Acquiring a business can be an excellent move by an aspiring entrepreneur or the leadership team at an organization. Business acquisitions can lead to rapid expansion for an existing company. They could help an aspiring entrepreneur move into a competitive industry. Acquisitions can also help one company obtain control over intellectual property or talent that currently helps enrich a competitor.
A smart business acquisition could lead to profits and improve business operations. However, acquisitions can also fail and lead to liability. Those contemplating an acquisition often need to clarify the three details below to determine if the transaction might be a beneficial one or not.
The value of the acquired business
One of the biggest possible mistakes in an acquisition scenario would be the unquestioning acceptance of the company’s self-valuation. The current leadership at the organization has an interest in maximizing what the acquiring party pays. Conducting an independent business valuation or working with a professional to properly value an organization can help ensure that the price set for a business acquisition is appropriate.
The liability that comes with the transaction
Due diligence is a crucial component of any acquisition or sizable business transaction. The potential buyer needs to know what risks may come with ownership of the company. From complaints about declining product quality to rumors of a racial discrimination lawsuit brought by employees, there could be numerous risks that become the concern of the acquiring party after the transaction. Identifying sources of financial and legal liability and factoring that into the price offered is crucial for the protection of the buyer.
The likelihood of federal intervention
Federal regulatory authorities can sometimes prevent an acquisition from occurring. When there are concerns that the acquisition might give the buyer too much control over a highly-concentrated market or might lead to a monopoly, regulatory authorities may try to prevent the acquisition. There has been increased scrutiny of acquisitions in certain sectors, including finance and technology, in recent years.
Those who understand what might complicate major business transactions, like acquisitions, can gather the necessary knowledge to make the best decision possible. Learning more about the acquisition process and the other company involved may benefit those seeking to acquire another organization.
