A company may purchase another business or some of its assets in order to grow itself. This can be done for a number of reasons such as a desire to increase market share, to become more efficient in operations or to eliminate a competitor. The acquiring business or companies will do due diligence of the target firm before an agreement is made. This will involve researching all aspects of the business including financials, legals, and the target’s brand. The acquiring party may offer several terms and conditions to the selling side before an agreement can be reached.
A common type of acquisition deal involves a company purchasing and taking over control of another, absorbing all its assets and often its liabilities. The acquiring company then operates the acquired company as its own subsidiary or fully integrates it into its operations. This can be accomplished with a cash payment, a stock swap, or debt financing. Debt financing allows the acquiring company to make larger acquisitions without diluting its shareholders’ stakes, but increases the risk of failure.
The benefits of an acquisition for the buy-side include access to new markets, and the ability to create more value by cross-selling and upselling products and services in its portfolio to generate additional revenue. The acquirer also gains a ready-made team and production facility which reduces the cost of establishing itself in a foreign country or in an entirely new industry or market. The purchased company may have existing customer relationships which can help with the buy-side’s sales efforts as well.