An acquisition deal occurs when one company purchases and takes over another, assuming ownership of all assets and sometimes liabilities. The acquiring company may pay with cash, stock or a combination of the two, and the acquisition is often reflected in new shares issued for the combined entity. Unlike a hostile takeover, an acquisition is typically a “friendly” transaction between companies that have the same interests and values.
The process of an acquisition begins with preparation and planning, where a team is established to identify potential targets and conduct preliminary due diligence. Then, the acquisition team will negotiate terms and consider regulatory implications. The purchase price is determined through business valuation methods and is a central element of the M&A deal.
M&A deals can increase a firm’s value through expansion and growth, tapping into a larger customer base or access to additional services. The M&A strategy can also be used to improve profitability by gaining economies of scale, reducing costs through purchasing power and leveraging existing resources such as talent, facilities and equipment.
M&A can also be a way for a private company to become publicly listed, as in a reverse merger. A private company with prospects and an eagerness to acquire financing will purchase a shell public company with no business operations, essentially becoming a new public company with tradable shares. M&As can be structured as an asset purchase or a stock purchase, but the latter is often preferable because it allows a buyer to cherry-pick the most desirable assets.
