Company Acquisition Process


An acquisition or takeover of a company occurs when one company purchases the majority or all of the shares of another, so becoming the majority shareholder or sole owner. Once a business is acquired, you will have the authority to make decisions without the permission of other shareholders as the majority shareholder, allowing you to effectively run the business. You can either integrate the acquired business into your own organisation and execute your own branding, or you can preserve its current identity and transform it into a sub brand of your own. If the target company’s brand power and customer loyalty are among its most significant assets, it may be preferable to preserve its original identity.

In this article, company acquisition process, we take a look at these issues in more depth.

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What is the process involved in acquiring a company?

  1. Establish the reason for acquiring the business.

Your business plan should set out the reason why you think the acquisition is a good idea. In order to identify the correct approach – and the proper target for a takeover – it is crucial that the long-term objectives of your company are clearly articulated in your business plan.

There are a number of reasons that are often encountered where acquisition seems to be the logical move. These can include:

  • Expanding market share. Through acquisitions, you can grow considerably more rapidly than through organic expansion.
  • Geographic expansion. The establishment of extra offices, warehouses, supply chains, and people may be required if you want to expand your business to other locations (or nations). Purchasing a comparable company in your target market is one way to acquire existing infrastructure.
  • Diversification. If the majority of your company’s money comes from a single source or market, you may prefer to diversify your revenue streams for greater risk tolerance and security. This could be accomplished organically, but acquiring businesses that are already thriving in these other niches is a more expedient strategy.
  • Horizontal integration. In this situation, you acquire a company in an adjacent industry.
  • Vertical integration. This refers to the practise of acquiring companies within one’s own supply chain in order to impose total control over each stage. This can lead to enhanced efficiencies or synergies and may be useful from a branding perspective as well.
  • Product supplementation. In this section, you would identify a business whose products or services complement or supplement your own. By acquiring the target company, you can quickly address a gap in your product portfolio.
  • Size-based economies. The easiest way to dominate a market is by providing the lowest price. To generate a profit while offering your products at the lowest feasible price, you must achieve a high sales volume. Typically, obtaining this position swiftly requires many acquisitions of businesses with an established market share, followed by efforts to build synergies among them.
  • Market entry. Let’s imagine you see a chance to capitalise on a market trend by introducing a brand-new product or service. Due to a lack of knowledge, resources, or market position, you are unable to mobilise your own business rapidly enough to maximise the opportunity. In this situation, you can decide to acquire a more favourable company in order to achieve your target.
  1. Carry out careful and detailed research on the company you are looking to acquire.
  • Examine the organization’s finances. You need audited financial statements for the previous five years. Determine if the company is expanding, as well as its cash flows and working capital.
  • Assess their assets.  Determine the company’s assets, including its buildings, machinery, equipment, vehicles, land, brands, and goodwill. Ensure you fully comprehend the nature of your purchase.
  • Consider their obligations. In addition to debts, liabilities consist of taxes, employee salaries, contractual obligations, and outstanding legal proceedings. Determine if particular permits or insurance are required.
  • Is there a measurable advantage to the acquisition? Identify any opportunities that may strengthen your current business, including synergistic ones (i.e. ways that it will make both businesses more efficient).
  1. Make initial contact with the company or their representative.

If you decide to contact a business that you learned is for sale via a broker or a website for business sales, you should first speak with their banker. This individual will function as the company’s gatekeeper, assessing your interest in the company prior to providing any confidential information. Before providing you with complete documentation of the company’s financial performance in the past, it is customary to have you sign a nondisclosure agreement. If, on the other hand, you intend to enquire about a potential business agreement with a local company, it is possible although unlikely, that you would find them for sale online. In such circumstances, there is no right or wrong strategy.

You can contact your solicitor to inquire about the business owner’s willingness to negotiate a possible takeover, or you can approach the business owner personally while remaining as honest as possible without jeopardising your company’s strategy. Introduction meetings provide you the chance to meet the target company’s owner and, hopefully, produce a report. If you do acquire their business, there is a high likelihood that they will play a significant role in the integration of the two companies, thus it is in the best interests of both parties to retain amicable connections.

Also, use these interactions to judge the company’s culture, such as what brought them to their current position, how they compensate their employees, etc.

All limited liability businesses are required to have articles of organisation, which serve as the company’s constitution. The articles are submitted to Companies House alongside the registration application and should thereafter be retained securely at the business’ registered office.

  1. Make an offer

If, after getting to know the company thoroughly, you still like what you see, it’s time to make an offer.

The offer should strike a compromise between your own purchasing criteria, market comparables (what EBITDA multiples are being sought in the market for comparable companies), and what the owner has indicated they would accept if an offer were made.

This final point is essential. No one enjoys receiving what they perceive to be a derisory offer. In the worst circumstances, your valuation may be perceived as an insult, and you risk alienating the owner for future transactions.

If you feel that your valuation expectations are too far apart, be upfront about it to prevent wasting everyone’s time.

  1. Carry out detailed due diligence on the company.

If the owner accepts the offer, you can proceed to the due diligence process. Depending on the size of the business, this can take anything from three weeks to three months, but SMEs often require four to six weeks. Carrying out due diligence is a good opportunity to ensure everything is above board with the company and there isn’t something you should be aware of.

Use this time to familiarise yourself with the company’s inner workings so that you can hit the ground running when the deal finally closes.

How we can help

We have a proven track-record of helping clients with company acquisitions. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.

How to Contact our Corporate Solicitors

It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of saving you money and ensuring you achieve a positive outcome.

To speak to a member of our new enquiries team today, simply call us on 0345 901 0445  or click here to make a free enquiry . We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.

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