Understanding Acquisitions
An acquisition occurs when one business buys another business to gain access to its products, technology, expertise, and other assets. This process, which is typically carried out through a purchase of assets or stocks, allows the purchasing business to use the acquired company’s assets and resources to further their own objectives. Acquisitions may be either in the form of mergers—which combines both entities into one legal entity—or acquisitions, wherein a separate entity owns the acquired one.
Steps in the Acquisition Process
The process of making an acquisition can be broken down into several components and steps:
- Finding a target: Most acquisitions begin with the process of seeking out a suitable target that has the right size and capabilities for the buyer to achieve its desired strategic goals.
- Negotiations: After one or more potential targets have been identified, negotiations over the price and terms of the acquisition begin.
- Approval and closing: Once the acquisition is agreed upon, it goes before regulatory and/or shareholder approval. The two companies then work together to complete all other necessary steps, such as transfer of ownership and exchange of assets, and the acquisition is finalized.
Impact of Acquisitions on Businesses
Acquisitions can have a dramatic effect on businesses, both large and small. While the primary reasons for an acquisition are to acquire cutting-edge technologies, talent, and market share, the implications can be far-reaching and can even cause disruptions to the acquiring business’s operations. Consequently, it is essential for businesses to consider the impact of an acquisition before crafting a strategy. Some of the potential outcomes of an acquisition include:
- Increased market share: An acquisition may provide a company access to a larger customer base and competitive advantage.
- Gaining expertise and technology: By using the knowledge and technologies acquired in the acquisition, the company may be able to develop more effective or efficient processes.
- Cost savings: By combining two companies, such as their offices, staff, and other resources, the acquiring company may realize cost savings over time.
- Increased competition: An acquisition may lead to increased competition in an already crowded industry.
- Cultural shifts: A successful acquisition may bring about changes in the culture and dynamics of the acquiring company.
