An acquisition deal is an agreement where one company buys and takes control of another, absorbing all assets and liabilities. It is commonly financed by cash, stock, or a combination. The acquiring company can operate the acquired company as a subsidiary, or fully integrate it. In large deals, the acquisition can affect market competition. It may also require regulatory review, especially in competitive industries.
When a business is seeking to expand into new markets, an acquisition is often the best option for its future growth. However, acquisitions can be costly and should be made with a clear vision of the desired outcome. Failure to do so can lead to a waste of resources, financial loss, and disruption to existing operations.
During the acquisition process, a finance team plays a key role in ensuring that the deal runs as smoothly as possible. This includes assessing and analysing the financial documents to identify and resolve any potential issues that could derail the transaction. In addition, they are responsible for performing valuation analysis, forecasting outcomes and working out the financing for the deal. External advisors or investment bankers can help simplify the process by reducing the time and cost of completing it.
After initial discussions, the acquiring and selling companies usually sign a letter of intent or memorandum of understanding (also known as a term sheet). This document outlines the proposed key terms of the deal. It is not legally binding and can be amended before finalizing the definitive purchase and sale agreement. The parties then proceed to complete their due diligence investigations and negotiate the final purchase agreement.