A deal in which one company purchases and takes over another company, absorbing its assets and, often, its liabilities. Acquisitions are often financed by cash, stock or a combination of both. The acquiring firm may operate the acquired company as a subsidiary or fully integrate it.
After defining a desired outcome, a team of financial and legal experts will conduct a due diligence exercise to understand the target business, its contracts, financial records and other factors. This is a crucial part of M&A, as it eliminates surprises and potential risks and ensures that the purchase aligns with key strategic goals.
During this phase, your team will narrow down the initial long list of potential targets to a shortlist of candidates. The shortlist may include companies that are publicly listed, or whose owners have expressed an interest in selling. Once you have found a good candidate, the final contract for sale is prepared by your legal and finance teams. It looks a lot like the LOI, but it is legally binding and includes details of how money will be transferred to the target company. Typically, an attorney acts as the escrow agent and transfers share certificates to your company’s accounts.
Whether a transaction is friendly or hostile, the target’s management and employees will be impacted by the acquisition. Employees may worry that their jobs will be threatened or the company may become less profitable as a result of the transaction. Similarly, customers may feel that they are losing a supplier and switch to competitors.
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