An acquisition deal is a business transaction that involves buying or merging with another company to add value to your own. Common motives include increasing market share, expanding into new markets, gaining control of the supply chain, or cutting out the competition. The structure of the deal – asset purchase, stock purchase, or cash merger – and the type of industry involved influence the outcome and risk. Performing thorough due diligence and carefully reviewing financial records helps reduce risks, such as hidden debt or inaccurate valuation.
During the planning phase, it’s important to clearly define the purpose of the acquisition and align that with your own goals. Acquiring for the sake of it is management hubris, and some of the biggest deals of all time have failed because of a lack of strategic fit.
It’s also important to address cultural issues. Many deals have been sabotaged by clashes in corporate culture that resulted in lost productivity and a loss of trust. The company culture of the acquired entity should be matched with your own and melded seamlessly in the transition period.
When it comes to the actual negotiating of a deal, there are a lot of details that have to be taken care of, including filing for appropriate regulatory approvals and updating legal documents. It’s also critical to keep detailed records of due diligence and the entire acquisition process for reference, audits, and dispute resolution. Due diligence is the sifting through of financial and other company documents, with special attention to revenue recognition, expenses, and debt obligations.