Updated on January 4, 2022
Business Acquisition Strategy
In a business acquisition, mergers and acquisitions involve acquisitions of another company by one or more of the current owners of the target company. In simple terms, the acquired company is a “one-time” business. Incorporate finance, acquisitions and mergers are transactions wherein existing companies, other existing firms, or their operating divisions are transferred or merged with other companies. In the financial markets, this term is usually used to refer to the merging of a firm’s assets, liabilities, equity, and net worth with the assets, liabilities, equity, and net worth of the acquiring firm in order to create a new entity (the target firm) with all the assets, liabilities, equity, and net worth of the acquiring firm. Click Here to learn more about the business acquisition.
Business acquisition involves a great deal of paper-work that can be time consuming, expensive, and confusing. Therefore, it is very important that before an acquisition is consummated, owners take all the steps necessary to ensure that they get the best value for their acquisition investment. One of the first steps that should be taken after a firm decides to acquire another firm is to conduct a business valuation analysis of the target firm’s assets, liabilities, revenues, and operations. The purpose of business valuation is to determine the value of the target firm that will allow business owners to sell the acquired firm at a higher price than what they paid for it.
In addition, the process of business acquisition must be managed properly so that there are no surprises after the acquisition. For instance, if a business acquisition includes a merger transaction, the acquiring company must ensure that all legal documentation such as a merger agreement, waiver of preference, and various other conditions are in place before consummation. Moreover, when a business combination occurs, it is essential that the combined firm does not suffer financial or other penalties. It is also important that the acquiring firm meets its obligations to all of its creditors, including those of the target firm.
Another aspect of a good business acquisition strategy is making sure that the two firms combine complementary activities. For instance, the target firm may excel in manufacturing while the acquiring firm is excellent in services. There should be synergies between the two organizations in most cases. For example, if the target firm manufactures high-tech equipment that is used in services, the acquiring firm should be able to provide business process outsourcing services. This way, the two firms can share and spread the costs of resources and save money on business acquisition costs.
Moreover, the business acquisition strategy that succeeds in creating synergies between the acquiring firm and its target firm must also create a structure that ensures stability of the new relationship. This means that the two companies’ resources, both financial and human, must be committed to each other. If the merging firm is unable to sustain the financial obligations of the acquiring firm while the existing company is able to continue making high-quality goods and services, the newly established firm could be seriously damaged.
In addition to business acquisition strategies, another requirement for the successful merger and acquisition is proper funding arrangement for the acquisition. The acquisition is most effective and advisable when the acquiring organization secures financing in order to pay for the various expenses incurred in the acquisition process. If the existing business can secure enough funding as soon as it is established, the business owner will be able to concentrate more on developing the new venture and may not have to worry about fulfilling the financing requirements of the acquiring organization.
On the other hand, when the target firm fails to acquire sufficient funding even after securing a substantial amount of outside funding, some companies opt for mergers and acquisitions in order to free up resources. This is why the acquisition candidates who fail to attract the right target partners often turn to acquirers that have stronger connections and extensive business history. In addition, target firms may also go for mergers and acquirers with complementary business models or products. For instance, if the target firm develops medical software, acquiring firms may look into purchasing a company that develops software used in the medical industry.
There are many factors that determine the success rate and amount of money that mergers-and-acquisitions require. Some of these are listed below. These factors include the size of the target company, financial capability, target market shares, management style, and technology preferences of the acquiring company. It is also important to keep in mind the goals and objectives of both the parties involved. However, as long as the acquisition strategies are sound, a successful merger or acquisition campaign is quite likely.