Chapter 7 - Start Up Exits
IN THIS LESSON
The Two Types of Acquisitions
In broad terms, two types of acquisitions exist: an accretive acquisition and a strategic acquisition. The purpose of this document is to explain both types. Since your start-up will likely be positioned to be acquired in the future (unless you make it all the way to an IPO), you should know the difference between these two types of acquisitions.
Accretive Acquisition
Accretive acquisitions are those in which a company buys you for your revenue and your profit stream, which they can then add to their own to boost how their financial performance looks to be.
A company’s earnings per share can increase based on acquiring your company.
The boost from acquiring your company is considered greater than the price that the acquiring company paid.
Strategic Acquisition
Strategic acquisitions encompass the rest. They are for some other reason than the direct cash.
The reason for the acquisition could be entry into a new space, the technology, or integration with their existing business, among other things.
It’s to capture synergies. The whole becomes greater than the sum of its parts. (Synergies can mean increased revenue or cost-cutting.)
Because a strategic buyer would know your industry, it’s often the case they can grow your business faster due to more resources.
Usually, as far as strategic acquisitions, there is more focus on the long-term growth of the business.
As you grow your business, you will likely engage in conversations with investors about possible companies to acquire your company and how best to position your company your company for acquisition (an exit for the investors).