How to Buy a Business
There is no faster way to grow your own company than to buy another one – especially one that is in competition with yours. Furthermore, by buying an existing company you also negate most of the risks that start-up companies face.
However, corporate acquisitions are tricky, so here is a guide to help you buy an existing company.
Determine your strategy
There are three major reasons why buying an existing company is easier than starting a new one:
1. Expand into new markets: when you buy a new company, you are able to expand your brand into a previously untapped market share.
2. Get hard-to-find employees: You also acquire the current employees’ high skill sets. This saves time and money, as you do not need to recruit them individually.
3. Obtain advanced technology: When purchasing a company, you acquire the technology you need to produce the products. This ensures that you do not need to do research and development to determine how to do it.
Assemble your acquisition team: You need to draw upon the skills of internal and external experts, during and after the acquisition. The earlier you get the right people involved, the easiest and faster the take-over process will be. Here is who you will need:
• A responsible executive: In order to make an effective take-over, you need to find a single person to manage the transition. This is typically a position held by the CEO of the company.
• An investment banker: Even small take-overs can be tricky, therefore, ensure that you get the advice and help of an investment banker to make the process easy.
• An HR expert: You will need an HR expert to help you work with employers and employees to find the best possible way to move forward after the acquisition.
• An experienced lawyer: Legal take-overs can be highly complicated, so ensure that you have an experienced lawyer to take care of the necessary legal requirements.
• A public relations expert: The public will take a keen interest in the take-over, so ensure that you have someone who is able to ease consumers’ minds and worries.
Due Diligence: There are two phases of due diligence. The first phase is before the target firm’s management knows about the take-over proposal. During this process your team will do a comprehensive background check on the company. Your goal is to determine if this company is a good fit for your company’s image.
The second phase starts once you have made contact with the management team of the target firm. Tour the company’s facilities, take a look around and sit down with the company’s management team.
You need answer four questions:
• Are their numbers real?
• Are their products of good quality?
• Are the people of high calibre?
• Will they fit your company’s corporate culture?
Negotiate the terms: Your goal is to negotiate an agreement for you to takeover the target company. You need to be careful, as you do not want to over pay for the company, but also not be too ruthless.
Once you have settled on a price, you need to look at ‘soft’ issues, like who will still have a job, who will be in charge and any changes that you wish to make to the business insurance and processes.
Draw up and sign the contract: In order to prevent any problems arising in the future, ensure that you document and draw up every possible scenario that may occur in future and how these decisions will be made.
Consult your lawyer for advice on how best to proceed during this time. Ensure that you understand everything written in the contract, as the law will side with what the contract states and not a personal opinion or preference.
Use these tips to ensure that you acquire the right kind of company that will grow your brand and improve your market share.
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