The topic was discussed in general terms in the course reading that smaller companies can acquire larger companies, but it is still unclear how this actually happens in practice, and the larger company can realistically accept and comply with the smaller company’s vision. Any thoughts here?
From my understanding, the most successful way for a smaller company to acquire a larger one is through a leveraged buy-out. This means the smaller company will have to take on considerable amount of debt for this to be successful. For this decision to make sense, the smaller company has to have huge confidence in the value this larger company will have (strategically) in the hopes of higher returns in the future.
From the sell-side (i.e the larger company’s perspective), the smaller company has to have significant value that it brings to it. This could be in the form of new technology, patents, existing relationships, etc. which the larger company lacks and sees as being crucial to its survival.
Hi. I think there can be several examples of such acquisitions, e.g. when a smaller company is showing very robust performance and a larger company is in a financial distress. In this situation, its value may be quite affordable for the smaller company even without leverage. Another question here is what the buyer is going to do then with a distressed target and how it is going to integrate all its people, practices and culture?