An acquisition deal involves one company purchasing and taking over another, absorbing its assets and liabilities. The acquiring firm typically offers cash or shares as consideration for the acquired entity. Combined entity stock prices often rise as a result, and operational costs may decrease with the consolidation of resources.
Companies make acquisitions to achieve several goals, including increased market share, greater revenue, improved competitive positioning, or access to new technology and distribution channels. The acquirers can also gain the talent and skills needed to quickly implement new products, services, and business processes that would have taken much longer to develop on their own.
As you evaluate an acquisition opportunity, determine if it fits within your overall strategic plan and will create value in the long-term. Determine if the company has a similar culture to your own in terms of work ethic, management style, and communication style. Creating a culture clash can be a major source of post-acquisition headaches, and you’ll want to avoid any unnecessary costs or disruptions as a result.
Evaluate the purchase price to ensure it’s fair. Consideration is usually a mixture of cash and shares, and the amount offered should be based on the target’s current intrinsic value. You’ll need to examine the target’s debt load, and if you want to use equity as the primary consideration, consider how this will affect your existing shareholders. Beware of overpaying for an asset – this can harm your shareholder value.
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