If you’re experiencing business growth and you’re looking to capitalise on this, then buying a business could be a fantastic way to strengthen your position in your industry, as well as help you to diversify into new markets.
As appealing as it might sound, it's important to remember that buying a business can be a risky process. You are investing large amounts of money into a business that could produce some unwanted surprises or turn out to be different to what you were expecting.
That’s where Smith Partnership can help you. With our years of experience in corporate and commercial law, we can advise you on how to buy a business and ensure that the negotiations involved go smoothly.
Begin with determining your strategy
Lots of expanding businesses are not aware of the advantages of acquiring a new business instead of just growing the current company they own organically. Here are four reasons why it’s better to invest in a new business:
- It allows you to expand into new markets – if you decide to purchase a new business that sells products that are complementary to your current business products, you have the opportunity to expand even further into markets that were once off-limits.
- You can obtain new, advanced technology – developing new technology in-house is an extremely time-consuming process. However, if you purchase a new business that comes with the technology you need to market your products, you are saving yourself a lot of time.
- You gain a pool of new talent – recruiting for new talent can again be a time-consuming process. When you acquire a new business, you can find yourself with a great set of employees.
- It can increase your market share – if you acquire a company that is competitive to your own, you can secure their customer base without spending money on trying to compete against them.
Do your due diligence
This takes place in two different phases. The first phase begins before the target business is aware of your interest to acquire them. Throughout this phase, you must check all the information that is publicly available about the company. This includes browsing through their web pages, looking at their job listings and reading any news stories about them. This step is crucial in determining whether you should invest.
The second phase starts once you have contacted the management of the business you wish to acquire to inform them of your interest. In this phase, you’ll want to tour their facilities and have a series of meetings with management.
You want to look out for the following information during this process:
- Are their numbers real?
- Are their products real?
- Are the people high quality?
- Will they fit with your business culture?
Many businesses have fallen short here before, landing them in an undesirable situation where they have invested large amounts into a new company that has turned out to be not what they expected. It’s important to take extra care during this process and seek help to make sure you haven’t missed anything.
Make an initial offer
Once you’re satisfied with the answers to the above questions, it is time to think about making an offer to the management. It is crucial that you get this initial conversation right, as it will shape how the rest of the negotiations will follow.
It’s recommended that when you make your offer, you leave yourself room to negotiate. If your initial offer is too low, the firm in question may reject your offer. Alternatively, if your offer is too high and the firm negotiates for even more, you may find yourself at a loss you weren’t initially expecting.
Negotiate the terms
The ultimate goal is to reach an agreement that is appealing to both parties. This is where a corporate and commercial law solicitor is required. They can help you draft terms that are realistic for both businesses.
For example, you want to ensure there is a seamless integration of the acquired business into your own. This is where some difficulties may arise – you don’t want to end up overpaying, but you also don’t want to make unnecessary cuts.
Negotiations will cover everything from major issues that might affect the merger, to softer issues, such as who will still have a job once the merger is complete.
At this stage, you may also require advice regarding commercial property and employment law to ensure every base is covered in the business acquisition.
Draw up and sign the contract
Once the terms have been agreed and everyone is happy, it’s time to draw up and sign the official contracts. This is where some problems may arise, as further negotiations can begin during this process.
We recommend that you document all conversations, commitments, and processes during the initial negotiation phase to ensure the contract process is as simple as possible. Once a verbal agreement has been reached, you can then review the main points and get an agreement from both parties not to bring up any further negotiations.
Do you need help buying a new business?
If your growth strategy includes acquiring new businesses, we are here to help. Simply get in touch with our team of commercial solicitors for more help and information on how to buy a business.