An acquisition deal is a business transaction where one company purchases and takes control of another, absorbing all its assets and liabilities. This is a common way for companies to expand into new markets without the cost and burden of developing a production facility and marketing to a completely new customer base.
It may also be a great strategy to acquire the intellectual property and patents of a competitor, giving you access to their existing technology and business processes that can help your company grow and improve. Many opportunistic deals are made when the acquiring company notices that the acquired firm is valued below its intrinsic value, such as JP Morgan’s 2008 fire sale of Bear Stearns at a bargain price.
During the due diligence process, it’s important to examine a company’s debt load and legal status. If a business has an unusually high level of debt, this could be a sign that the company is struggling financially. A reputable and transparent company will have complete financial statements that can be scrutinized by the acquiring company during the negotiation process. This is especially important for the finance team, which needs to ensure that it will be able to manage the financials of the acquired company and that the merger will not strain their resources or cause unwanted financial problems down the road. It’s also a good idea to check that the acquired firm doesn’t have a significant amount of pending or ongoing litigation, as this could negatively impact the company’s long-term financial health.