The preparation for buying a company needs to start early. Preparing yourself in great detail helps you later in the process and will save a lot of (financial) resources and time. Good preparation makes you look more professional to advisors and everyone involved in the process. Preparation needs to start with your business plan and your company strategy. You need to know very well what your objectives are when buying a company.
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There can be various reasons for buying a company. Take the time to really think through and describe what you want to achieve in a business purchase. Putting this on paper will structure your thoughts and enable you to share your vision with your management team or (M&A) advisors. This can help to get a sharper picture or prevent misunderstandings. In a later stage, it can help to prevent buying the wrong company.
Goals of buying a business:
To achieve your goals, costs have to be incurred. Read about the costs of buying a business for an integrated overview of the money to be spent.
Below are some examples of advantages when buying an existing company compared to a greenfield investment.
Advantages of buying an existing company (cross-border):
Visit advantages of buying an existing company for the complete story.
The preparation for buying a business can be very detailed. If you have a market with only a small number of players and large investments, it is wise to do a detailed market analysis. You can go as far as making an overview of all the players in the market, their financials and the synergies you can create. Based on this, you can get an overview of the criteria for each acquisition target, which will help determine the benefits each brings and how you value all of the individual targets.
In most industries, there will be a large number of players and the analysis of individual companies might not need to be done on a detailed level. However, the minimum you should have before you start is a one-page document describing the criteria of the target company. Items you need to describe are the size, activity, location, and reason to acquire a company. You need to describe in detail what you want to achieve and what the key characteristics are of the company you want to buy. Once you know your main reasons for buying a company, it will be easier to determine which type of companies you will need to go after.
These are some of the main items you need to complete before you start a business purchase:
These are just some of the items to consider when you prepare for a business acquisition. We are happy to discuss these in more detail with you in a personal conversation. Please, do get in touch if you want to acquire a company and want to understand better how to prepare for a business purchase.
The first item that needs to be considered is the strategic rationale. What are you trying to achieve with a business acquisition? How does this fit your company's strategy? Which synergies are you planning to realize? Do you have sufficient experience in the foreign country where you want to buy a company? The main item here is to have your business strategy ready, know what you want to achieve, and why your company will benefit from it.
If you have formal rules in your company, you will need to get approval from shareholders or the board of advisors. Therefore, we suggest it is wise to document your rationale, discuss it with the relevant people in your company and ask for a formal sign-off. This will sharpen your vision and enable you to share it with the relevant people in your company. In a later stage, it can prevent finger-pointing if a purchase has not worked out as planned. A budget for all approved expenses related to a business purchase might also be part of this.
If you plan to make an acquisition in a foreign country it is wise to seek the support of an M&A advisor that understands your industry well. Be aware that an acquisition demands a lot of resources from your management team and temporary M&A support of experts is required. You might combine the external M&A support with some internal assistance from people within your company. Please be aware that people from your company also have a cost, although these are often not direct out of pocket costs. The CFIE team works with industry experts and combines local experience and language skills. If you want to discuss this further, please do get in touch with us.
Before starting the project, you obviously don’t know yet which target you want to acquire. However, it is wise to make a profile with a financial footprint of your ideal acquisition target. Based on the actual number of employees, revenue per employee, and standard margins, you can project a high-level P&L of the acquisition target. Next, you might need an imaginary balance sheet to get some idea of the valuation you will have to pay. This will help you to see if the acquisition plans actually be realized.
Once you have done the valuation exercise from item 4 and have an idea of the valuation of your ideal target company, you should think about the financing. Which part of the acquisition are you capable of financing yourself? For which part do you need external financing? Have you spoken with your bank about the possibilities to finance part of the acquisition? It is wise to get a better understanding of how you plan to finance a possible acquisition before you actually start the buying process.
It is wise to think about what other support you will require in the process. Firstly, it will give you a better idea of possible costs, and secondly, you learn about how to be prepared. You need to know about the foreign legal structure and possible tax consequences. Further, it is wise to consider who might be involved in any due diligence process. Please think in advance about where you will get legal support to draw up your contracts. This can all be done in a later phase as well but helps in visualizing the process you have to go through.
Feel free to contact us if you have any questions concerning the preparation for a company purchase. We have advisors that speak your native language and have experience with many acquisitions that have been completed before yours. We are happy to share this knowledge and give you some free advice on what to consider when buying a company.
It might be wise to visit legal documents in a business purchase to get informed about legal formalities in the process.