An Acquisition strategy is the step in the merger process where the buyer looks for ways to take over or buy out their target.
What are some common Acquisition Strategies?
The most common strategy for acquisition is to purchase all of the target company’s stock. This will typically be done by issuing new shares of your company’s stock, with existing shareholders receiving new shares in exchange for their current ones.
Another form of acquisition is a cash deal, whereby an offer is made that can be accepted or declined by either party. In these cases, the buyer will purchase the target company’s entire equity, including shares and any cash. If a cash deal is being used by a buyer, then their offer will have financial terms that are acceptable to the seller. The buyer will then need to convince the seller to take their offer in order for a merger to go through.
A non-cash acquisition usually involves a higher percentage of a company’s stock being purchased by each party. In this case, the amount of stock being purchased is not based on price but rather on what you believe that stock represents as far as your company’s value is concerned. When using a cash deal, you will often require that the selling shares be owned by the buyer’s existing shareholders.
Another common acquisition strategy uses a combination of cash and stock to buy out a target company’s equity. In this case, the buyer will purchase all equity of the target company with money from their company coffers. The buyer will then give some of their own shares to a few of their existing shareholders as part of an offer for those shares. By doing this, the buyer is hoping that those shareholder investors will then use those same shares as collateral for loans payable from the seller’s business treasury. This will allow the buyer to get enough of the target company’s equity without having to pay too much for it.
Another strategy that is used when buying a company is to use another company that you own as collateral for a loan from your business treasury. This is known as a “tuck-in”, and it is often used in the acquisition of small and medium sized companies. This method requires owner-company synergy, which can be hard to achieve in small and medium sized businesses.
As long as the owner-company synergy exists, this strategy allows for the owner to borrow money from their business treasury at a reasonable interest rate, while receiving shares from their target company plus cash from their business treasury. That business treasury money is used to buy out the target company, bringing the company’s equity up to the amount needed for the secured loan.
Other acquisition strategies include using either debt or equity sourced funds to buy out a target company’s equity. This will typically be done by putting together a financing package that includes something that is called “equity-for-takeover”, which is where an existing shareholder converts some of their shares into common shares in order to get enough leverage for a higher price than was paid for their stock. The other funding source may come from an outside source such as a bank or another investor.
If there are two companies looking to merge, it may be possible to use one of the company’s assets as part of a merger or acquisition. The asset may be used by both companies if it is considered an excellent investment opportunity for balancing out their finances. This is often used when there are two potential merger candidates that have similar values but different financial strengths.
It’s also possible to use debt financing, which is the borrowing of money from another source, in order to buy out all equity in a target company. Some of the most common debt-financing strategies are loans payable or notes payable, which are personally guaranteed by an existing shareholder who has agreed to be liable for any outstanding payments on those debts.
Another type of acquisition is a “blind” acquisition. In this situation, the target company is not being formally approached by the buyer. Instead, the buyer waits for a transaction to be facilitated through someone else. In these cases, most often it is one of the companies that will approach the seller and ask that they sell their business to them, which essentially becomes an offer to buy out all equity in their company. The owner shares will be exchanged for stock in the buyer’s company.
What criteria is used for adopting an Acquisition Strategy?
There are several criteria that should be met before you can use an acquisition strategy or method for acquiring your target company. First, you must believe that there is value in acquiring your target company using whatever method you choose. Second, you must choose the appropriate method for completing the acquisition. Third, you must convince your target company’s shareholders to accept your offer. These steps are important in making sure that you don’t waste your time on any acquisition strategies that will cause problems during the process.
To purchase a company, the buyer must be able to fund the transaction. The most common way of raising capital is through an equity or debt offering. In this type of transaction, the target company will be selling its equity at a certain price, and the buyer will be using their business capital to purchase that same amount of equity. This deal is often structured as a 100:1 or 10:1 split consisting of an offer for new shares and a stock purchase agreement (SPA).
Acquisition transactions can also be structured as a fee-based strategy. In these cases, the buyer will pay for legal and accounting services separately from the purchase agreement. This can make it easier on both parties involved by avoiding potential conflict. It can also help to ensure that there is no conflict of interest when either the seller or the buyer’s professional advisor is involved in the decision making process.
