Tilly Bailey & Irvine’s commercial legal advisors explain how to go about buying new business in 2020.
Acquiring a business is a good way to achieve immediate growth to an existing business or to begin a new venture without some of the risk and difficulties that come with starting from scratch.
However, it is not risk free. Making sure a target business is (1) right for you; (2) bought at the right price; and (3) that you are legally protected is vital to the success of any integration or expansion for a business purchaser.
As experts in the field, we have some key points that are useful for you, as a prospective purchaser, to keep in mind:
1 – Do your due diligence
Investigation into a target business is essential. This can include looking into a company’s legal history, evaluating its financial performance or the assessing the standard of its property. The purpose of due diligence is to identify any problems before you part with your money. It is much better to find a problem before completion than afterwards.
2 – Keep the purchase price under review
An initial handshake to agree a purchase price is usually made well before the full due diligence is undertaken. Therefore, many offers are made “subject to due diligence”. This means that if your investigations do start to show problems, you can always renegotiate the purchase price in light of these issues. Do not let yourself be committed to a figure that you end up not being comfortable with.
3 – What are the synergies?
If you are buying a business to “bolt on” to an existing business then how will the target integrate with the rest of your company? Identifying “synergies” and preparing a strategy to implement them after completion is a good way to ensure you are getting maximum value for the new addition to your organisation and absolutely key to ensuring the success of the new, larger venture.
4 – Engage with key employees
If you are not proposing to have an overly “hands on” role within the new acquisition then it is important to make sure the key employees of the business will be there to continue the success of the company. The employees are often one of the most important assets to a business, and whilst many transactions will be confidential right up to completion, some will allow you to engage with the staff early on. In these instances, you should take the opportunity to do so and ensure they are happy to work with you going forward.
5 – Make sure you have the time
An acquisition takes up a lot of time and energy. If you are running an existing business make sure you can manage your time in order to devote the energy and focus that will be required for the takeover. Whilst you can rely on your legal team to handle the brunt of the work, you will need to be involved more and more the closer you get to completion.
The above points are practical considerations for you to make when buying a business. Our team of experts can advise you on the legal matters revolving around mergers and acquisitions, such as warranty protection, restrictive covenants and indemnities.
Having been through this experience with clients from all types of sectors and all different sizes, we can guide you through the process stage by stage and avoid some of the pitfalls along the way.