{"id":17488,"date":"2025-07-11T08:58:39","date_gmt":"2025-07-11T08:58:39","guid":{"rendered":"https:\/\/certifeka-edu.com\/programs\/strategic-planning-professional-certificate\/lessons\/lesson-3-how-acquisitions-are-financed\/"},"modified":"2025-07-13T19:15:15","modified_gmt":"2025-07-13T19:15:15","slug":"lesson-3-how-acquisitions-are-financed","status":"publish","type":"lesson","link":"https:\/\/certifeka-edu.com\/ar\/programs\/strategic-planning-professional-certificate\/lessons\/lesson-3-how-acquisitions-are-financed\/","title":{"rendered":"Lesson 3: How Acquisitions Are Financed"},"content":{"rendered":"
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Lesson 3: Corporate Strategy - Part Two<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t
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How Acquisitions Are Financed<\/span><\/h3>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t
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A company can buy another company with cash, stock, assumption of debt, or a combination of some or all of the three.<\/span><\/h5>
In smaller deals, it is also common for one company to acquire all of another company’s assets. Company X buys all of Company Y’s assets for cash, which means that Company Y will have only cash (and debt, if any). Of course, Company Y becomes merely a shell and will eventually liquidate or enter other areas of business.<\/span><\/h5>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t
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Another acquisition deal known as a reverse merger enables a private company to become publicly listed in a relatively short time period.<\/span><\/h5>
Reverse mergers occur when a private company that has strong prospects and is eager to acquire financing buys a publicly listed shell company with no legitimate business operations and limited assets.<\/span><\/h5>
The private company reverses merges into the public company, and together they become an entirely new public corporation with tradable shares.<\/span><\/h5>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t
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How Mergers and Acquisitions Are Valued<\/span><\/h3>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t
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Both companies involved on either side of an M&A deal will value the target company differently. The seller will obviously value the company at the highest price possible, while the buyer will attempt to buy it for the lowest price possible. Fortunately, a company can be objectively valued by studying<\/span><\/h5>
comparable companies in an industry, and by relying on the following metrics:<\/span><\/h5>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t
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Price-to-Earnings Ratio (P\/E Ratio) <\/div><\/span>\n\t\t\t\t\t\t\t\n\t\t\t<\/path><\/svg><\/span>\n\t\t\t<\/path><\/svg><\/span>\n\t\t<\/span>\n\n\t\t\t\t\t\t<\/summary>\n\t\t\t\t
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With the use of a price-to-earnings ratio (P\/E ratio), an acquiring company makes an offer that is a multiple of the earnings of the target company. Examining the P\/E for all the stocks within the same industry group will give the acquiring company good guidance for what the target’s P\/E multiple should be.<\/span><\/h5>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/details>\n\t\t\t\t\t\t
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Enterprise-Value-to-Sales Ratio (EV\/Sales) <\/div><\/span>\n\t\t\t\t\t\t\t\n\t\t\t<\/path><\/svg><\/span>\n\t\t\t<\/path><\/svg><\/span>\n\t\t<\/span>\n\n\t\t\t\t\t\t<\/summary>\n\t\t\t\t
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With an enterprise-value-to-sales ratio (EV\/sales), the acquiring company makes an offer as a multiple of the revenues while being aware of the price-to-sales (P\/S) ratio of other companies in the industry.<\/span><\/h5>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/details>\n\t\t\t\t\t\t
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Discounted Cash Flow (DCF) <\/div><\/span>\n\t\t\t\t\t\t\t\n\t\t\t<\/path><\/svg><\/span>\n\t\t\t<\/path><\/svg><\/span>\n\t\t<\/span>\n\n\t\t\t\t\t\t<\/summary>\n\t\t\t\t
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A key valuation tool in M&A, a discounted cash flow (DFC) analysis determines a company’s current value, according to its estimated future cash flows.<\/span><\/h5>
Forecasted free cash flows (net income + depreciation\/amortization — capital expenditures — change in working capital) are discounted to a present value using the company’s weighted average cost of capital (WACC). Admittedly, DCF is tricky to get right, but few tools can rival this valuation method.<\/span><\/h5>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/details>\n\t\t\t\t\t\t
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Replacement Cost <\/div><\/span>\n\t\t\t\t\t\t\t\n\t\t\t<\/path><\/svg><\/span>\n\t\t\t<\/path><\/svg><\/span>\n\t\t<\/span>\n\n\t\t\t\t\t\t<\/summary>\n\t\t\t\t
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In a few cases, acquisitions are based on the cost of replacing the target company. For simplicity’s sake, suppose the value of a company is simply the sum of all its equipment and staffing costs.<\/span><\/h5>

The acquiring company can literally order the target to sell at that price, or it will create a competitor for the same cost. Naturally, it takes a long time to assemble good management, acquire property, and purchase the right equipment. This method of establishing a price certainly wouldn’t make much sense in a service industry wherein the key assets (people and ideas) are hard to value and develop.<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/details>\n\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t

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How Do Mergers Differ From Acquisitions?<\/span><\/h3>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t
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In general, “acquisition” describes a transaction, wherein one firm absorbs another firm via a takeover. The term “merger” is used when the purchasing and target companies mutually combine to form a completely new entity.<\/span><\/h5>
Because each combination is a unique case with its own peculiarities and reasons for undertaking the transaction, use of these terms tends to overlap<\/span><\/h5>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>","protected":false},"comment_status":"open","ping_status":"closed","template":"","class_list":["post-17488","lesson","type-lesson","status-publish","hentry"],"yoast_head":"\nLesson 3: How Acquisitions Are Financed - Certifeka-edu<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/certifeka-edu.com\/ar\/programs\/strategic-planning-professional-certificate\/lessons\/lesson-3-how-acquisitions-are-financed\/\" \/>\n<meta property=\"og:locale\" content=\"ar_AR\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Lesson 3: How Acquisitions Are Financed - Certifeka-edu\" \/>\n<meta property=\"og:description\" content=\"Lesson 3: Corporate Strategy – Part Two How Acquisitions Are Financed A company can buy another company with cash, stock, assumption of debt, or a combination of some or all of the three. 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