Business acquisitions

An Introduction to Acquisitions

An acquisition is defined as a business transaction in which one company buys all or part of the shares or assets of another company.

Acquisitions are generally made in order to take control of the target company’s strengths, exploit them and benefit from synergies. It is a process of leveraging the strengths of the acquired company. The end result is a company that grows faster and more profitably than normal organic growth would allow.

The process begins with defining the type of business that would make a good acquisition. Typically, companies are targeted that are in the same segment or in a highly complementary market segment.

Once the type of target is defined, the target company is approached and, if there is interest, due diligence is performed to verify the financial and other terms of the business. The target’s processes, personnel and products/services will be evaluated and the best performing elements are retained. A straightforward acquisition refers to a company buying the assets and operations of another company and absorbing what is needed while simply disposing of duplicate or unnecessary elements of the acquired business. Asset acquisitions (as opposed to acquisitions of securities, stocks or shares) consist of buying a company in order to acquire one or two of the company’s assets (e.g. customer portfolio, inventory, brand,…).

Advantages of Acquisitions

Acquisitions have the following advantages for the acquirer:

Lower Barriers to Entry

Through acquisitions, a company can instantly enter new markets and product lines with an already recognized, reputable brand and an existing customer base. An acquisition can help overcome barriers to entry that were previously difficult to overcome. Market entry can be a costly endeavor for small businesses due to the expense of market research, new product development and the time required to build a significant customer base.

Market Power

An acquisition can help rapidly increase your company’s market share. While competition can be tough, growth through acquisition can help you gain a competitive advantage in the marketplace. The process allows for synergies in the marketplace.

New Skills and Resources

A company may choose to acquire other companies to gain skills and resources it does not currently possess. This can have many benefits, such as rapid revenue growth or an improved long-term financial position for the company, making it easier to raise capital for growth strategies. Expansion and diversity can also help a company weather an economic downturn.

Access to Experts

When small businesses partner with larger companies, they may have access to experts such as financial, legal or human resources specialists.

Access to Capital

After an acquisition, access to capital as a larger company is improved. Small business owners are typically forced to invest their own money in growing the business, due to their inability to access large loan funds. However, an acquisition provides a greater level of capital, allowing business owners to acquire the necessary funds without having to dip into their own pockets.

New Ideas and Opportunities

Acquisitions often create a new team of experts with fresh perspectives and ideas who are committed to helping the company achieve its goals.