An acquisition deal is when one company purchases another company or business, whether the purchase is friendly or hostile. Typically, the acquirer hopes that the transaction will fuel growth and provide access to new markets or products. A successful acquisition will also enable the buyer to reduce risk by diversifying revenue streams and stabilizing cash flow.
The acquiring company may use a variety of methods to finance the acquisition. The most common way is to pay for the acquiring company with stock. This is often referred to as a stock swap and allows the acquirer to expand its ownership base without diluting existing shareholders’ stakes. Another option is to borrow money and then use the borrowed funds to pay for the acquiring company. However, borrowing increases a company’s leverage and financial risks.
Other ways to acquire companies are to buy all of the company’s assets, which is often referred to as an asset purchase. This type of transaction is usually less complex than a stock swap or a merger and can be accomplished very quickly. In some cases, private companies that want to become publicly listed may use a reverse merger technique. This enables the private company to acquire a shell public company that has no real business operations and limited assets and then combine them into a single entity with tradable shares.
About the Author
