An acquisition deal is the process of a business buying another company, often in order to expand into new markets or to eliminate competition. The acquisition is financed by cash, stock or a combination of both. In order to make the best possible deal, it is essential that a business carefully review both the transaction and its long-term impact on shareholder value. In addition, economic conditions can significantly impact a company’s ability to afford a transaction.
Purchasing a competitor can greatly enhance a business’ competitive advantage. For example, acquiring a business that offers training software to fire departments and law enforcement agencies allows the acquiring company to gain valuable cross-promotion opportunities and set up additional revenue streams. However, acquisitions may also bring a number of other risks and challenges, including the need for integration of processes, technology and teams, dilution of existing shareholder equity and increased debt on the balance sheet.
When an acquisition is being considered, the acquiring and target companies will generally enter into a Non-Disclosure Agreement (NDA) to protect confidential information. Then the company’s M&A team will research and find potential targets and conduct preliminary due diligence before moving forward with a negotiation. During this phase, it is important to consider any potential regulatory implications or other laws and regulations that could affect the acquisition.
The next stage is the negotiated stage, during which both parties work to reach an agreement on the terms of the acquisition. If financing is required, a bank may be involved in the negotiations to help with the financial aspects of the deal.