An acquisition deal is when a business purchases another company in order to expand into a new market, increase its share of the market, improve its operational efficiency, reduce financial risk, or eliminate a competitor. The acquiring company may also be looking to avoid having to compete with a rival, which could potentially harm its brand or reputation or lead to lower sales.
The acquiring company can either purchase assets or stock in the target company, though many companies prefer to acquire assets to get a better tax treatment and avoid having to pay a large amount of cash upfront. Regardless of what type of acquisition is being made, it is important to have a well-thought out plan before entering into the process so that everything goes smoothly. This includes identifying a Steering Committee with senior executives who offer strategic guidance, establishing a dedicated Integration Management Office to handle daily integration tasks, and forming Task Force Teams to tackle specific challenges that arise during the integration process.
Several reasons can motivate a business to make an acquisition, including a desire to enter a new market, a need to operate more efficiently, or the need to eliminate competition. An example is Whole Foods’ acquisition by Amazon, which expanded Whole Foods’ customer base and allowed it to connect with consumers more easily. Acquisitions can also help a company meet physical or logistical constraints that could otherwise limit its growth.
During the acquisition process, it is important to thoroughly review the target company’s assets and liabilities. This includes examining the seller’s financial statements and other valuations, as well as reviewing any legal stipulations, such as a requirement that the acquiring company promise that it will remain solvent for a specified period after the acquisition.