An acquisition loan is a loan given to a company to purchase a specific asset or to be used for purposes that are laid out before the loan is granted. The acquisition loan is typically only able to be used for a short window of time, and only for specific purposes.
Once repaid, funds available through an acquisition loan cannot be reborrowed as with a revolving line of credit at a bank.
Acquisition loans are sought when a company wants to complete an acquisition for an asset but doesn’t have enough liquid capital to do so. The company may be able to get more favorable terms on an acquisition loan because the assets being purchased have a tangible value, as opposed to capital being used to fund daily operations or release a new product line.
Acquisition financing is the capital that is obtained for the purpose of buying another business. Acquisition financing allows the user to meet their current acquisition aspirations by providing immediate resources that can be applied toward the transaction.
There are several different choices for a company that is looking for acquisition financing. A line of credit or a traditional loan are the most common choices. Favorable rates for acquisition financing can help smaller companies reach economies of scale and is generally viewed as an effective method for increasing the size of the company’s operations.
An acquisition or takeover is the purchase of one business or company by another company or other business entity. Specific acquisition targets can be identified through a myriad of avenues including market research, trade expos, or sent up from internal business units, among others.
Such purchase may be of 100%, or nearly 100%, of the assets or ownership equity of the acquired entity. Consolidation occurs when two companies combine to form a new enterprise altogether, and neither of the previous companies remains independently. Acquisitions are divided into “private” and “public” acquisitions, depending on whether the acquiree or merging company (also termed a target) is or is not listed on a public stock market. Some public companies rely on acquisitions as an important value creation strategy. An additional dimension or categorization consists of whether an acquisition is friendly or hostile.
Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful. Serial acquirers appear to be more successful with M&A than companies who only make an acquisition occasionally.
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