A strategic acquisition is when a company buys another company using either stock or cash that will enable the purchasing company to gain a strategic advantage over its competitors. The advantage can be in eliminating a competitor by buying them out, expanding production, or acquiring raw materials for your product. An acquisition can also be valuable for any number of additional reasons.
Why Grow Business Via Strategic Acquisition?
Some companies don’t have the revenue to support buying another company. There is another option which is to grow a business by adding staff, increasing advertising, or expanding by opening a branch in another city. When this isn’t enough, it’s time to consider a strategic acquisition. This can help:
- Boost sales
- Acquire new clients
- Have a new resource for business
The biggest reason for a strategic acquisition is to achieve economies of scale. This is lowering the average cost to produce one unit by increasing the amount of overall production. The two companies together can produce things at a much lower cost compared to when they are separated.
Other Reasons Include:
1. Expanding business into a new region or setting.
- It’s usually much cheaper to buy a company in a certain region and use that to create more business for the company, rather than starting a whole new establishment in that area.
- This is also helpful when the company is looking to increase output or take their production more into their own hands and acquire a warehouse.
- It isn’t easy to open a warehouse, but if the company is acquiring one from a former company, there’s no need to get approvals from the city or worry about obtaining all the permits necessary because they already exist.
2. Clientele. Strategic acquisition also happens for clientele and relationships.
- When the company buys out another, the CEO’s connections and their clients are heavily researched.
- Their clients will become the buying business’s clients, which is a great way to expand a business.
- In addition, some companies buy out a company and keep their CEO as an advisor because he has relationships with foreign industries or governments. When it comes to global trading, the CEO can be utilized to establish relationships.
3. Products. Certain companies have patents on products and proprietary software that will be useful to another company. If the buying company wants the proprietary software to create an application and the other company has already patented and developed it, it’s smart to buy that company.
A Strategic Acquisition’s Greatest Asset
It’s in the company’s best interest to have people to consult with before making large decisions, such as what company to purchase. Having a financial advisor on your side as well as a great business lawyer Memphis TN trusts will ensure that you have all the information you need. They’ll be able to recommend what companies to buy before you even begin thinking about acquiring any, and a financial advisor will make sure that you have the capital and that the company is worth buying.
A business law attorney can ensure that your rights as a buyer are protected. They can also focus on handling unexpected issues that arise during the process. The laws affecting business acquisitions can be complicated. Contact a business law attorney today for a case review. Discover how a skilled attorney can help your business succeed.
Thanks to our friends and contributors from Patterson Bray for their insight into business law and strategic acquisition.