An acquisition deal occurs when one company absorbs another and takes ownership of its assets. This is different than a merger, where two companies join forces to reinvent themselves as a new entity. The motivations for a business to acquire a competitor vary widely: revenue-focused buyers may seek cross-sell or upsell opportunities, technology-driven buyers can use the target company’s intellectual property to accelerate innovation, and market expansion buyers will look at the target as a way into new regions or sectors.
The key to successfully executing an acquisition deal is finding ways to create value for the acquiring company. This is typically done through synergies that will boost financial performance, such as operational efficiencies. For example, combining supply chains can reduce logistics costs, and leveraging R&D can cut development time or lower the cost of creating new products. Economies of scale are also common sources of value, as larger companies have more leverage in negotiations with suppliers and customers.
A successful acquisition starts with a well-articulated narrative that matches a buyer’s strategic goals. This can include clear articulation of the target’s positioning in the market, highlighting key value propositions that will appeal to a potential buyer, and structuring historical and projected financials in a manner consistent with how an acquiror will assess them.
Other factors to consider when pursuing an acquisition deal include the financial health of the target, cultural compatibility, legal risks, customer contracts, and intellectual property. Building trust in the target company is important to allow open communication and smooth negotiations.