Introduction

For anyone wondering what is business acquisition? And also for others who want to know everything about business acquisition, this is just what you need.  In this blog, we will discuss everything you need to know about business acquisition.

 

Starting with the very basic part of the blog, let’s see what is meant by business acquisition. Acquiring means the act of obtaining control in a company merger. A business acquisition happens when two businesses combine. The only condition is that one of the companies buys almost all, or at least more than half of the other company’s share. 

The company that is buying or acquiring, is known as the acquirer. While the other company is known as the target. The acquirer buys most of the shares to assume control over the operations and assets of the target.

While there is a wide array of benefits of business acquisition, it is also important. Business acquisition helps companies increase their shares and enter markets. It also gives them an already existing customer base, pre-established revenue streams, access to products, distribution channels, etc. This helps the acquirer to grow and expand. 

The purpose of this blog is to provide a comprehensive guide for businesses considering acquisitions. So, without wasting much of your time, let’s dive right into the blog.

 

Types of Business Acquisitions

There are different types of business acquisitions, like- asset acquisition, stock acquisition, mergers, joint ventures, etc. Let us discuss and understand each one of these in more detail.

 

1. Asset Acquisition– so, we have all heard that businesses buy the stocks or shares of other companies to acquire them. However, in the case of asset acquisition, it is the opposite. In such a case the acquirer buys the assets of the company to acquire it. The assets include any kind of equipment, facilities, vehicles, inventories, etc. The acquirer gets to choose the asset or the liabilities they want to buy.  In this kind of acquisition, it works best to buy the assets of the companies that are bankrupt. With the freedom to choose the assets that they want to buy, there is a decrease in the chances of risks and potential losses to the acquirer.

2. Stock Acquisition– the most basic and widely used form of business acquisition is stock acquisition. Now, the point is quite self-explanatory. However, let me elucidate it for you in simple and comprehensible words. Stock acquisition happens when the acquirer buys most of the shares of the target company to gain control over it. Most of the time, buying more than 50% of the shares of the target company makes the acquirer the new owner of the company. In this case, only the stocks or shares of the selling company are involved, unlike what we saw in the asset acquisition.

3. Merger– there is a subtle difference between a merger and the other forms of acquisitions we have seen until now. In any kind of acquisition, the acquirer takes over the target company. However, in the case of a merger, the two different entities come together, and they combine their forces to form a third organization.  This third organization is also known as a joint organization. The merger can happen either between two or more than two organizations. It may also happen between two organizations that offer the same kind of products or services.

4. Joint Venture– a joint venture is also different from the other forms of acquisition and also from a merger. A joint venture is done between two or more organizations that combine their forces to acquire a shared goal. This happens mostly when two local companies join together to step into a foreign market. This combination or collaboration of the businesses can assume any legal structure, however, the aim remains the same, it is to achieve a shared goal. 

So, these were the four major kinds of acquisitions that you should have the knowledge about. 

 

Reasons for Business Acquisition

If you are wondering what is the need for business acquisition, or what could be the reasons to acquire a business, then please keep reading further to get the answers to all your questions.

 

 

1. Existing customer base- what is better than having a loyal and steady customer base as an entrepreneur? With an existing clientele, the acquirer can save on their marketing expenses. They can also increase the profit by launching new products that will intrigue your customers.

2. Proven Success-  When they decide to buy a business, they already know that the company is successful. It is very evident that the business model works and has been in the market for years.

3. Established Connections-  the relationship with dealers and suppliers etc is crucial for a smooth business metamorphosis. These contacts can help the acquirer with their pieces of advice because they have been working with the company for years and are very well aware of the approach and the necessary refinements.

4. Trained Staff- Having an already trained staff and team, is equally important for an acquirer. The team is experienced enough to make the business or company successful. Most of the time, some managers and employees remain in the company during the transition period to help the new owners get detailed knowledge about the business. Such long-term employees help the new owners by providing insightful pieces of advice. The consumer base will also feel comfortable in the new business if there is someone they have known.

Businesses acquire other businesses to strategically grow and expand their businesses. They may also acquire other businesses to increase their shares in the market along with decreasing competitiveness. Acquiring businesses that have the same products and services to offer as you, is a major way to eliminate competition from the market.  They also gain access to new markets, technologies, pieces of equipment, products, services, and talent as well as a pre-established customer base. They may also gain financial benefits such as tax advantages, cost savings, etc.  

