What is a Step Acquisition?

A step acquisition occurs when the acquiring entity obtains control over an entity for which it already held a non-controlling interest. This situation may arise when the eventual acquirer has an option to buy the remaining shares of a business that it does not already own.

Advantages of a Step Acquisition

There are several advantages for an acquirer in using the step acquisition approach. They are as follows:

Range of options. This approach gives the acquirer a range of options for how to proceed with an acquisition, which may range from quietly backing out of the transaction to slowly piling up an increasing interest in the acquiree. This step-by-step approach allows the acquirer to incrementally examine the viability of the deal, and pull out if it appears that the arrangement is becoming too expensive or complex.
Influence. By gradually building up its percentage interest in the acquiree, the acquirer can begin to exert more control over it, which allows the acquirer’s managers to gain a better understanding of how resistant the current owners are to change.
Financial commitment. The acquirer can spread out its funding needs related to the acquisition, rather than having to come up with the full amount of the required funds at the start of the acquisition process.