Acquisition is a business strategy that allows companies to increase their market share and grow their customer base. When done well, a company can become a dominant player in its industry. However, a successful acquisition requires careful planning and cautious implementation.
A good acquisition process begins with a strong, well-planned due diligence process. This process involves reviewing and assessing the company being acquired. It also includes examining the financial statements of the target company to ensure that the asking price for the business accurately reflects its worth.
The most common reasons for businesses to make an acquisition are to expand their market share, grow their customers or acquire new technologies. Acquisition can also serve as a quicker way for a business to achieve its growth goals than through organic means. For example, a technology firm might look to buy a promising young startup that already has a large user base, thus speeding up its time to market.
Other reasons for an acquisition include reducing competition and cutting costs through economies of scale. For example, a company might purchase a company that has a similar product in order to reduce manufacturing and shipping costs. Another reason for an acquisition is to access talent. For example, Apple’s acquisition of Beats Electronics was driven by its desire to gain access to the company’s creative talents, such as Dr. Dre and Jimmy Iovine, to enhance its music-related products.
One of the biggest risks to consider with an acquisition is that a company may be overpaying for its target company. Fortunately, there are several metrics that business analysts use to assess a company’s value, and thorough due diligence can help ensure that the acquiring company is not overpaying for its potential acquisition target.