A risky acquisition involves selling assets of a newly acquired business to cover costs incurred during the acquisition process. In friendly takeovers, investors may focus on peripheral assets to recoup costs, while in hostile takeovers, the goal is to sell assets to the highest bidder.
A risky acquisition is a situation in which some or all of the assets associated with a newly acquired business are sold to cover costs incurred during the acquisition process. In some cases, the takeover will focus on a few key assets of the corporation to pay off indebtedness, while maintaining the operations and functionality of the corporation. In other situations, the focus may be on dismantling the company entirely, foregoing all associated expenses, and dividing the proceeds among the investors who initiated the acquisition.
When a leveraged buyout is the means of arranging a friendly takeover of a company, investors generally do so with the goal of restructuring the corporation and continuing operations. If this is the goal, the investor group will often focus their attention on target companies that have a number of assets that are not central to the corporation’s core business model. As part of the restructuring, these peripheral assets can be placed on the market and sold as a means of quickly recouping the costs incurred during the acquisition. Thus, the newly restructured company begins a new life with little to no debt, a viable, if somewhat smaller, financial portfolio, and a renewed focus on core business.
In acquisitions where the goal is to acquire the company and wind it up entirely, a target company is selected that has many assets that can be consolidated in batches or individually. Often in this version of a bankruptcy takeover, the emphasis is on a quick sale of the assets so that expenses are paid and the remaining profit can be distributed among investors in the hostile takeover strategy. Sometimes there is no real effort to find buyers who want to continue to operate the business in some capacity. Instead, the goal is to sell the assets to the highest bidder.
The general concept of an explosive takeover can be applied to both friendly takeovers and hostile takeover attempts. It is not unusual for at least a portion of a company’s assets to be sold by new owners as a means of recouping expenses. However, a bombshell acquisition typically involves advance plans and intentions to sell specific assets after the acquisition, rather than evaluating the feasibility of selling assets after taking control of the corporation.
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