DEFINITION of 'Acquisition Indigestion'

Acquisition indigestion is a slang term describing an acquisition or merger in which the companies involved have trouble integrating with one another. This could mean they have trouble deciding how their departments will integrate, how they will handle redundancies, or where budgeted funds will be directed. Acquisition indigestion may also describe a situation in which the purchasing company has difficulty making the most of a takeover. This happens often in acquisitions where the acquirer is after market share growth but doesn't have the necessary infrastructure to successfully absorb and manage an acquired firm.

BREAKING DOWN 'Acquisition Indigestion'

Acquisition indigestion describes a situation where an acquired firm isn't processed and absorbed properly by an acquiring firm. It is a take-off of the term indigestion. Indigestion occurs when you eat too much or when you consume food that doesn't agree with your stomach. Essentially, you aren't able to adequately process and make the most out of the food you have consumed. The same outcome relates to mergers and acquisitions that have gone sour, as companies may get indigestion when acquiring too many targets or purchasing firms that don't integrate well.

Example of Acquisition Indigestion

Sesame Brokerage is a firm that specializes in producing and selling structured products. FireFI is a fixed income shop that focuses on high volatility, high return fixed income products which have equity-like characteristics. FireFI is looking to expand their product offering so they purchase Sesame Brokerage to take advantage of their steady-eddie structured product capabilities. Unfortunately, FireFI doesn't have the compliance know-how or capacity to handle structured products. As such, they are not able to start selling Sesame Brokerages products immediately after acquiring them. Sesame's products sit on the shelf for several months after the acquisition because FireFI cannot digest them properly and put their product to appropriate use.

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