You have found the perfect company for you and would like to acquire it. How do you set about this? Who should be your first contact? How do you make a bid? And how does the acquisition come about? At Stratfield, we subdivide the process into 5 important phases.
Phase 1 – Gathering knowledge
A successful acquisition depends on good preparation. Gathering important and relevant knowledge is essential to this. What you need to know at the very least is:
- What are the interests and requirements of the shareholders?
- What is the strategy of the business?
- What are the strong and weak points of the business?
- What are the financial results and prognoses of the business?
If you have the answers to these questions, it’s time to make your first contact.
Phase 2 – Making contact
When making contact for the first time, two matters need to be borne in mind.
- Who is the right person? This is often the managing director or one of the shareholders. Who is going to approach this person? It is not always helpful to say who the interested party is straight away. In this case, it may be better to enlist the help of an intermediary.
- What is the message you would like to convey? Thinking about this in advance will increase the chances of success. After making the first contact, a period of further acquaintance often follows. In our experience, a party is often pleased to hear that there is a prospective interested party. But that doesn’t mean to say that a party is also receptive to the idea of selling. It is therefore important to maintain contact. As soon as a change occurs in this situation, you will be the first party to be approached. This is a long-term process that mainly entails cultivating the relationship.
Phase 3 – The negotiations
When the other party is prepared to talk in concrete terms about an acquisition, then you must verify the information you previously obtained. If this information is still correct and up to date, then you need to determine what you are prepared to pay for the company. For this purpose, you need to do a company valuation or have it done. The negotiations can then begin. Apart from the acquisition price, there are also various other matters that you have to agree upon. For example, will the management of the target company remain involved? Will the purchase price be paid in one go or in instalments? All these matters and more will be set out in a so-called declaration of intent.
For you as prospective buyer, it would also be extremely worthwhile to think about what you have to offer the target company. Many studies have shown that adding value to a target company increases the chance of a successful acquisition enormously.
Phase 4 – Due diligence investigation
Up until now, you will have relied on the information you have gathered and verified and on a company valuation. Of course, you will also wish to inspect the accounts of the target company in an attempt to get as accurate an idea as possible of the company risks, among other things. We call this a due diligence (or books) investigation. Such an investigation focuses on financial matters, taxes, legal aspects and possibly also on the market. The target company sets up a so-called data room to facilitate this. This contains the most essential information about the company. In most cases, this takes place in a digital environment where the necessary documents are disclosed. If you wish to gain permission to inspect this information you, as the buyer, have to sign a non-disclosure agreement.
Phase 5 – Concluding the transaction
If the due diligence has been completed, then the purchase agreement can be drawn up. Any special features arising from the due diligence will be specified in more detail in this and the agreements concluded will be recorded. In this purchase agreement, matters such as guarantees with respect to the annual accounts, indemnities for specific risks and a non-compete clause will generally be included. Besides the purchase agreement, there will be a formal transfer. This can involve a transfer of shares or the transfer of assets and liabilities. The actual transfer of shares takes place through a deed of transfer executed by the civil-law notary.
Do you need professional support?
A professional party with experience in this field can contribute to a solution for a proposed acquisition. Are you looking for a company to acquire? Or are you perhaps on the point of selling your company? Get in touch and let us know how we can help you. You can find our contact details here.