An acquisition deal involves one company buying another and taking control of it by absorbing the purchased firm’s assets and liabilities, usually in exchange for cash or new company stock. The acquiring company may operate the acquired firm as a subsidiary or integrate it into its business. Acquisitions are often part of an M&A strategy that allows companies to achieve certain key business objectives more quickly than they could through organic growth alone, such as scaling operations, building brand recognition and expanding customer bases.
The terms of an acquisition can be friendly or hostile, and they involve a number of different steps from planning to closing. The first step is assembling a team and finding potential targets. Afterwards, the companies negotiate the terms of a transaction and consider other legal implications.
During this stage, the M&A teams also conduct due diligence on the target company to analyze its financials and other data. They then decide whether to use cash or company stock as payment, which depends on the price of the acquiring company’s stocks. For example, a company might buy a smaller competitor with the intention of increasing its market share, and it might decide to pay for the target company using a price-to-earnings multiple calculated by comparing the target’s stock price to the P/E ratio of similar companies in the same industry.
The final step is to close the deal, which includes signing all appropriate documents and arranging for payment. Depending on the complexity of the acquisition, it can take months to complete the closing process.