Acquisition is a business strategy that allows companies to grow quickly by acquiring another firm. The process can help businesses overcome market entry barriers and achieve growth synergies. For example, when a streaming network buys another company it can leverage its existing client base to accelerate growth and gain a competitive advantage. It can also improve operational efficiency by reducing the need to invest in infrastructure.

A successful acquisition strategy requires planning, research, negotiation and approval. For government agencies, the procurement process must follow strict guidelines to protect public funds from cronyism and ensure fair practices. This includes identifying the potential risks to the investment and developing strategies to mitigate them. It’s also important to consider a company’s financial health, as a high debt load can pose future risks.

The type of acquisition can make a big difference. In a horizontal acquisition, the parent company acquires a company that is located somewhere along its supply chain, such as a vendor or supplier. In a vertical acquisition, the parent company takes over a company that is closer to the core of its business, such as a competitor or customer.

When evaluating an acquisition candidate, it’s essential to look at its financial health. The company’s financial statements should be clear and well-organized to avoid post-acquisition complications. Additionally, it’s crucial to evaluate the purchase valuation against industry-specific benchmarks. A deal can be halted if the asking price exceeds standard metrics. Finally, it’s critical to examine a target company’s debt load and legal exposure. An excessive amount of litigation may signal deeper problems that require investigation before the purchase proceeds.