An acquisition deal is a business transaction in which one company takes over another through a takeover, absorbing the assets of the target firm into its own. A more complete definition of an acquisition deal might also include a spin-off or a demerger, but this article will focus on the buy-side M&A transaction.
Companies acquire other businesses for a variety of reasons. Often, they are trying to eliminate competition or scale operations faster through an acquisition. But sometimes they are leveraging the assets and brand recognition of their target to accelerate growth in a new market. This could be due to the need to access global markets more quickly, to diversify revenue streams, or to establish a stronger position in their market.
Assuming the M&A deal is structured properly, it can significantly enhance the value of the buyer by increasing revenues and market share. This is because the acquisition can provide additional products, services or distribution channels that would be difficult to develop on their own and which would complement existing ones.
A successful M&A strategy requires careful planning and execution, both before the acquisition and after it is completed. This includes the development of strategies to manage potential risks such as valuation gaps, cultural fit concerns and emotional seller ties to the business. It is also critical to plan ahead for possible economic events that may affect the financial viability of an acquisition. This can include an economic slowdown that reduces the illiquidity of some target firms.