Look at the reasons to buy a company:
• Finding new markets
• Industry roll-up strategy
• Getting advanced technology
• Market window strategy
• Product supplementation strategy
• Getting new personnel
• Synergy strategy
• Geographic growth strategy
• Increasing market share
• Diversification strategy
• Vertical integration strategy
• Increase supply chain pricing power
• Adjacent industry strategy
• Eliminate competition
Consider which of these resources you need. Find out why the business is worth buying. Develop an acquisition plan that gets the most out of the enterprise while spending the least. Focus on the aspect of the company that is most valuable to you and shape your offer around that benefit.
Build an Acquisition Team
Build a team that fills the following roles:
• An executive manages the team to ensure the success of the acquisition. This person also reports progress to the board of directors. Your CEO is the best candidate for this position.
• An investment banker handles your finances and investigates the stability of the company you are acquiring.
• An acquisitions lawyer understands the rules of transferring ownership.
• A human resources expert organizes the staff from the new company.
• An IT specialist merges your technical infrastructure with that of the new company.
• A public relations officer promotes the merger to the public. This person informs your business partners and customers about the new merger.
These people will work to provide useful information on the company. They will determine what can become a part of your business and what should not.
Do Your Research and Due Diligence
This process has two phases:
Check the public information about the company. Check job listings, Web pages, blog entries, conference proceedings, news stories, SEC filings and any other data that you can use when drafting the contract. Look to see if the company fits your plans and for any issues that may devalue the company. This research will be useful during negotiations.
After contacting the company, tour its corporate facilities. Meet the management and check the essential elements of the company. Use this information to answer questions like these:
• What are the actual numbers?
• How successful and sound are the company’s products?
• What is the staff like and how can they improve your company?
• Does the corporate culture match your company’s culture?
Common documents needed
• Summary of business owner requirements
• Three-five years of financial data (P&L and balance sheet)
• Annual review of owner’s benefits
• Summary of top customers
• Non-Disclosure Agreement
This document makes sure all information considered confidential will be treated carefully and not shared. It also means the information has to be returned upon request.
• Letter of Intent
This document states that you intend on buying the company after signing the NDA and after considering the business is worth.
• Confidential information memorandum
This document provides the prospective buyer with information for the initial offer. It is commonly referred to as the “book” and will typically include: a summary of business operations, summary of industry and market opportunities, financial information, and summary of auction process.
• Indication of Interest
With this you express an interest in making a deal in vague but formal written offer.
• Purchase Agreement
You and the seller formalize the agreement in a binding legal contract.
Make Your First Offer
If you like what you have found, make an offer. Make a good first impression with clear positive negotiations by offering a fair price. Because you are attempting to buy this company, you need to make the first offer. Remember that the merger working is your responsibility. Also, keep in mind that you are buying more than a company. You are buying the brand, the company’s goodwill, and its people. Be flexible and make an offer between 75 and 90 percent of the company’s worth.
Negotiate the Terms
Reach an agreement that ends in the happy merger of two companies. Be firm but don’t undermine your success by being too harsh. Try not to overpay and work toward an agreement that benefits both parties.
If things go well, you will settle on a price, but this process is about more than money. This is about understanding why the owners are making their counteroffer.
Find out why the company is incentivizing the sale. See if there might be something wrong with the company. This will give you a clearer idea of what you are buying.
After you have settled on a price, work over the soft issues. Figure out who stays with the company and who you will have to let go. This part can be emotional, so be sensitive and try to keep as much of the talent in the company as possible.
Write Up (and Then Sign) a Contract
Contracts are not the end of a negotiation. They are where things get complicated. The deals don’t end when you go to contract. Having a lawyer recording the negotiation makes things easier. A contract lawyer will find anything you need to talk about.
Sale of a business
The sale of a business as a going concern is different from a sale of assets, or a sale of shares or member’s interest. The sale is called “a sale of a business as a going concern” because the business largely continues to run in the hands of the purchaser, as it ordinarily did before the sale. The most significant change is that it has a new owner. This means that your company or CC has decided to sell the trade and will no longer conduct it.
Some of what they will most likely sell or transfer (on behalf of the company or CC) to the purchaser includes:
• their rights to the name they were trading under (goodwill or reputation of the business), meaning they can no longer use it;
• the main assets of the business (or any and all assets used to run the business);
• the business’ employees (along with most of the obligations they had toward those employees), and;
• any rights and obligations they had under a lease that they were a party to for the business, essentially making the purchaser the new tenant under that lease.