A company may make an acquisition to expand its market share, diversify its portfolio of products or services, reduce costs, or enter a new geographic region. The success of an acquisition depends on meticulous planning and execution that aligns with predetermined financial goals. A well-developed execution plan ensures that the acquired business will fit into existing operating models, enabling the company to develop synergies and minimize disruptions.
After identifying a potential target, a company will typically issue a letter of intent. Then, it will perform due diligence and negotiate a purchase agreement. There are a number of complex details that go into an acquisition deal, including escrow accounts, working capital adjustments and earnouts. It is important to understand these issues in advance to minimize the risk of a failed transaction.
During an acquisition deal, the acquiring company will acquire ownership of the target company and absorb its assets. This can be done through a cash payment or stock exchange, and can often involve the issuance of new shares to the shareholders of the acquiring company.
Besides the obvious financial benefits, an acquisition can provide valuable resources such as access to additional customer groups, a stronger brand name or supply chain assets. It can also be an effective way to break into a new market or industry, as it allows the company to tap into an existing client base and overcomes any barriers that might have been costly to overcome on its own.