Business law: the basics of an acquisition

Business law: the basics of an acquisition

On Behalf of | Jan 18, 2019 | Uncategorized |

People often hear about mergers and acquisitions when major companies come together and make massive deals. The truth of the matter, though, is that many mergers and acquisitions occur amongst small and medium sized businesses, meaning that these maneuvers are must more common and much more accessible than many realize. Therefore, businesses that are looking to expand their market share, streamline their systems and reduce costs may one to consider one of these options.

This week we will briefly look at the basics of acquisition. Generally, an acquisition occurs when one company buys up most, if not all, of another company’s stocks. If at least 50 percent ownership is obtained, then purchasing company has acquired the other company. Sometimes these acquisitions are mutually beneficial, but other times they are highly contentious.

There are a number of reasons why an acquisition may prove beneficial. For many companies, expanding operations is costly and inefficient. By acquiring an existing business, though, that already has personnel, infrastructure and a client base in place, the acquiring business can grow and even enter new markets with limit investment and risk. Many companies scout young companies that may be cheaper to acquire in hopes that their growth will lead to large returns on investment. These are just a few of the various reasons why an acquisition may prove to be in a business’s best interests.

Regardless of which side of an acquisition a business finds itself on, it needs to fully understand what is at stake. Those who enter into binding acquisition agreements without a full understanding may find themselves disappointed and disadvantaged when everything settles. This can mean lost time, money and control. Therefore, it is wise for businesses to discuss these matters with skilled legal professionals before taking the plunge into a mergers and acquisitions.