An acquisition is when one company purchases all or most of another company’s shares, thereby gaining control of that company. In commercial real estate, this would involve purchasing shares of a property.
When one person or company acquires another, that person or company is then able to make decisions about the newly acquired property without seeking approval from other, smaller shareholders.
4 Reasons for Acquisitions
There are a number of reasons that companies acquire one another, sometimes with the majority shareholder’s approval, and other times without approval.
1. Entering a Foreign Market
One company or commercial real estate owner might buy another company or property abroad to enter the foreign market. For instance, if a commercial real estate owner buys a set of pre-existing retail properties abroad, the properties will already have their own established customers, staff and other assets, making it easier than starting a new business abroad.
2. Growth Strategies
Acquisitions also occur when a company has depleted its resources but still wants to expand. Rather than buying and opening new retail properties, for instance, it could make more sense financially to acquire one that already exists, bringing in new revenue without the additional work.
3. Decreasing Competition
One reason a company might acquire another is simply to eliminate competition. For instance, if two retail properties exist side by side, one is taking revenue away from the other. If the property owner acquires the second property, however, that competition is gone, and all revenue goes into the same company.
4. Gaining Technology
When a large company acquires another, the reason could sometimes be that the other company has implemented a successful technology that would be easier to simply purchase, rather than spending the money to research and develop that same technology.
What Is the Difference Between an Acquisition and a Merger?
An acquisition implies some sort of takeover of another company, pushing the current owners out, whereas a merger is when two companies mutually combine to form a new one. Two merging property owners believe that combined, they would be stronger than just one entity.
What Do You Need to Know Before Making an Acquisition?
For starters, it’s a good idea to talk to a financial advisor before making any major decisions regarding acquisitions. There are also few basic questions to ask yourself if you’re thinking of acquiring a company or property.
- Is the asking price reasonable?
- How much debt will you be taking on? And can you afford that debt?
- Are lawsuits likely to occur during or after the acquisition process? Are there any pending lawsuits that you would be taking on?
- How are the company’s financials? Are there clear and organized financial statements?
- Use our acquisition calculator to make an informed decision.