock, or a combination of all.

An acquirer may be a financial institution that partners with a merchant to complete electronic payment transactions and deposit processes. For example, a retail store may want to set up an electronic payment system so its customers can pay electronically by credit card or phone. The retailer would enlist a merchant acquirer, also known as a merchant bank, to take control of the merchant's account and accept deposits from customer payments.

The target company of a hostile takeover may implement procedures to avoid being acquired, such as the use of a poison pill or a golden parachute.

Types of Acquirers

Corporate Acquirer

In a corporate acquisition, the acquirer is the company purchasing another company for a specified price. Corporate acquisitions are usually agreed upon by two parties. They allow an acquiring company to fully take over their target and integrate it into their current business.

In an acquisition, the acquiring company believes that it profits from buying out another company and absorbing its beneficial components while discontinuing its unproductive ones. In this manner, it also believes it is improving the company it is buying.

The acquirers of public companies usually see a short-term stock drop in their stock price when the deal goes through. The drop is usually due to the uncertainty of the transaction and the premium that the acquirer pays for the purchase.

Merchant Acquirer

A merchant acquirer serves as a third-party partner to a merchant. Merchants must partner with a financial institution to process transactions and receive payments electronically. The acquirer is generally a bank service provider that manages electronic deposits from clients paid to a merchant account. This acquirer may also be a settlement bank as they facilitate merchant payments.

Every time a debit or credit card is used to make a payment, the merchant acquirer must be contacted for processing and settlement. A merchant acquirer may dictate the types of payments it will allow for processing.

Acquirers generally have processing relationships with a network of providers, usually including major processors such as Visa, Mastercard, and American Express. Some merchant acquirers may only have network rights with a single branded card processor, which may limit the types of branded cards the merchant can accept.

An acquirer charges a merchant varying fees which are detailed in their agreement. Most acquirers charge a per-transaction and monthly fee. The acquirer’s per-transaction fees cover the costs associated with network processing. Monthly fees may also be charged to cover various other servicing aspects of the account.

What Is an Acquisition?

An acquisition is a type of business transaction where one entity purchases another. For instance, an acquisition may involve the purchase of a company. In other cases, the purchasing entity may acquire one or more assets. Acquisitions may be friendly, where both parties agree to the deal, or it may be hostile, where the acquirer takes over its target without its approval.

What Is a Target Firm?

The term target firm refers to a company that an acquirer wants to take over. Targets may be the subject of a friendly deal. In this case, the target agrees to be taken over through a merger or acquisition. In other cases, they may be the subject of a hostile takeover, which means the target doesn't want to be taken over by the acquirer. Some targets may choose to use defensive strategies to prevent being acquired, such as a poison pill or a golden parachute.

What Is a Poison Pill?

A poison pill is a defensive strategy that a target firm may use if it becomes the subject of a hostile takeover. The target, which is normally a public company, The goal is to prevent the acquirer from gaining control by accumulating a majority stake in the target. The poison pill sets an ownership limit. If someone acquires this percentage of shares, the company can then issue new shares and exclude the potential acquirer.

The Bottom Line

Anyone who buys an asset or company is known as an acquirer. For instance, an acquirer may choose to buy equipment from another individual. Or it may be a company that wants to buy a competitor to gain access to a new market. This party usually offers cash or other financial incentives to its target so it can take it over.

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