An acquisition deal involves the purchasing of a company or business and its assets. The process can be complicated and requires a great amount of preparation. Many high profile acquisitions make international news but there are a lot of smaller ones that happen every day. The success of an acquisition depends on the preparation and expertise that go into the deal.
The first step in a successful acquisition deal is to develop the strategic rationale for the acquisition. This is a critical step because acquiring for the sake of it is often management hubris. The acquirer must evaluate whether the acquired firm will help them reach their strategic goals faster, expand into new markets, strengthen their product portfolio, or enhance their competitive positioning. In addition, the cultural fit between the companies must be evaluated. This is because some of the biggest M&A deals have failed because of a lack of culture alignment.
There are a number of ways to fund the purchase of a company. One way is to issue additional shares of the acquiring company to the existing shareholders of the targeted firm. This can dilute the current shareholders stake but it avoids increasing the acquiring company’s debt load. Another way is to borrow money from banks or other financial institutions. This can increase the company’s leverage but it will also increase its financial risk.
Other forms of financing can include a cash swap or a stock swap. The buyer can pay the target firm in exchange for shares of the acquiring company or it can take on the target’s debts. In either case, the due diligence process must be thorough to ensure that the company being purchased is a good value and that the price being paid for it accurately reflects its intrinsic value.