An acquisition is defined as a corporate transaction where one company purchases a portion or all another company’s shares or assets. Acquisitions are typically made to take control of, and build on, the target company’s strengths and capture synergies. There are multiple types of business combinations: acquisitions (both companies survive), mergers (one company survives), and amalgamations (neither company survives).
The acquiring company buys the shares or the assets of the target company, which gives the acquiring company the power to make decisions concerning the acquired assets without needing the approval of shareholders from the target company.
Growth via acquisition can allow a buyer to acquire skills (people skills or research and development capabilities) or innovative technology more quickly and at a lower cost than if this were to be developed in-house. Essentially, an acquisition in this context can solve critical time-to-market issues.
Mergers and Acquisitions (M&A) are similar transactions; however, they are significantly different legal constructs. In an acquisition, both companies continue to exist as separate legal entities. One of the companies becomes the parent company of the other.
In a merger, both entities combine and only one continues to survive while the other company ceases to exist. Another type of transaction is an amalgamation, where neither legal entity continues to survive. Instead, an entirely new company is created.
Acquisitions offer the following advantages for the acquiring party:
With M&A, a company can enter new markets and product lines instantaneously with a brand that is already recognized, with a good reputation and an existing client base. An acquisition can help to overcome market entry barriers that were previously challenging.
Market entry can be a costly scheme for small businesses due to expenses in market research, development of a new product, and the time needed to build a substantial client base.
An acquisition can help to increase the market share of your company quickly. Even though competition can be challenging, growth through acquisition can be helpful in gaining a competitive edge in the marketplace. The process helps achieves market synergies.
A company can choose to take over other businesses to gain competencies and resources it does not hold currently. Doing so can provide benefits, such as rapid growth in revenues or an improvement in the long-term financial position of the company, which makes raising capital for growth strategies easier. Expansion and diversity can also help a company to withstand an economic slump.
When small businesses join with larger businesses, they can access specialists such as financial, legal or human resource specialists.
After an acquisition, access to capital as a larger company is improved. Small business owners are usually forced to invest their own money in business growth, due to their inability to access large loan funds. However, with an acquisition, there is an availability of a greater level of capital, enabling business owners to acquire funds needed without the need to dip into their own pockets.
M&A often helps put together a new team of experts with fresh perspectives and ideas and who are passionate about helping the business reach its goals.
M&A can be an effective way to grow your business by increasing your revenues when you acquire a complimentary company that can contribute to your income. Nevertheless, M&A deals can also create hitches and disadvantage your business. You must take these potential pitfalls into consideration before pursuing an acquisition.
When you see a downturn in innovative ideas, that could be a sign that your staff is too busy trying to keep up with the frantic pace to be creative. Because innovation only comes when we allow our brain’s task-positive network to breathe, too much work will stifle a promising idea every time. If creativity has dried up, it’s time to develop a better support system for your growth. – Erin Urban, UPPSolutions, LLC
When a company is looking to expand, one way business owners consider doing so is through the acquisition of another similar business. An acquisition is a wonderful way for a company to achieve rapid growth over a brief period. Companies choose to grow through M&A to improve market share, achieve synergies in their various operations, and to gain control of assets. It is less expensive, less risky, and faster, as compared to traditional growth methods such as sales and marketing efforts.
While an acquisition can create substantial and rapid growth for a company, it can also cause problematic issues along the way. Several things can go wrong even when there is a well-laid plan. There may be a clash between the different corporate cultures, synergies may not match, key employees may be forced to leave, assets may have a lower value than perceived, or company objectives may conflict.
Before putting the acquisition of another business into consideration, it is essential to analyze the advantages and disadvantages that will be presented by the business deal. A well-executed strategic acquisition that takes advantage of potential synergies can be one of the best ways for a company to achieve growth.