A company may acquire another business to increase market share, gain access to a specific technology or achieve other strategic objectives. An acquisition deal can take on a number of forms and can have implications on regulatory oversight, taxation and other factors.
There are many benefits to an acquisition, including accessing a new customer base, entering a foreign market, eliminating competition or reducing costs and expenses by combining resources and expertise. However, companies must carefully evaluate the potential for synergies to ensure they are making the right decision and paying the right price for a given acquisition.
The process of evaluating and negotiating an acquisition deal is known as due diligence. The evaluation includes a thorough investigation of the financial health, business model and other details of the target company. The goal is to determine the value of the target, which can be determined using several methods of valuation.
There are three main types of acquisition deals: vertical, horizontal and conglomerate. In a vertical acquisition, the parent company buys a firm that is somewhere in its supply chain. In a horizontal acquisition, the parent company buys a competitor or a company in a related industry sector. And in a conglomerate acquisition, the parent company buys a business in an entirely different industry.
Depending on the type of acquisition, it will be subject to different rules and regulations, such as securities laws if there are shares involved or antitrust and tax law considerations. Also, if the transaction is an asset acquisition there will be additional accounting rules to follow.