Acquisitions Basics

There are two major types of acquisitions, acquisitions of assets and acquisitions of equity.

Acquisitions of assets involved purchasing the property (like buying the parts of a company), whereas acquisitions of equity includes intangibles such as brands, management teams, IP and customers lists, however you are subject to hidden liabilities (buying the company whole as is).

Acquisitions of Assets bolster your PP&E. It can often make sense if a company's value is mostly derived from the physical assets (example: a power company composed of power plants), but Acquisitions of Equity can provide management value added (especially in service companies such as consulting firms etc).

Acquisitions usually result in either an accretion or dilution of earnings which is of paramount importance in the proforma analysis.

In planning for M&A activity, there are some fundamental questions which must be looked at:

1. What should we pay? What model will we use to determine a value? Valuation Multiple? Premium on share price?
   
2. Where will we get the money? LBO?
3. What will we look like after the merger is complete? What are we getting? Proforma analysis with a focus on PP&E, WC and Def Taxes and other operational accounts of value as well as strategic synergies.