What Happens During Company Acquisitions?

In 2017, over 15,000 company acquisitions and mergers took place. And while they are relatively common, most people don’t understand why they happen.

Most of the time, the company acquired company still operates as normal. They retain their brand name, continue making products, and so forth.

So why do these acquisitions happen? There are many reasons. They are very strategic business decisions, part of a long-term growth strategy, that benefit both companies and can help them earn an edge over the competition.

For example, Uber acquired Postmates in 2020. The delivery service uses independent drivers to deliver food, groceries, or anything else.

This strategic move not only increased the Uber company stock but leverages the existing network of each company to better serve customers.

But mergers and acquisitions are very complicated. Read on below to find out what happens each time this takes place, and why it’s important to you. 

Difference Between Mergers and Acquisitions

The terms mergers and acquisitions are commonly used next to one another. As a result, most people think they mean the same thing.

But mergers are when two companies combine to create a new, third company. It’s a blending of the two or merging.

Acquisitions take place when one company on the buy side purchase all or most of the shares of the company on the sell-side. The buying company now controls the other company, but the two don’t necessarily blend together.

Most of the time, the purchased company operates as-is, under its original brand name. And it can leverage the capital and resources of the buying company to grow its market share, benefitting both companies. 

What Happens During Company Acquisitions?

So what is actually happening during the process? When a company identifies a target company to purchase, it will perform its due diligence. They’ll evaluate the current management, the overall footprint and geographic location of the company, the treasury status, and identify opportunities for expansion. 

When conversations start, the companies will enter a non-disclosure agreement (NDA) to prevent the leaking of sensitive information. If the company wants to move forward with a purchase, they will send a letter of intent (LOI) outlining the general guidelines of the offer and process.

Negotiations begin taking place, and more in-depth due diligence takes place, reviewing the financials, assets, liabilities, employees, and so forth.

When both companies are confident that the deal will go through, the terms of payment will be discussed. Often companies acquire others for stock.

They will also outline which key people will need to remain in the company, and how their roles may remain or change. At this point, the contracts are signed and the acquisition timeline begins.

Acquisitions often take a long time, as personnel changes are made, new business systems are implemented, the software is changed or adjusted, and so forth. And all of this has to take place without the company ceasing operations as usual.

Paying Attention to Acquisitions 

Company acquisitions are long, complicated, and expensive. But they only take place when a very profitable opportunity exists for both companies. 

As a result, we’ll continue to see thousands of these taking place every year. Though, the general public only ever hears about trending companies, like Amazon, Uber, Apple, and so forth. Most of the acquisitions take place outside of this Silicon Valley tech bubble.

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