An acquisition deal occurs when a company or its assets are bought by another business. The acquiring company may be motivated by a desire to increase market share, a need to operate more efficiently, or a desire to eliminate a business rival. The acquiring company can also benefit from an acquisition by getting access to a certain type of expertise or knowledge that is not available in-house. For example, a company with excellent engineering but no marketing capabilities might make an acquisition of a competitor in the same industry that has strong marketing skills to generate more revenue.
An acquiring company can structure an acquisition in one of several ways. For example, it can buy the stock of a company and assume all its liabilities. However, it is more common for companies to use an asset purchase to cherry-pick only the specific assets they want and not take on any unwanted liabilities. This is a good option when the target company has foreseeable liabilities such as future, unquantified damage awards related to product liability, employee terminations, or environmental damage.
The most obvious benefit of an acquisition is the addition of new revenue streams. The acquiring company can create cross-promotions and package deals with the acquired company’s products and services to drive more revenues. Alternatively, the acquiring company can gain additional revenue streams by tapping into new markets or locations by lowering or eliminating barriers to entry that previously existed. For example, US pharmaceutical companies have recently been pursuing acquisitions in Ireland to take advantage of that country’s lower tax rates.