An acquisition is a transaction in which a person, group of persons or a company buys a company. Acquisitions can be accomplished through mergers, stock purchases and asset sales
. In a merger, a buyer acquires a company by merging the company with the buyer or with an existing company under the buyer’s control. In a stock purchase, a buyer acquires a company by buying the shares of the company from the company’s shareholders. In an asset sale, a buyer acquires a company by buying some or all of the assets and assuming some or all of the liabilities of a company. Parties begin acquisitions by agreeing to the major elements of the transaction, including price, timing and legal structure, in a document referred to as a letter of intent or a term sheet. Next, the buyer conducts due diligence on the seller by reviewing financial, legal and business records of the company. Once due diligence is complete, and with reference to the letter of intent or term sheet, the parties negotiate the actual terms of the acquisition agreement, which may take the form of a merger agreement, stock purchase agreement or asset purchase agreement, as applicable. Once the terms acquisitions are settled, the parties close the transaction by completing all of the steps laid out in the acquisition agreement. After an acquisition is closed, a transition period typically ensues in which the acquired company’s assets, business practices, and employees are incorporated into buyer’s organization. Alternatively, an acquisition may only amount to a change of the owner of the acquired company, and the acquired company may continue to operate as it did before.