A Brief Look At Company Acquisitions

Company acquisitions result from the take over of one business by another or when an individual buys an already existing business. They take place between private as well as public entities. The buyer is called the ‘acquirer’ or the ‘bidder’ while the company being acquired is the ‘target’.

There are four types of takeovers: friendly, hostile, reverse, and backflip. The approach of the buyer, the target’s response and treatment of it once acquired are all characteristics that denote which is which.

When a friendly buyout takes place, the board of directors for the target is notified by the bidder and the board decides whether to or not to accept the offer. Accepting simply means that they see it as a good move for their shareholders and decide to bring the deal to their attention.

This is so unless the board and shareholders are one (which is present in a majority of private businesses). Once the board and shareholders are different, the latter decides if the offer is suitable and, once accepted, the board is then responsible for moving ahead with the process.

When a board rejects a bid yet the bidder proceeds with the attempt to takeover and is successful, a hostile takeover occurs. Reverse takeovers are those in which a private business buys a public one and backflips, which are rare, occur when the bidder make its business a branch of the target.

Several factors may prompt a takeover. Sometimes the company is in good shape while other times the target is failing. Either way, the bidder has determined that buying it is a good move. It could be to avoid unwanted spending (reverse takeovers have this attraction) or the projected profit that can make as time goes by.

The process is often lengthy and requires a lot of documents to go through. The tendency to finance buyouts with loans instead of cash or personal money contributes to this. Very few bidders pour their own funds into these transactions.

Loans are not the only option. Bidders can offer the target’s shareholders majority share in the company (these are referred to as all-share deals). Though the bidder is solely in charge of managing the business, the shareholders retain control, which is rather frequent in reverse buyouts. While company acquisitions by public companies can be funded with loan notes.

If you are thinking of buying a company you might also want to consult an expert on the procedure of exit planning