An acquisition deal is the process of one company buying another business. The purchase may be with cash, stock or a combination of both. The purchaser must conduct due diligence on the seller. This involves a review of financial statements, valuations and liabilities that come with the sale. Once the evaluation process is complete the Buyer and Seller will formulate a deal detailing all terms and conditions. The parties involved will then sign a share or asset purchase agreement.
The acquiring company may use the purchase to get into new markets, increase its market share or eliminate a competitor. It can also be a way to access technology that would otherwise be costly to develop in-house. For example, Apple acquired AuthenTec which makes the touch-ID fingerprint sensor that goes into iPhones. Another reason is a need to reduce physical or logistical constraints. For instance, a company may need to find a larger production plant or a more reliable supplier of raw materials to meet demand.
M&A can provide additional revenue streams for both sides of the deal. On the buy-side, this can mean that the acquiring company has access to additional products and services for cross-promotion and upselling. The acquiring company can also acquire intellectual property and lines of business that it might not have developed on its own or that were too expensive to produce in-house. On the sell-side, a merger or acquisition can dramatically lower (or even remove) barriers to entry into new markets and locations.