One of the traditional ways a company expands is by acquiring or merging with another company.  The acquired company represents and up-and-going business that has an on-going production system and access to markets.  This provides a rapid method of expansion.  However, even if the acquired company is economically viable, there are pitfalls and potential problem areas to avoid.

Questions of how the acquired company will complement your company must be answered.  Will synergies develop from the merger or acquisition?  Will the strengths of one company compensate for the weaknesses of the other company?  Will the new company be stronger than the sum of the two existing companies?  Do they both have similar vision of the future?  These questions must be carefully assessed and analyzed before you can make a decision of this magnitude.

The other company must be properly valued regardless of whether it is acquired or merged with your company.  This is usually a point of intense negotiation between the two companies.

For more information on this topic, see the links listed below of articles posted on related Web sites.

Understanding Mergers and Acquisitions

• Why Merge? – Small Business Notes -- Mergers continue to grow at an ever increasing pace.
  
• Merging Wisely – Small Business Notes -- A merger includes preparation and initial negotiations, due diligence, the sale and purchase, and portfolio transfers, all involving financial, legal and human implications.

Establishing Business Value

• Assigning a Price to Business Assets – Allbusiness.com -- As you negotiate the purchase of a business or its assets, you will be evaluating each of the major assets.
• Determining Value – Business.gov -- A realistic business valuation requires more then merely looking at last year's financial statement.
  
• Business Valuation – Small Business Notes -- Whatever the reason for needing to know this information, trying to come up with a valid figure can be a major effort and challenge.
  
• Are You Paying Too Much for That Acquisition? – HBS Working Knowledge -- Despite 30 years of evidence demonstrating that most acquisitions don't create value for the acquiring company, executives continue to make more deals, and bigger deals, every year.
  
• Professors Introduce Valuation Software – HBS Working Knowledge – A Business analysis and software program has been develop which is being sold to the public.