An acquisition deal refers to a business entity purchasing and taking over ownership of another company, absorbing the acquired entity’s assets and liabilities. This is sometimes considered a form of merger, although there are differences between the two, mainly involving how an acquisition is communicated to shareholders and employees of the targeted company.
Often, the primary motive of an acquisition is to gain access to new customers or markets through expansion. This may also help companies mitigate risks of a concentrated market by diversifying revenue streams or stabilizing cash flow. Acquisitions may also provide a more efficient way to operate by leveraging existing resources and expertise of a company rather than creating or developing the same capabilities in-house.
A secondary reason for M&A is the desire to acquire innovative technologies that are hard or costly to develop in-house. For example, Google’s purchase of Nest Labs in 2014 gave them access to smart home technology and helped them stay competitive in the growing market for connected devices.
The acquiring company must evaluate whether the purchased firm’s brand will fit well with its own, as well as how it will integrate into current operations. In some cases, a company that is initially viewed as an unfriendly or hostile acquisition may eventually become a friendly one as the acquiring company secures endorsement of the transaction from the target company’s board and shareholders. This can be achieved through improving the terms of the offer or by negotiating the best value for all parties.