An acquisition deal is an arrangement between a buyer and seller of a company or its assets. This type of deal allows a larger company to gain access to new products, customers, and distribution channels without having to invest in the cost of establishing itself in those markets.
Acquisition deals may be structured using cash, stock, or a combination of the two. In a cash transaction, the acquiring company pays for all of the assets owned by the acquired company. This leaves the acquired company with only its cash (and debt, if any) and enables it to liquidate or enter other areas of business. Another common transaction is a reverse merger, in which a private company with strong prospects and the ability to secure financing buys a public shell company with no business operations or assets, then reverse merges it into itself. The result is a new public company with tradable shares.
The negotiating phase of an acquisition deal typically involves a thorough due diligence process to ensure that the purchase price accurately reflects the value of the company being purchased. This includes assessing the company’s financial structure, operational performance, and culture. It also addresses the question of whether acquiring for its own sake is an appropriate strategy and how the acquired company can add to the buyers’ overall goals and strategic direction.
Once the valuation and negotiation phases are complete, a definitive agreement detailing the terms of the acquisition is drafted. This document typically undergoes extensive review by both parties’ legal and financial advisors to ensure that all aspects of the acquisition are fully disclosed.