 

Key Considerations Before Acquiring a Business

Now, moving on to the next step, it is also important to know about the key aspects that should be considered before you go on to acquire a business. 

 

1. Financial Analysis– understanding and having complete knowledge of the financial landscape of any business that you wish to acquire is very crucial. It will help you to identify any kind of debt or liabilities in their system. Not only that much but it also allows you to analyze the profit percentage that you may gain by acquiring the business.

2. Cultural Fit–  cultural fit becomes an issue when merging two businesses or companies. Before a merger, you would need to know if the cultures, work ethics, staff rules, and regulations of both companies align. If both companies are not on the same page there might be issues such as a lack of communication, dissatisfied staff, dull work environment, and these factors will lead to a decrease in the productivity of the staff.

3. Risk Assessment– if you are going to acquire a business, then you don’t want to see yourself tangled up in legal matters. You should have a proper audit of the business you want to acquire. This helps you to identify any kind of legal loopholes in their system. These can range from breaches of contracts, and customer complaints to violations of contracts, and problems in human resources. 

 

Common Challenges and Pitfalls

Every coin has two sides to it, similarly, it is also important to have complete knowledge not only about the benefits one can reap from a business acquisition but also the downside of the same. Let us now discuss some of the commonly faced challenges while acquiring a business. 

 

1. Inherited Issues- Acquiring a business may come with its own set of problems and issues. You will have to address subjects like legal liabilities, obsolete gears, etc. It may take some time to adjust for new owners.

2. Limited Flexibility– Acquiring an existing business limits the new owner’s ability to make immediate changes because of the current relationships with suppliers, existing contracts, etc.

3. Cultural Fit- One crucial challenge for new owners is to integrate and gain the trust of employees as well as customers. Fitting into the company’s culture will take a lot of time for the new owners.

4. Hidden Liabilities- There may be hidden financial or legal liabilities that the new owner only discovers after the purchase, this leads to unexpected costs and challenges.

5. Lack of Creative Control- You may find yourself constrained by the previous owner’s imagination and patterns, limiting your ability to innovate and implementations of new and fresh ideas.

 

Listed above are the cons of acquiring a business. It is vital to weigh all the pros and cons and have complete knowledge of both aspects.

 

Conclusion

I hope this blog sheds some light on your queries about business acquisition and gives you an idea about what is business acquisition exactly, along with giving you an insight if you wish to acquire one. For a recap of the points and concepts discussed above, please keep reading further. 

The process of gaining control in a business merger involves two companies merging, with one purchasing virtually all or at least half of the other company’s shares. This is known as business acquisition. The firm making the purchase or acquisition is known as the acquirer, while the other company is known as the target. To take control of the target’s assets and activities, the acquirer purchases the majority of the shares.

Increased shares, market-entry, an existing client base, pre-existing income streams, access to goods, and distribution channels are just a few advantages of business acquisitions. A variety of corporate acquisition strategies exist, including mergers, joint ventures, asset purchases, and stock acquisitions. Purchasing the company’s assets—such as machinery, buildings, cars, and inventory—gives the acquirer the choice to purchase either assets or liabilities. Purchasing the majority of the target company’s shares allows the acquirer to take control of it. In a merger, the acquirer takes over the target firm, but in a joint venture, two or more companies band together to achieve a common objective.

For entrepreneurs, purchasing a firm may be a calculated strategic decision that will help them develop and extend their companies while lessening competition. Establishing relationships, demonstrating success, having an existing client base, and having skilled personnel are all important factors. Gaining market share and competitiveness may also be achieved through business acquisitions.

Prior to purchasing a firm, it is important to take risk assessment, cultural fit, and financial analysis into account. Analyzing the profit margin and spotting possible liabilities and obligations require an understanding of the company’s financial situation. Ensuring harmony between work principles, rules, and cultures requires a strong emphasis on cultural fit. Risk assessment assists in locating legal gaps in the company, including contract violations and client complaints.

Inherent problems, restricted flexibility, cultural fit, hidden liabilities, and a lack of creative authority are common difficulties encountered by new owners. It might take some time for new owners to get used to inherited problems including legal obligations and outdated machinery. The new owner’s capacity to make quick adjustments may be restricted by pre-existing ties with suppliers and contracts. Another difficulty is finding a cultural fit because it takes time to become accepted and win over customers’ and workers’ trust. After the acquisition, hidden obligations might surface, posing unforeseen expenses and difficulties.

In summary, buying a firm is a strategic decision that has to be carefully considered in light of the advantages and disadvantages.