A successful acquisition deal can accelerate growth by expanding a business’s customer base, broadening product portfolio, accessing global markets and building brand recognition. It can also allow companies to acquire technology, infrastructure and expertise, which they might be unable to develop internally.
Developing the right strategy for acquiring new businesses is critical. It involves ensuring that a) there is a clear motive to make the deal and that b) the valuation of the target company is fair. To evaluate whether a potential acquisition is likely to be accretive, an acquirer should compare the present value (PV) of synergies to the valuation of the target.
Before a company starts searching for potential acquisition targets, it should ensure that its internal processes are well-organised and that the team is up to speed on M&A valuation methodologies. A thorough due diligence process is essential and should cover all aspects of the target business including its financial, legal and operational performance.
The final stages of an acquisition deal involve negotiating the terms and conditions with the target company’s shareholders or shareholders and arranging finance to pay for the purchase. The acquiring company may choose to pay for the acquired shares in cash or in its own stock, a common practice as it can align shareholder interests with the long-term success of the combined entity. After the deal closes, it is necessary to manage the integration of the two businesses’ operations and systems. This can be a time-consuming and costly process, but it is necessary to ensure that the potential benefits of the M&A are realised.