Buy a business
There are many reasons for wanting to acquire a business. You may be a business owner already, looking to make a strategic acquisition of a competitor, or looking to diversify into new products, services or geographies, or you may be part of the management team where the owners are looking to retire giving you the opportunity to take over the business.
Click on the questions business owners frequently ask themselves below to see the answer.
- How can I own part of my company?
- How should I go about making an offer?
- Is acquiring a company something I can achieve?
- How can I get external finance?
- How can I make sure that the company I am buying is what I think it is?
- How do I go about searching for interesting businesses to acquire?
- What is a buy and build strategy?
- Who can help me during the process?
How can I own part of my company?
Whether you are making an acquisition to complement your existing business, or to start the next stage of your career as a business owner, you will be purchasing the shares or the business assets of an existing company either directly or through another corporate vehicle. The exact structure will depend on the nature of the transaction, and also how it is funded, with tax efficiency for all parties being a key factor.
Where you are looking to buy the company you work for, a common format would be a Management Buy-Out (“MBO”). This involves the existing management team acquiring all or most of the share capital in their company and running it themselves in the future, with the existing owners retiring or taking a step back from day to day operations.
Alternatively new management could come into the business to lead this process, which is known as a Management Buy-In (“MBI”).
MBO’s and MBI’s are often supported by private equity investors, and are a well-established method of achieving strong valuations for existing owners, and also to provide opportunities for existing management to take the business forward and benefit directly from their expertise and hard work, whilst minimising external awareness of the change of ownership, which may be important to employees, customers and suppliers.
How should I go about making an offer?
The value of a business will ultimately be agreed between a willing buyer and a willing seller. However, there are many factors that need to be taken into consideration before agreeing a suitable valuation, including the company’s trading history; its future prospects; the quality and sustainability of its earnings; and of course how its products, services and teams fit alongside your ambitions for the future.
As your corporate finance adviser, we will help ensure you have considered all the relevant factors, including current market trends based on similar transactions.
Once you are ready to make an approach to the current owners, your advisers can negotiate on your behalf to ensure you can acquire the business.
Is acquiring a company something I can achieve?
Whilst the media tends to focus on the headline-making multi-billion pound transactions, there are thousands of smaller deals happening around the UK and beyond across all sectors. Purchase prices can range from a few hundred thousand pounds up to many millions, depending on the size and nature of the business being acquired. Whatever the circumstances a good corporate finance adviser will have seen something very similar before and can advise on your options.
In assessing the future prospects of a target acquisition, understanding the financial forecasts and funding requirements is an important first step. Building a detailed and robust financial model supports and smoothes the due diligence process as well as developing a tool for measuring performance post acquisition.
Providing you and the business owners are both willing to transact and expectations are reasonable, then acquiring a business and raising the funding required is an achievable outcome.
How can I get external finance?
Finance for acquisitions (whether corporate or MBO/MBI) can be provided by a range of sources including venture capital, private equity and bank funding. There are increasingly a range of alternative finance providers in the market providing a real breadth of options to you.
A corporate finance and debt advisory adviser will be able to take you through the various sources and how much funding may be available and the costs of it as again this will always depend on your specific circumstances.
How can I make sure that the company I am buying is what I think it is?
Once you have agreed a purchase price, you and your investors will need to ensure you know exactly what you are buying. This will normally involve a due diligence process, including a review of the business’ historical and forecast trading, its financial and legal positions, and possibly an overview of the company’s market.
The exact level of due diligence required can vary, but if external finance is required this will include detailed financial and taxation due diligence and involve specialist transaction support advisers.
How do I go about searching for interesting businesses to acquire?
Of course all of the above assumes you have a business that you are looking to buy. If you are a corporate looking to expand, or a management candidate looking to buy-in, your first step will be to identify a suitable target.
If you don’t already have something in mind, your corporate finance advisor will be able to assist you in searching for potential opportunities based on your acquisition criteria including market, size of business, funding available, etc.
What is a buy and build strategy?
And why stop at buying just one business? A buy and build strategy starts with the initial acquisition of a “platform” business (or you may already own the platform?), which would typically have stronger management and systems than perhaps it needs to operate on a standalone basis. “Bolt on” acquisitions can then be made, either of similar companies or individual contracts, which can be integrated into the existing platform to build a bigger business which can then benefit from a range of synergies.
Who can help me during the process?
We can! Our corporate finance team are the leading transactional financial advisers in our region, having advised on hundreds of acquisitions in the past 20 years. If you want more information about how we can help you buy a business, please contact us on 01491579740.