The target company’s shareholders often will want to be sure that they are getting a fair price for their company. This means that they will want to make sure that the buyer values their company at least as much as they, the owners, feel it is really worth. This is why conducting a valuation analysis of your target company prior to making an acquisition offer can be important in achieving a successful deal.
Another simple scenario involves using debt financing and then buying out all equity using cash from your business treasury or loans payable from an outside source. This is known as a “tuck-in” transaction.
What are the steps for implementing an Acquisition Strategy?
Once an acquisition strategy has been decided on by the target company’s owners, the next step is to arrange financing for the deal. There are several different types of financing that can be used in an acquisition, including cash, equity in another business, debt, or loans payable.
When arranging any type of financing for your acquisition strategy, it is important to come up with a variety of different options. This will increase the chances of being able to find the right kind of financing for business needs.
To begin arranging financing for your acquisition strategy, it’s important to make sure that you know what you are trying to accomplish with your deal. This will help you to know what type of financing your target company’s investors need, so that you can arrange to provide it.
The next thing that you should do is to find out which financial structure will work best for your target company’s particular situation. Keep in mind that if any sort of financing works for your target company, the only financial structure that can be used is a straight debt or a straight equity deal.
If a straight debt deal works well for your target company’s needs, then it will be possible to arrange a one-time lump-sum payment for the amount of the acquisition by arranging a line of credit from an outside financial lender.
If a straight equity deal works well for a target company’s needs, then it will be possible to arrange a one-time (or multiple times) stock payments.
What are some risks involved in Implementing an Acquisition Strategy?
The first risk is the possibility that the owner (or owners) of the target company might go back on their word about selling or selling their business for less than market value. This will occur if the target company is performing well, and the owner decides that it would be worth more to hold onto his business.
The other risk is the possibility of a hostile takeover. In this scenario, the target company’s owners will likely reject your offer to buy their company at a fair price. This could be an emotional decision made by the target company’s owner(s) or it could be a strategic decision made due to anger or revenge toward you because of something that has happened in the past which you haven’t yet discovered.
Another risk is that if your target company isn’t performing well and you try to buy it cheaply anyways, then they might take advantage of this and begin reducing expenses and providing fewer services than before in order to put out fires, thus reducing their earnings which effectively reduces their value for sale.
The last risk lies in the area of financing. This can be a very important source of risk for both parties involved because if the financing of the deal isn’t arranged correctly and there is a delay, or if it is arranged incorrectly and you or your target company doesn’t have enough cash to purchase the other’s equity, then the deal will be off and you will likely lose any money that you spent on legal fees or other transaction costs.
What assessment techniques/tools are used to evaluate an Acquisition Strategy?
There are several different assessment techniques/tools that can be used to evaluate an acquisition strategy before making any offers for purchase. These include:
Financial Analysis
One technique that could be used to evaluate an acquisition strategy is financial analysis. This produces a comparison between current earnings versus future earnings, as well as growth projections. The goal of this assessment is to determine if there are sufficient funds available for the target company to reach its goals, if it will take too much growth for earnings to become positive, or if it will take too long for future growth estimates be realized.
Value Stream Mapping
This process is used in lean manufacturing systems. A value stream map includes all that occurs during an operation, from the customer’s order entry, through marketing and sales, to the time the product is delivered to the customer. This process can be used by managers to evaluate their business’s activities.
Scenarios
Scenarios are used to test assumptions about future growth and profitability. They are also used as a way to monitor gaps between analytical projections and actual performance so that contradictory information can be addressed.
Targeted Market Analysis
This technique is used by businesses that have a niche market. It includes information about the target company’s product or service, its market characteristics, its competitors, and the dynamics of the market in general. This analysis can also help in determining if your business is in a niche that has growth potential. Additionally, the target company’s financial statements are used to determine price or to identify possible sources of growth capital or revenue.
International Acquisition Analysis
This assessment is used when evaluating international business acquisitions because it provides insight into how international regulations and practices affect businesses and can help to determine how they will be affected by new regulations and practices.
Performing an audit on a potential acquisition makes it possible to evaluate whether what you and your team have learned during this process is accurate. Therefore, perform an audit on purchasing decisions you have made in the past or on future acquisitions.
The level of expertise required to carry out a proper and effective acquisition strategy underlies the need for hiring a trained professional to carry out any such endeavour.
