Business Acquisitions

Business Acquisitions In Tulsa, OK

The acquisition of the shares and the assets of an existing company is a popular model for growth. The acquiring company, typically the larger, will be able to control and build upon the target company’s strengths and weaknesses. The motivation for an acquisition for both companies is the captured synergies for a greater market share.

There are three common types of acquisition structures. In a true acquisition, both companies survive and continue operations seamlessly from the public, the customer and the supplier points of view. In a merger, the acquiring company survives and continues business as a larger company. In an amalgamation, neither company survives, and operations go forward as a newly-formed company.

This article will focus on the true acquisition structure where both businesses continue as separate legal entities. The acquiring company becomes the parent of the acquired company. The acquired company becomes the subsidiary.

The Benefits of an Acquisition

When the acquiring company becomes the parent, it can enter into new markets and expand product lines and services. This benefit is the direct result of the subsidiary’s reputation and existing client base. These benefits will be instantaneous and seamless to the public.

A business acquisition will enable the parent company to overcome previous barriers to a new market entry and to shelter it from any adverse reactions by competitors. The acquiring company would have had to endure these risks and barriers it if expanded on its own.

A company’s entry into new markets, or its expansion in existing markets, is costly due to the expenses attributable to research, the development of new product lines and services, and the value of the time needed to build a reputation and a customer base.

The acquired business, or the new subsidiary, will also experience benefits. With the strength of the parent company, the subsidiary will share in the market power. There will be the availability of new resources and competencies, and access to capital will be expanded.

The Challenges of an Acquisition

The parent and the subsidiary companies need to be mindful of certain pitfalls when negotiating an acquisition transaction.

The cultures of both companies need to be studied to avoid conflicts from within. The acquisition needs to be as seamless as possible to all employees. Any conflict among employees will have a direct, negative effect on the bottom line and the profitability of each company.

When seeking a company to target for an acquisition, any diverging objectives need to be addressed and resolved. Brand protection is paramount.

Another important consideration in a business acquisition is the suppliers. On its face, it would seem that the parent and the subsidiary would benefit from the newly-created economies of scale. However, new pressures from this larger scale will be placed upon the suppliers that may not have the capacity to service the larger account. Preserving the relationships with the suppliers, and working through any unforeseen pressures, will prove beneficial and profitable.

The acquisition of an existing company is a proven model for growth with less risk over a shorter period of time. However, the process may create unexpected problems for employees and suppliers.

It is essential to recognize and analyze all aspects of an acquisition for the success of both companies.

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