Strategic Mergers and Acquisition
An acquisition is when a company purchases most or all of another company’s shares to gain control of that company. If the purchasing company gains more than 50% of the selling company’s stock and other assets, the purchaser can make decisions without the approval of the selling company’s other shareholders (because they are the majority shareholder).
Acquisitions are very common in business. We mostly hear about acquisitions of large/well-known companies because of the size of the deal and overall general public interest. However, mergers and acquisitions (M&A) occur more regularly between small to medium sized companies and larger ones.
Why Make an Acquisition?
There are many reasons why a company would want to merge with, or acquire, another company. They may want to diversify their products/services, increase their market share, reduce costs, introduce niche offerings on a much larger scale, enter a foreign market, or just reduce competition.
How Do I Start the Process of an Acquisition?
With all financial moves you make, it is imperative that you do your proper due diligence. Here are some things to consider.
Is the price right? There are many factors that go into determining both interest level, and the willingness to “pull the trigger” and buy. If an acquisition fails, it is often because of the asking price.
Examine the debt load. A target company with an unusually high level of liabilities should be viewed as a warning of potential problems ahead.
Undue litigation. Although lawsuits are common in business, a good acquisition candidate is not dealing with a level of litigation that exceeds what is reasonable and normal for its size and industry.
Obsess over the financials. A good acquisition target will have clear, well-organized financial statements, which allows the acquirer to exercise due diligence smoothly.