An acquisition deal occurs when one company purchases the assets or shares of another, taking control. This can be an effective way to gain a foothold in new markets and grow revenues without having to invest large amounts of money into new product development. However, it is important to be aware of some potential pitfalls and hitches that can arise during the process.
A major consideration is the purchase price. A company does not want to overpay for the assets it is buying, as this will dilute the value that shareholders have in the acquiring firm. It is also important to decide whether the payment will be cash or equity in the form of stock. The latter is typically preferred by the acquiring firm, as it allows it to avoid paying taxes on the gains realized by the target’s shareholders.
Companies may acquire one another for many reasons, including the desire to enter a new market, increase revenue streams or cut out competition. Large-scale acquisitions make headlines, such as the 2024 merger of two giant breweries, Anheuser-Busch InBev and SABMiller, but small-sized businesses often make their own acquisitions. This can help them access a wider range of loan funds than they would be able to obtain as individual entities, increasing the likelihood of success in their business goals. This is especially true for entrepreneurs who want to break into new markets.