A business can grow significantly if it acquires another business that provides complementary services and products. However, the acquisition process can be complicated and expensive. This article will explore how to structure an acquisition deal plan in a way that minimizes these difficulties.
A company may make an acquisition to achieve one of several goals: increase market share, gain technological advantages, improve operational efficiency or eliminate a competitor. Unlike a merger, where two companies combine into a single entity, an acquisition happens when a new company takes over the assets and operations of a previous business.
An acquisition structure can take on many forms, such as an asset purchase or a stock purchase. The former involves the acquiring company purchasing only the specified assets, while the latter involves the acquiring company buying both the assets and liabilities of the acquired firm. Asset purchases are typically easier and faster to complete than a merger, but they can also be more complex from a tax standpoint as the assets must be allocated to different categories of cost and depreciation.
Once the acquiring and purchasing firms have decided to proceed with an acquisition, they would usually go through a due diligence exercise in order to evaluate the assets and determine the value of the company. The purchaser will also consider the legal and regulatory stipulations of the country in which the company is based.
The acquiring and purchasing companies will then negotiate the terms of their transaction. This will include a transfer of funds (debt or equity), warranties, indemnities and limitations that will be included in the Share Purchase Agreement (SPA) or the Assets Purchase Agreement (APA).