Last Monday, I had the pleasure of presenting a “buy your own” company workshop to the young entrepreneurs and enthusiasts of “Cercle Dynamique” in Brussels.
Just like you, some of those young men and women did while some did not have a background in economics, negotiation, or M&A. The idea was to create eight guidelines to focus on when looking to buy a company which are easily understandable for professionals as well as for complete newbies.
M&A is like marriage, you are bound for life with no option on a free divorce. Pick the right partner, and write stuff down. Here are the top 8 takeaways on buying a company:
1) Decide what you are looking for
Decide what you want in terms of location, size, industry, etc. Think about your budget as well – do you even have one?
2) Do your research
Visit companies close to home, check online, and know that there is NO harm in asking. Be careful: online, you will find one good opportunity for ten bad ones.
3) Consider getting help
Professionals will safeguard you from financial, legal, and emotional pitfalls. A sparring with a deal-making attitude will only help you move faster.
4) