Strategic Acquisition as Relates to M&A
Presently there are two major methods in which a merger or acquisition occurs in the graphic communications industry. It is either “strategic” or a “tuck in.” Last month we talked about a “tuck in,” this month we will address a strategic acquisition.
A strategic acquisition occurs when a buyer is seeking to merge with or acquire a company that may have a geographical location the buyer is seeking, technology that the Buyer wishes to possess, or is a competitor that the buyer wishes to absorb. These are but a few of the reasons that a strategic acquisition is contemplated. Typically a candidate for such a buy has good or strong earnings and the purchase price will be based on a multiple of adjusted EBITDA. The buyer is seeking to purchase the seller’s fixed and intangible assets, rarely is a stock purchase made. The seller’s operations and facilities typically remain intact and most personnel are kept in place. The acquiring company may want to keep the seller’s working capital in place and will consider that in the offering price. The acquiring company may or may not retain the seller’s sales personnel, and in most cases duplicate administrative roles between the companies are eliminated.
The seller will retain all of their long-term debt and possibly the closing working capital. The seller will then proceed with an orderly liquidation of their business. In most cases, the buyer works with the seller to make this as painless and seamless a transition as possible for both the seller and the customers.
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