What Is acquisition? How Does It Work?

In business, acquisition and disposition are the most important terms. These two terms are used interchangeably, but they actually mean different things. While Acquiry acquisition involves the process of acquiring something or acquiring a large amount of something, disposition simply means selling it or giving it away. While it may sound like a simple word, acquisition and disposition are very complicated words that need to be understood properly in order for your business to run smoothly. There are several other terms that can be used interchangeably with these two words so that they too are as clear as the aforementioned words.

Mergers and Acquisitions: What's the Difference?

Acquisition is one of the most important business activities in existence. Without an acquisition, there would not be any way for any business to create new products and services. It is the first step of creating a market for your product or service. In order for any business to become successful, there needs to be some form of acquisition involved. There are several ways for an acquisition to take place, including the following:

When a company makes an acquisition, it is synonymous with taking over another company. An acquisition can be made either through a private equity transaction (PEG) or a purchase option. In a PEG, an initial investment is made by the buying company; the target company then pays the acquiring company a lump sum based upon the value of the acquired company’s business. In a purchase option, the buying company receives either a straight cash payment or shares in the target company’s stock. The main difference between these two methods of acquisition is that in the former case, the target company doesn’t have to wait for a sale to happen while in the latter, an acquisition can occur immediately.

Once a successful acquisition has taken place, the next step would be the negotiation of the sale or acquisition of the business. The main purpose of this step is to close a sale or acquisition and to finalize the financial transaction. There are different approaches that can be employed in this process. Depending on the nature of the target company, there could be multiple negotiations that would need to take place before a successful deal could be sealed.

Acquisitions can also be facilitated by financial sponsors. These companies can serve as co-venturers, acting as a financial sponsor for the acquisition activity. The role of the financial sponsor is to help finance the acquisition and to provide necessary guarantees for the business to be sold or closed. This approach is often used when the target company is very difficult to acquire, which requires the business to be very lucrative and stable. The company would need a large amount of time and money before it can be sold.

Sometimes, a business can be bought for a price much lower than its worth. For instance, if a company is considered to be overvalued, it may be purchased at a much lower price. This may require an extensive series of negotiations and evaluations before the right acquisition is made. However, the main aim of an acquisition is to increase the profits of the business by introducing it to new markets.