Company Acquisitions are widely considered to be a complex form of corporate finance often involving a wide range of legal, tax and accounting issues, which provide new challenges for management regardless of whether they are viewed as positive or negative by shareholders. Quite often, the key question is not whether it surrenders some control of the destiny of its business when it buys another but rather, how much control it surrenders.
Company acquisitions refer to the act of one company buying another company in order to acquire it. There are many reasons why a company decides to buy another; from diversification of its portfolio, acquiring more resources or developing new products.
Fintalent’s Company Acquisitions Consultants define acquisitions as the purchase of one company by another, usually more established company. Acquisitions happen for all sorts of reasons, from changing market conditions to implementing a complex business strategy. Even large companies go through acquisitions on occasion, despite the fact that it’s generally considered bad form for a business to buy its own competitor.
A good acquisition can provide an instant cash infusion and a much-needed injection of new ideas, which is why they’re so popular. Conversely, a bad acquisition can be incredibly expensive and risky.
Acquisitions as part of business strategy
Acquisitions have become much more commonplace in the business world today. Take, for instance, the recent mega-merger between AOL and Time Warner. The implications of this merger are enormous and serve as a prime example of why acquisitions are so important to business today. Toys R Us also recently acquired FAO Schwarz, one of its biggest competitors. Acquisitions like this continue to reshape the face of industry in America and abroad.
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Companies commonly buy their competitors when they want to extend their product line or market share into new areas. They also do this to enter a new market. This is most common in industries that require intense research and development time, such as pharmaceutical companies. It can also be used to lower the cost of production or distribution. In many cases, mergers are simply a way to grow or get bigger without adding any money to the company’s bottom line. However, sometimes when companies merge they add new developments or innovations to their portfolio of products. For example, a company may merge with another that has more sophisticated software than it does so that they can become more competitive in their industry.
Mergers have replaced acquisitions as the primary means of financial growth for businesses because mergers are less risky and less expensive than acquisitions. A merger is more valuable to a company than an acquisition because it means that all of the value created by a business stays within the company by not being lost when one of the companies is purchased.
A merger is basically when two companies join together, usually with a board of directors and management, to create one entity. The two companies are combined under one name. One can also be called an association or consolidation if it maintains ownership but not control over both companies’ firms. The businesses will continue operating separately and employees will remain employed by either company and earn the same salary for their work in the businesses as well.
When considering acquisitions, one must evaluate what it would take for this to be a beneficial transaction for both parties. Acquisitions can be a very bad thing for the buyer because it might mean that they have acquired a business that is too much of a risk and is a poor investment. For example, Mark Hughes bought out the shares of Systematics, Inc. in order to run it better, but he failed at his new position as president. He ended up losing $1 million of his own money and $9 million more from investors who asked for their money back.
Key Steps in Carrying out a Company Acquisition
In order for any acquisition to take place, Fintalent’s Company Acquisition Consultants highlights the following process that should place:
1) The two companies must agree on a price which is usually based on the daily trading value and some other factors such as the market perception and investor sentiment.
2) There must be consensus in management between both companies before an agreement can be reached.
3) All deals must be approved by the board of directors.
4) The deal must also be reviewed by other mandatory authorities such as the Secretary of State for Business which approves business acquisitions that are worth over £11 million.
5) Once been approved and signed, both companies will start to negotiate a contract between the two companies with more details such as; potential funding sources and key suppliers that will be needed throughout the acquisition phase.
6) Both companies will then come up with a timetable for implementation which would include key dates such as; when key executives from both sides would take over, what roles each company is going to play in each other.
7) Both sides will then start to set up departments, such as; legal, human resources and so on which is needed for an effective implementation of the deal.
8) On the implementation process both companies will make sure that key suppliers are deployed to only those departments that are related to their product and provide them with necessary training.
9) Once the full integration has been made through departments, all executives from both companies should go through a training program in order for them to understand their new responsibilities.
10) After that important business figures should be assigned with the job of keeping in touch with investors about the gains or losses that would occur in their department due to the acquisition.
11) After the final department integration and training for all executives, the two companies will work on a presentation in which to explain to employees the reasons behind the acquisition and how it will benefit them by merging into one company.
12) One company will now takeover the branding of the other company through logos, websites and products.
13) Finally after all that has been done both companies should have developed a close relationship between each other and start preparing strategies for future development in order to maximise all potential opportunities that could arise after this acquisition deal.
