An acquisition deal is when one company takes over ownership of another, often for the purpose of expanding into new markets or product lines. The purchase price can be paid in cash, stock or a combination of both. Acquisitions can be used to boost market share, gain access to technologies or enter new industries without competing with existing brands.
The acquiring company typically conducts due diligence on the target firm before making an acquisition. This involves assessing the target’s financial health and checking its purchase valuation against standard metrics in its industry. It’s important that the target company maintains clear, well-organised financial statements to allow for proper due diligence.
It’s also critical to assess the target’s debt obligations. A heavy load of liabilities could indicate future problems for the acquiring company. In some cases, the acquiring company may require a whitewash resolution confirming the target’s solvency before the deal goes through. A review of the target’s legal exposure is also important, as ongoing or excessive litigation may indicate deeper operational concerns.
Buying an established brand in a foreign country can be a cost-effective way to enter a new market. The acquiring company gains access to the purchased company’s brand, client base and other assets, and can then use those to develop cross-promotion and package deals to generate revenue streams. In addition, the bought company may offer additional products or services that the acquiring side can add to its portfolio, such as new intellectual property (IP) or lines of business (LOBs). This can lower or even remove barriers to entry into other markets and locations that might have been challenging to enter alone.