Acquisition is when one business purchases and takes control of another business, absorbing its assets and often its liabilities. It can be a powerful growth strategy, but it can also be costly and time-consuming. It’s important to fully evaluate a company before buying it, and to have a clear idea of what the synergies are that you’re looking to capture.
One of the key reasons to make an acquisition is to gain access to new technologies, customers, or products. In addition, a company can acquire competitors to reduce competition and maintain market share. A business can also benefit from economies of scale, by purchasing companies that feed into its supply chain or lower its unit costs.
Whether a business is looking to grow its customer base or increase market share, acquisition can be a more cost-effective and less risky alternative to investing in R&D or pursuing organic growth. However, acquisition is still a complex legal arrangement with many risks, and it can take months or even years to complete.
Successful acquisitions are often driven by clearly articulated strategic logic going in, and the companies that achieve their goals most effectively tend to have a more narrowly defined set of targets. Over-specifying a target can create ambiguity and lead to bad decisions. It’s also important to understand that not all acquisitions are created equal, and a poor strategic fit can result in failure or value destruction.