A company may make an acquisition deal in order to enter a new market, gain more control over a particular market segment, reduce costs by eliminating a business rival or to take advantage of economies of scale. Often federal watchdogs keep an eye on these deals to ensure that they don’t negatively affect consumers in any way.
Whether the company making an acquisition is trying to increase its share of a market, consolidate and become more efficient or simply eliminate a competitor, it must first determine what assets to acquire. Then it must figure out how much to pay for the assets and meet any legal stipulations. Creating a strategy to integrate the acquired assets into its existing operations is essential. This can involve anything from hiring employees to redrafting supplier contracts and utility agreements. Keeping detailed records of the due diligence process and all valuation reports helps the acquisition go smoothly.
The next step is financing the purchase. Funding an acquisition is often more complex than funding a merger because the buyer will likely need to raise more money to purchase the company or asset, so it’s important not to overpay. This is especially true of intangible assets like brand recognition or patents, which can be hard to quantify.
After the due diligence is complete, the prospective purchaser will usually go over the findings with its own advisors and decide if it still wants to proceed with the acquisition. It will then formulate a deal detailing the terms and conditions of the sale. This will either be a Share Purchase Agreement (SPA) or an Assets Purchase Agreement (APA).
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