Acquisition

Definition of "Acquisition"

Written by

Michelle Baker

Real Broker LLC

To put it simply, acquisitions are a common occurrence in the business world, and they happen to small, medium, and large businesses alike. The definition of acquisition is a company purchasing shares to be able to control another company. While companies and individuals can buy shares from a company for investment purposes, an acquisition is purchasing over 50% of its shares. This purchase can happen with or without the target company’s approval, leading to different types of acquisitions.

1. Acquisitions - the purchasing company and the target company agree on the acquisition, also known as friendly acquisitions.
2. Takeovers - the target company does not want to be bought and strongly opposes the purchase. Still, the purchasing company, without the agreement of the target company, needs to purchase large stakes to acquire a controlling interest, also known as hostile acquisitions.
3. Mergers - the two companies combine their assets, clients, etc., to work together for the benefit of the new legal entity, known as a more-than-friendly acquisition.

Acquisitions happen in any field, industry, or domain, and the acquisition candidates are thoroughly verified before an acquisition takes place to analyze the acquisition cost. The price of the acquisition, the debt load, litigations, or financial statements are checked, and if the company is considered a good candidate for purchase, the process begins.

Real Estate Acquisitions

Now that we understand what acquisitions generally are, in the real estate world, acquisitions are used to purchase equity investments for investment firms that target the real estate market.  While real estate developers look to newly built properties to invest in, real estate acquisition professionals focus on established properties. For real estate acquisitions, the current state of the property isn’t as relevant. It is only relevant in regards to the asking price. Any property can be renovated, flipped, rented, or sold after renovation to increase profit. What does matter is if the property has a mortgage or other outstanding debts, as this tells the acquisition professional the lowest price possible for the purchase.

Real estate acquisition professionals can be encountered on the payroll of private equity, public equity, family offices, life insurance companies, pension funds, endowments, and others. Their role is to look for potential investments, to perform market research, negotiate the purchase, and present the proposed investment to the companies for which they work.

How do Real Estate Acquisitions work?

To put it simply, an acquisition in real estate is when a seller contacts or is contacted by an acquisition professional, and they discuss the terms of the acquisition. The reasons for which acquisitions occur can vary, but the motivation to sell is detrimental in real estate acquisitions. The seller usually wants to sell or eventually sees the benefits of selling.

Through the acquisition process, the acquiring party buys the property for the seller’s price after thorough negotiations. In most cases, the equity party of the property is the larger amount of the property’s value, but there are cases where it doesn’t have to be. The profitability of acquisitions depends, however, on how big the equity is. Higher equity attracts more acquisitions as it gives professionals a lower debt to cover after the purchase is finalized.