An acquisition deal involves the purchase of a company or its assets. Companies pursue acquisitions to gain competitive advantages, boost revenue, expand product lines, diversify services, acquire technology, improve operations, or eliminate business rivals. An acquisition may be structured as a merger, asset sale, share exchange, or takeover.
The acquisition process starts with high level discussions between potential buyers and sellers. Both parties assess how their values align and identify potential synergies. The next step is due diligence, where both sides analyze the market, the company’s financial reports, and other relevant documents to determine if a deal can be made. The third step is negotiations, where both sides discuss terms such as the purchase price and legal stipulations.
After the negotiation stage is complete both parties will formulate a deal. They will sign a Shared or Asset Purchase Agreement (SPA or APA) that details the transaction. The SPA will include the terms for the transfer of shares, liabilities, intellectual property, customer lists, and tangible items such as equipment or real estate. The APA will include the terms for the acquisition of the company and its assets.
When making an acquisition, a business can choose from three types of consideration: cash, stock, or the assumption of debt. The type of consideration will depend on the acquiring company’s resources, industry conditions, and financial goals. For example, a company with limited resources might seek to reduce its production costs by acquiring businesses that produce similar products at different stages of the supply chain. This is called vertical integration, and is a common strategy for companies seeking to cut their manufacturing costs.