What occurs to the equity of the acquired company during an acquisition?

During an acquisition, the equity of the acquired company is typically wiped out as the acquiring company takes control. This is often a result of the acquisition structure, where the shares of the acquired company are either converted into shares of the acquiring company or bought out for cash. Existing shareholders of the acquired firm may not retain their shares and, with the completion of the acquisition, the independent value of the acquired company's equity is extinguished.

The process of wiping out equity reflects the fundamental nature of mergers and acquisitions, where one company absorbs another, leading to a reallocation of assets and liabilities. After the acquisition is finalized, the target company's shareholders usually receive compensation, which can be in the form of cash, shares, or a mix of both. However, once the acquisition is completed, the original equity structure of the acquired firm ceases to exist.

In contrast, the other options do not accurately reflect the typical processes that occur during most acquisitions. The acquired company's equity does not remain as it was, nor is it significantly increased as a standalone entity. It also does not get transferred directly to shareholders without some form of buyout offered by the acquiring company. Thus, the correct understanding is that the equity typically gets wiped out as ownership transitions.