Acquisition is a business strategy used to grow quickly and gain a competitive edge in a market. A common acquisition goal is to expand market share, increase customer base, or gain access to new technologies. Companies can also use an acquisition strategy as an exit strategy if they have invested in a successful startup and want to cash out their investments or enter new markets quickly.
A company can acquire another company by purchasing the majority of its shares. This is commonly called an “all-stock” acquisition. Alternatively, the acquiring company can purchase only the assets of the target company by structuring a deal as an asset purchase. This allows the acquiring company to cherry-pick only the valuable assets and avoid taking on any unforeseen liabilities.
Purchasing another company can be expensive. Typically, the acquirer pays for the target company with debt financing or new shares issued to existing shareholders. The latter option dilutes existing shareholder stakes but avoids increasing the acquiring company’s debt load. If the acquiring company has sufficient equity capital, it may decide to pay for the target with cash or a combination of cash and stock. In either case, the acquiring company must carefully review the financial records of the target company to identify any discrepancies, financial risks, and legal hurdles. In addition, it must carefully consider the target’s culture and any integration challenges. The acquisition process can take months or even years to complete. The acquiring company may also need to overcome regulatory hurdles depending on the industry and location of the target company.