Acquiring a company can be a great way to expand your business. Alike merging, acquisition can bring new customers, distribution channels, skills and knowledge, whilst adding more resources into your business. In addition, it may also assist you to offer your own products or services. Nevertheless, with every great reward, there are great risks. To avoid the pitfalls, you need to understand:
- What is acquisition in business?
- Common reasons to acquire a business
- Benefits of business acquisition
- Things to consider before acquiring a business
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Read on to get an in-depth understanding of the business acquisition!
What is Acquisition in Business?
An acquisition in a business is a corporate transaction where a company buys a portion or all of the company’s shares or assets. It is done to be an outright owner or a majority shareholder of the business. Being a majority shareholder, you get the advantage of making decisions without the consent of other shareholders.
By becoming an outright owner, you can change the business into your own company by putting your own brand or making it a sub-brand. Remember that if the company that you are acquiring has good brand recognition and goodwill, you could get more benefits by keeping its original identity as it is.
Common Reasons to Acquire a Business
There can be many reasons for a business acquisition. Note that these reasons need to match with your business goals. It can be done:
- to improve the performance of the target business
- to eliminate competition and risks
- to provide new services or products
- to realise financial synergies
- to acquire technologies or skills
- for managerial reasons and tax benefits
Benefits of Business Acquisitions
The acquiring party gets the following benefits by acquiring a business:
- Quality staff and skills
- Access to funds and capital
- Large customer base and market share
- Reduced costs and overheads
- Low entry barriers and competition
- Organic growth
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Things to Consider Before Acquiring a Business
If you want to acquire a company, you need to do your homework on the company that you are acquiring. Here are the things to consider:
1) Examine its Finances
Whether you are acquiring a business partially or outright, the first thing you need to do is to examine its finances. You need to examine its audited financial statements for the last five years. In addition, you need to analyse its growth and check out its cash flow and working capital.
2) Look into their Assets and Liabilities
Find out the assets possessed by the company like plant, equipment, building, vehicle, land and intangible assets. Ensure that you are getting everything against your payment.
In addition, find out what business owes (liabilities), like taxes, contractual obligations, employees’ salaries and other legal obligations. Also work out, if you need any special insurance, licence or a permit.
3) Find out Risk and Benefits
At last, you need to identify what risks are associated with the business that you are acquiring and how to overcome them. And work out the areas that benefit your business (like synergy) to make it more efficient.
Quick Sum Up
Hopefully, now you have got a good grasp of what is acquisition in business, what are the reasons and benefits of the acquisition, and what are the things you need to look at before acquiring a business. An acquisition can be a short route to achieve your business goals.
However, consider the pitfalls associated with it. So, before acquiring a business, you need to examine it carefully to get the most out of your investment.
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Disclaimer: This blog is written for general information on business acquisition.