It’s great when things are going well with your business, the hard work starts to pay off. Your idea has blossomed and you are seeing growth. You now have the chance to take it to the next level either by acquiring someone else’s business, or being bought by a larger entity.
Every acquisition is different, but the principle is always the same – two companies with separate ownership join forces and operate under one roof to achieve the same end goal.
Mergers and acquisitions can be a very complicated process, however getting it right at the start can ensure a smoother route for both parties.
Here WHN’s commercial partner, David Buskey highlights five tips to get you started.
- Take professional advice at the earliest possible stage. As soon as a third party is showing serious interest and real intent in wanting to do a deal with you, contact your lawyer and accountant before going further.
You need to know what tax liabilities may be involved, there are various ways of structuring a merger and you need to know which would involve the least amount of tax.
- The buyer will want to know certain key commercially sensitive information about your business, and see the accounts.
Your lawyer will help draft a confidentiality agreement to protect any information you pass to the buyer and ensure it isn’t then used to your disadvantage.
- The key elements of the deal are usually written out in simple language and referred to as Heads of Terms. These are then used as the basis for what goes into the sale contract.
Don’t agree things without the benefit of advice as it can lead to longer negotiations if you have to go back later and re-negotiate. It can also affect the trust between the parties as it may look like you are going back on what had already been agreed. Often a client only asks for advice after Heads of Terms are agreed and you can then be on the back foot.
- Bargaining power is everything. Identify what elements of your business are key to the other party – what have you got that they want?
It may be in a service business you have many good contacts which can lead to increased work, or you may have technology or patents that they can help you bring to a larger market.
Equally, consider what the other party might have in their business that you may want.
- Think very carefully as to what role you expect in a new organisation, almost certainly the culture will be different. Are you sure you will have a high level management role, what do you expect by way of earnings? Be careful you don’t end up on the margins.
Remember the old saying that ‘there’s no such thing as a merger’ – it is almost always one party taking over the other.
For further guidance on all aspects of mergers and acquisitions contact:
Gary Jones at our Bury office on 0161 761 4611
David Buskey at our Haslingden office on 01706 213356