Understanding the Nature of Acquisition and How it impacts Your Business

In corporate finance, acquisitions and mergers are transactions where the ownership of various companies, enterprises, their operational units, or other related companies are merged or acquired with other similar entities. For businesses that are new, acquisition may mean acquiring a profitable but aging company with promising growth prospects. Acquisitions can also be used to take control of an already established company with substantial assets. An acquisition can either be short term or long term depending upon the objectives of the acquirer. Acquiry is designed to deliver a seamless acquisition services to both businesses and customers.

HPS Completes the Acquisition of ICPS | Financial IT

Acquisitions can be made for a variety of reasons. It can be to close a business that is not generating enough cash to satisfy the debt obligations of the acquired entity, to buy a company with an existing management team that is not producing the desired results, and to achieve tax advantages by converting an existing line of credit or equity into cash. The primary motivation for an acquisition is to increase the size of the organization to create a competitive advantage over its competitors. Mergers and acquisitions also allow an investor to participate in the business as a part owner.

The two main types of acquisitions include direct and indirect. A direct acquisition is a deal in which the buyer of the target assets uses its cash resources to purchase the target. Indirect mergers are a combination of direct and indirect. When a privately held company combines with an already publicly traded company, a merger is referred to as an indirect merger.

Purchasing an already existent enterprise is referred to as a leveraged acquisition. A leveraged acquisition occurs when there is a history of successful financing of the target company and the acquiring firm is able to access existing financial resources without a commitment of additional capital. Leveraging occurs when the acquiring firm has limited funds to commit or borrow against and so needs to obtain additional capital to fund the acquisition. Examples of leveraged acquisitions include nursing homes and shopping malls.

Once an entity has been purchased, it is commonly referred to as an acquired enterprise. Acquired enterprises are not always a success but may be made into successes by carefully managing them. Acquired businesses vary greatly and some examples include medical technologies, financial services and consumer products. Some leveraged acquisitions will be made into joint ventures, while others will be sold outright. In many cases, the target company that is being acquired will provide a complementary product or service that can be made into a successful product or service.

The benefits of acquisitions for companies come from the high probability of quick growth, attractive price, immediate growth and positive cash flow. However, all of these gains come at a cost. Growth in a foreign market requires an understanding of the culture, local laws, regulations and potentials for growth. There are many aspects that must be considered before an acquisition can occur. The financial, business and personal histories of both parties must be thoroughly analyzed in order to conduct an acquisition transaction successfully.