What Is a Tuck-In Acquisition?
A tuck-in acquisition involves a larger company completely absorbing another, usually smaller, company and completely integrating it into the acquirer's platform. The acquirer's platform consists of technological structure, inventory and distribution systems, and all other operational aspects of the business. In a tuck-in acquisition, the smaller company does not maintain any of its own original systems or structure after the acquisition. Tuck-in acquisitions are usually executed in order to grow the acquiring company's market share or resource base. A tuck-in acquisition is sometimes referred to as a "bolt-on acquisition."
Tuck-In Acquisition Explained
A corporate strategy that involves tuck-in acquisitions is generally used to acquire companies with resources that would be valuable to the acquiring entity. These resources could be things such as complementary product lines, technology, intellectual property or market share. The ideal target of a tuck-in acquisition is a smaller company with limited growth prospects and resources that are valuable to the acquiring firm.
Example of a Tuck-In Acquisition
For example, XYZ company is a large company that makes widget presses. Company ABC is a smaller company that also manufactures widget press es. In fact, Company ABC is so skilled at making widget presses, they have revolutionized the process for making widget press parts in such a way that makes them more durable for a cheaper price. Company ABC owns the technology that makes these snazzy widget press parts. XYZ company comes along and purchases Company ABC and fully integrates Company ABC's technology into its own systems. Company ABC starts running all of its systems on XYZ company's platforms and is fully absorbed into XYZ company.