If a company buys another company outright, or accumulates enough shares to take a controlling interest, the deal is described as an acquisition. The acquiring company’s motive may be to expand the scope of its products and services, to make itself a major player in its sector, or to fend off being taken over itself.
To complete the deal, the acquirer may be willing to pay a higher price per share than the price at which the stock is currently trading. That means shareholders of the target company may realize a substantial gain, which is one reason that some investors are always on the lookout for companies that seem ripe for acquisition.
Sometimes acquisitions are described, more bluntly, as takeovers and other times, more diplomatically, as mergers. Collectively, these activities are referred to as mergers and acquisitions, or M&A, to those in the business.