01 May What is a Business Acquisition?
Selling your software or technology company is the most important transaction of your life, but also the most complicated. If done well, you might generate exponential wealth. Done wrong, it could be a disaster. Are you ready? If you want to be more ready, you might be interested in working with a business acquisition lawyer.
The Business Acquisition Process
Acquisitions involve a process by which one company acquires the assets of another company. An acquisition, or takeover, is the purchase of one business or company by another. Done wrong, it could be fatal to your business.
To avoid such, consult a business acquisition lawyer. Acquisitions are usually divided into either “private” and “public” acquisitions. The distinction depends on whether the stocks of the target company is publicly traded or not.
Acquisitions can also be categorized as “friendly” or “hostile” depending on how the target company perceives the acquirer. Whether you need help with a “private,” “public,” “friendly,” or “hostile” acquisition, a business acquisition lawyer can help.
Merger vs Acquisition
A merger occurs when two separate entities combine forces to create a new, joint organization. Meanwhile, an acquisition refers to the takeover of one entity by another. Mergers and acquisitions may be completed to expand a company’s reach or gain market share in an attempt to create shareholder value.
Types of Acquisitions
There are three different types of acquisitions. They are:
- Horizontal Acquisitions
- Vertical Acquisitions
- Concentric Acquisitions
If you are getting ready for a horizontal acquisition, you should seek out the assistance of a business acquisition lawyer or a business acquisition consultant.
Horizontal acquisitions happen when a company merges or takes over another company that offers the same or similar product lines and services to the final consumers, which means that it is in the same industry and at the same stage of production.
Companies, in this case, are usually direct competitors. For example, if a company producing cell phones merges with another company in the industry that produces cell phones, this would be termed as horizontal acquisition.
The benefit of this kind of acquisition is that it eliminates competition, which helps the company to increase its market share, revenues and profits.
A vertical acquisition is done with the aim to combine two companies that are in the same value chain of producing the same good and service, with the only difference being the stage of production at which the two businesses are operating.
For example, if a clothing store takes over a textile factory, this would be termed as vertical acquisition, since the industry is the same, i.e. clothing, but the stage of production is different.
These kinds of acquisitions are usually undertaken to secure supply of essential goods, and avoid disruption in supply since, in the case of our example, the clothing store would rest assured that clothes will be provided by the textile factory.
Concentric acquisitions take place between firms that serve the same customers in a particular industry, but they don’t offer the same products and services. Their products may be complements, a product which go together, but technically not the same products.
For example, if a company that produces DVDs Acquisitions with a company that produces DVD players, this would be termed as concentric Acquisition, since DVD players and DVDs are complementing products, which are usually purchased together.
These are usually undertaken to facilitate consumers since it would be easier to sell these products together. Also, this would help the company diversify, hence higher profits.