An acquisition deal involves one company purchasing and taking control of another, absorbing its assets and liabilities. This type of transaction is often a strategic move to enter a new market or increase profitability. However, it’s important for business owners to thoroughly evaluate all aspects of an acquisition before executing. The complexities of this form of M&A can include stock swaps, a change in ownership and a new balance sheet that requires a lot of research.
Acquisition deals can be vertical, horizontal or conglomerate. Vertical acquisitions are those that occur at a specific point in the supply chain, while horizontal deals occur between similar industries. Conglomerate deals are those that combine companies from different industries, which are often considered to be peripheral or unrelated to each other. The goal of an acquisition is to secure a combined valuation that’s greater than the individual valuation of each of the companies involved, which is often achieved when a high-potential company is purchased.
M&A can also be a way to manage challenging times. When the economy falters, it’s often more cost-efficient to purchase a competitor than to invest the resources required to expand in a new direction. It’s important to evaluate all possible options for your business and seek help from a professional to ensure the deal makes sense. M&A can also generate new revenue streams. For the buy-side, this might be a new geographic market or it could mean access to additional products and services that provide cross-selling opportunities with existing portfolios.