The vast number of acquisitions that occur every year suggests that businesses of all sizes around the world place a great deal of faith in M&A as a way to achieve rapid growth. Acquisition is generally less expensive and less risky than other growth strategies, such as sales and marketing efforts, and can help companies to reach their target customers more quickly.
M&A can also be a useful way to gain access to new technology without the expense of developing it internally. However, the success of M&A depends on a number of key factors, including strategic fit, thorough due diligence, and cultural compatibility between merging companies.
Purchasing the assets of another company (often in the form of shares) gives the acquiring company control over the acquired firm. Publicly traded companies typically follow a process that involves making an offer to all shareholders of the acquired firm for a certain price on a specified date, and if enough of the target company’s shareholders accept the offer, then the deal is completed. Privately held firms use a similar process, although it is often worked out directly between the larger shareholders of each company involved in the M&A deal.
A company may wish to make an acquisition to reduce competition or excess supply in its industry, which can lead to lower costs through economies of scale. However, a company that acquires rivals may face regulatory scrutiny to ensure it is not engaging in monopolistic practices.