An acquisition deal is the process of a company buying another business. The purchasing company can use cash, stock or assumption of debt for the transaction. In larger deals, investment banks may offer financing to the buyer. The acquisition process is complex, and it requires financial and legal experts to ensure the parties get the best value. The key part of an acquisition deal is valuing the target company, and this can take months or even a couple of years. During this time, the companies will negotiate over terms such as payment structure, financial aspects, warranties, and integration and transition processes.
The purpose of an acquisition is often to gain market share, or access to new customers or markets. It can also be to acquire intellectual property, patents and technology that would otherwise be costly or impractical to develop in-house. A company might also buy a competitor to reduce its competition or to eliminate logistical or physical constraints. The acquisition may also be defensive, such as a large company purchasing a small startup to enter a new market before it has a chance to establish itself.
The purchase can be friendly or hostile, depending on how the acquiring firm purchases shares of the target company. A friendly acquisition involves the target’s management and shareholders agreeing to the acquisition. A hostile acquisition involves the acquiring company purchasing enough shares of the target to control it, against the wishes of the management and shareholders. Federal watchdogs often keep an eye on acquisitions that might impact competition and lead to higher prices for consumers.
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