A company can acquire another business by purchasing its assets, stocks or shares or a combination of these. It may be to increase market share, consolidate its presence in a particular region or even to eliminate a competitor. An acquisition can also be seen as a way of lowering operational costs or enhancing the company’s product line. Regardless of the reason, there are several aspects that must be considered during an acquisition deal to ensure it is successful.
The first step is to structure an Acquisition Plan. This includes the research and calculations that are required to determine the value of a business. It also details the steps that need to be taken to complete the process. This will help to reduce any uncertainty and provide a clear path for both parties to follow during the transition.
Next, the acquiring company must negotiate with the target’s management to agree on an appropriate purchase price. This price is based on various metrics including financial performance, market value, and strategic fit.
If the acquiring company wishes to pay for the target in its own stock, an exchange ratio is negotiated. This exchange ratio determines how many shares of the acquiring company will be issued for each share of the target. An example of this type of acquisition is Microsoft’s purchase of GitHub for $7.5 billion in 2018.
During the negotiations and closing phase, both parties must review their analysis and determine how they will transfer ownership. This could be through a Shared Purchase Agreement (SPA) or an Asset Purchase Agreement (APA).
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