Investing term
What is Acquisition?
One company buys another. The bought company's shares are converted to cash, acquirer stock, or a mix at the closing price.
An acquisition is when one company buys another, with the target's shareholders cashed out or converted into the buyer's stock at the agreed price. The acquirer takes control, and the target usually ceases to trade as an independent company once the deal closes.
Acquirers almost always pay a premium over the target's pre-announcement price to win shareholder approval, which is why a target's stock often jumps the day a deal is announced — sometimes 20–40% in an instant. The buyer's stock, meanwhile, can dip if investors think it's overpaying. For a shareholder in the target, an acquisition is a corporate action that resolves your position at the deal price once it completes.
Acquirers pay above the market price to win approval, so a target's stock jumps toward the offer the moment a deal is announced — and holds there until it closes.
For example
A company trading at $40 is acquired for $52 a share; the stock jumps toward $52 the morning the deal is announced, and closes there when it completes.
Learn it by doing
That's Acquisition in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 8, Corporate Actions: What Lands in Your Account).
Try the free lesson →Why it matters to you
Acquisitions matter to shareholders because they can hand you a sudden premium — or, if you hold the acquirer, dilute or burden it with the cost of overpaying. For the target, the deal price effectively caps the upside and sets when your investment ends. Understanding that the announced jump reflects the deal, not the business suddenly being worth more, helps you decide whether to sell into the pop or wait for the deal to close.
⚠ Assuming an announced deal is certain
A target's stock jumps on an acquisition announcement, but the deal can still collapse — blocked by regulators, rejected by shareholders, or scuppered by financing. The stock trades below the offer price precisely because of that risk (the deal spread). Buying near the offer price expecting a guaranteed pop ignores the chance the deal falls through and the price snaps back.