An acquisition deal is when a company purchases and takes over ownership of another business, or part of it. The acquiring company may be looking to expand into new markets, gain economies of scale or eliminate a rival. Often, the terms of an acquisition are agreed between the two parties through negotiation. However, if the acquiring company is not approved by the board of the company it is attempting to take over, this is known as a hostile acquisition. Typically, these acquisitions are resolved through the acquiring company improving its terms of offer or providing more incentive to the board.
The most important step in the M&A process is identifying the criteria that your company uses to evaluate potential targets. This should include general, operational and financial criteria.
Financial criteria include assessing the target’s financial health to determine if its asking price aligns with valuation benchmarks and evaluating debt obligations to ensure that it does not carry excessive liabilities that could lead to post-acquisition complications. Operational criteria should also be considered, particularly the ability to integrate into your current company culture and if there are opportunities to leverage existing assets, such as a brand name or customer base.
Strategic alignment, including shared values, vision and trust is equally important in M&A. This will influence both the timing and scope of negotiations, as well as the value that you achieve in any transaction. It will also help to mitigate any risks to the company. Once the due diligence is completed and a prospective purchaser has gone over the findings of their analysis with their advisors, they will formulate a deal detailing the terms of the sale which will then be documented in either a Share Purchase Agreement (SPA) or an Assets Purchase Agreement (APA).