What Is a Tuck-in Acquisition?
A tuck-in acquisition involves a larger company completely absorbing another, usually smaller, company and integrating it into its own platform. The acquirer's platform consists of the 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."
- A tuck-in acquisition occurs when a large entity completely absorbs a smaller one.
- A larger company usually employs a tuck-in acquisition to incorporate a specific resource by the smaller company, such as a technology or intellectual property, or to grow its market share.
- In a tuck-in acquisition, the smaller company does not maintain any of its own original systems or structure after the acquisition.
- A bolt-on acquisition is similar to a tuck-in but allows the acquired company to maintain some of its independence.
Understanding Tuck-in Acquisitions
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.
In a tuck-in acquisition, both entities usually exist within the same industry or occupy similar spaces in the market, but the acquiring company has more operational resources. This means the acquiring company is already set up to run a successful business; they have the necessary distribution, inventory, marketing, technology, and capital in place to be competitive in the industry.
When they can afford it, some very large companies elect to make a number of acquisitions in a short period of time rather than spend years in its research and development phase.
Apple CEO Tim Cook told investors in a February 2021 shareholders meeting that the company had acquired more than 100 businesses in the past six years. This averages out to Apple purchasing a company every three to four weeks.
Example of a Tuck-in Acquisition
For example, Company XYZ is a large company that makes widget presses. Company ABC is a smaller company that also manufactures widget presses. 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 also owns the technology that makes these snazzy widget press parts. In a tuck acquisition, 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.
Tuck-in vs. Bolt-on Acquisition
Although both tuck-in and bolt-on acquisitions refer to the process of a larger company acquiring a smaller company that offers some strategic value, there are differences between the two terms. Whereas a tuck-in acquisition means a complete absorption of the smaller company—it does not maintain any of its own original systems or structure after the acquisition—a bolt-on acquisition may allow the acquired business to operate independently within its own department of the larger company.
In the case of a bolt-on acquisition, acquiring businesses allow the smaller entity to keep its brand name or operate independently because it may be advantageous to do so, particularly if the smaller entity has built goodwill or name recognition for its brand. One real-world example of a bolt-on acquisition is Amazon's purchase of Whole Foods.