An acquisition deal involves the purchase of one company’s shares or assets by another. The purchaser can pay for the acquisition with cash, stock, debt, or a combination. The transaction is completed through a Share Purchase Agreement (SPA) or an Assets Purchase Agreement (APA).
Why Companies Acquire
Many reasons exist for why a company may decide to acquire another business. The most common is to add market share. The buyer hopes that combining its market share with the market share of the acquired business will allow it to become a dominant player within its industry.
Other motives include adding new products or services to a portfolio, gaining access to valuable intellectual property and key customers, or increasing scale. Operating on a larger scale often increases the opportunities for upselling and cross-selling, as well as reduces costs by increasing the volume of stock with which to negotiate supplier deals.
Sometimes a business makes an acquisition in order to protect itself from financial distress. A bank, for example, might acquire a competitor to prevent itself from going under in a downturn. It might also acquire a company with a technology it wants to use, rather than invest the time and money needed to develop the technology itself.
Acquisitions can often result in a change to the management structure of the acquirer and its employees. This can introduce significant changes to the culture of a company. It can also create tension between the employees of the acquired and the acquiring company.
About the Author
