An acquisition deal occurs when one company (the acquiring party) takes over the ownership of another business. This may be done for a variety of reasons including the desire to increase market share, a need to operate more efficiently or eliminate competition. The acquiring company may also be seeking to diversify its product line or services.
An important step in the process is to identify the strategic rationale for the acquisition. Once this is established, the acquirer can begin the process of finding potential targets. This usually involves running a detailed business valuation model to determine the value of the target, as well as identifying any risks that should be factored into the transaction.
Once the acquirer has selected a potential target, it must then negotiate the terms of the acquisition. This often includes a non-disclosure agreement (NDA) to protect the seller’s sensitive data, as well as an offer to purchase that specifies the proposed price and details of the acquisition. The acquiring company may also use press releases and investor calls to further communicate the acquisition with stakeholders to manage expectations and reassure them of the deal’s long-term value.
When a merger or acquisition deal is completed, the shareholders of both companies typically receive shares in the new entity. This may help drive stock prices and, when operational costs are consolidated, it can help improve profits. However, many deals are done with misguided notions about the timing of achieving synergies and a failure to factor in the amount of time it will take to integrate teams and processes.
