FT Guide to Using and Interpreting Company Accounts, 4th Edition

18

Identifying a company’s acquisition potential

Introduction

Acquisitive companies usually want to enhance their profitability, and they can achieve this in a number of different ways. An acquisition could:

• improve their market share;
• give economies of scale;
• improve their product range;
• improve their cash position and cash flow.

If you’re acquiring companies in the same industry you tend to benefit from economies of scale and increased market share. It may be the cheapest way to improve your product range and improve your technology. (Companies that have a technological advantage and better products are often takeover targets, particularly if their processes and products are patent protected. Although if the stock market has already ...