Asset Acquisition Strategy
What Is an Asset Acquisition Strategy?
An asset acquisition strategy is the point at which one company buys one more company through the most common way of buying its assets, rather than a traditional acquisition strategy, which involves the purchase of stock.
Understanding an Asset Acquisition Strategy
Acquisition strategies overall are a means for a company to advance growth by purchasing different companies or business units of different companies. This is conversely, with a organic growth strategy, by which the center is increasing the activity of in-house business lines.
There are many reasons a company would need to buy another company. These reasons can include building economies of scale in an existing product or service line, reducing competition, moving into a nearby market, penetrating another geographic market, benefiting from [synergies](/cooperative energy), or even pre-empting a contender that might be eyeing a similar company.
An acquisition strategy gives a way to a large company in a mature sector to advance incremental sales or profit growth, or for a more modest firm to speed up steps toward a size target.
Most acquisitions are finished through the purchase of a company's stock and obtaining control of that company. An asset acquisition strategy centers around purchasing the assets of a company and in some cases its liabilities. Since the two companies can conclude which assets and liabilities ought to be traded, an asset acquisition strategy considers more flexibility in structure than a stock purchase.
Asset and Liability Determination
The benefit of an asset acquisition strategy, when compared to a stock acquisition strategy, is that the acquiring company will single out the parts of a company it loves and feels would benefit their company. This is rather than a stock acquisition strategy where a company would need to buy all parts of a company where certain areas may be a poor fit and must be divested later on.
Choosing which assets, and now and again liabilities, to procure evades any unforeseen issues that were not disclosed before the acquisition, which could sour the trade or lead to additional issues than are worth the acquisition. This diminishes risk and any expected losses.
This type of strategy functions admirably comparable to [bankrupt](/chapter 11) companies, where a company can pick the remaining profitable parts of a company without having to buy the parts that never again offer any benefit.
Pricing and Incorporating an Asset Acquisition Strategy
One more essential element of an asset acquisition strategy is the purchase price and financing method. Prudent managers won't overpay for an asset (i.e., they will try not to make a dilutive acquisition), and when they truly do choose to buy one more company or a unit of a company they will ensure that the impact to their company's balance sheet is acceptable.
For instance, if too much debt must be incurred to procure an asset, without a sufficient future payoff, a company might choose not to continue with the acquisition.
One more element of the strategy is determining the way that the acquired asset will be integrated and afterward followed in terms of contribution to profits. A sound method must is in place to monitor the acquired asset's contribution to the existing company's cash flow, earnings per share (EPS), or other financial targets so management can build a layout for future asset acquisitions.
Management will likewise consider the steps expected to effectively close an asset acquisition strategy and whether there is a long-term social fit with respect to work force.
The purchase price paid for the assets and the way things are to be allocated among the assets is set forward by the Internal Revenue Service (IRS), which states that the purchase price ought to be allocated using the residual method. This states that the purchase price is allocated to the assets in light of their fair market value and any extra amount be allocated to goodwill.
Features
- Explanations behind an asset acquisition strategy center around promoting growth through outer means instead of organic growth from within.
- Asset acquisition strategies function admirably concerning the assets of bankrupt companies.
- Choosing the specific assets and liabilities diminishes risk and possible losses.
- The Internal Revenue Services (IRS) states that the price paid for the assets ought to be all allocated to every individual asset using the residual method.
- An asset acquisition strategy is the purchase of one more company through the most common way of buying its assets rather than buying its stock.
- In an asset acquisition strategy a company picks the assets, and in some cases liabilities, it wishes to obtain, rather than a traditional acquisition where it buys the whole company.
