Acquisition
An acquisition is the purchase of one company, or control of it, by another: the buyer takes the target's shares or its assets, the owners are paid in cash, shares or a mix, and the target joins the buyer's group. It is the commoner half of "mergers and acquisitions" — most deals called mergers are acquisitions with a politer name — and in fintech the usual exit and the usual way an incumbent buys a capability.
- Also known as
- Takeover, Purchase of a company, Buy-out
- Used at
- any purchase of a business — from a bolt-on of a ten-person software team to a $40bn processor merger
- Binding
- yes — a share purchase or asset purchase agreement, with the warranties, conditions and price mechanisms those entail; for a licensed target, the regulator's approval of the change of control before completion
- Typical forms
- a share purchase (the buyer takes the company with everything in it); an asset purchase (the buyer picks assets and liabilities); a majority stake with the founders keeping a minority; a merger by statute where the two companies combine into one
- Typical consideration
- cash from a strategic buyer's balance sheet or a fund's equity and debt; shares of a listed buyer; earn-outs and deferred elements bridging valuation gaps
- Parties
- the buyer, the target's shareholders, the target's management and staff, the advisers on each side, the regulators and, for larger deals, the competition authorities
How an acquisition works in practice
A buyer decides it wants what a target has — customers, a product, a licence, a team, a market — and that buying is faster or cheaper than building. It approaches, or enters a process; agrees a price and terms in heads or a letter of intent; does due diligence; negotiates the sale agreement; signs; obtains the approvals; completes; and integrates. Each step is a term on this site, and the whole runs three to nine months for a mid-sized fintech deal, most of it in the regulatory approval.
The strategic questions come first. A share purchase brings the whole company — its contracts, its licence, its history and its liabilities — and is the norm when the licence is the point. An asset purchase leaves the history behind and is the norm when a buyer wants the customers and the software but not the company. A majority stake keeps founders invested and is common when the buyer needs them to stay. The consideration then follows: cash for certainty, shares to keep sellers aligned, an earn-out when the two sides disagree about the future.
What makes an acquisition succeed is decided before it closes: a price that the buyer's own numbers support without the synergies it hopes for, diligence that found what it will have to fix, and an integration plan that keeps the customers and the people the price was paid for. What makes one fail is usually the opposite, and the deal record on this site is a list of both.
Example
A European bank acquires a payments fintech with €30m of revenue, 200 staff and an e-money licence. The route: an unsolicited approach in January; heads of terms in March at €120m cash-free debt-free, 80% cash and 20% in the bank's shares locked for two years; financial, legal, commercial, technology and regulatory diligence through May; a share purchase agreement signed in June with a 20% warranty cap, a €6m escrow and the regulator's approval as the one condition; approval in October; completion on 1 November at an equity value of €117m after the completion accounts. Integration begins with the licence kept in the fintech's entity, the founders under two-year retention agreements, and the platform decision deferred a year. Ten months from approach to completion; the licence, not the negotiation, set the pace.
Common mistakes
- Calling an acquisition a merger to spare the target's feelings, and then running it as neither. - Buying a company for its licence in an asset deal that leaves the licence behind. - A price justified by synergies that the buyer's own plan does not deliver. - Diligence scoped by budget rather than by what could go wrong. - Completing without an integration plan, so the first hundred days are spent deciding what the deal was for.