Acquisition is one way businesses achieve growth, especially in new markets. M&A can also lead to operational efficiencies and boost a company’s competitive advantage. It is important that companies take steps to scrutinize potential acquisitions thoroughly, including performing due diligence and negotiating the purchase price.
There are many ways to acquire another business, including stock purchases and asset purchases. In a stock purchase, the acquiring company will buy out the shares of the purchased company from its shareholders. This allows the acquiring company to own all of the assets and liabilities of the purchased business. In an asset purchase, the acquiring company will only buy out the desired assets of the purchased business, leaving all other liabilities with the old business owner.
A large company may decide to acquire a small company to speed up their market entry into a new country or industry. This is often a more cost-efficient strategy than investing in the development of a new product for a new market. Purchasing an existing business can provide access to pre-existing customers and contracts, human capital, workflows, products, physical assets, and intellectual property. It is important that the acquiring company is in tune with synergies during the acquisition process.
In a conglomerate acquisition, a company will acquire multiple firms in different industries. This allows the acquiring company to diversify its portfolio of investments and stabilize revenue streams in times of economic volatility. In addition, the diversified firm may be able to take advantage of economies of scale when acquiring smaller competitors.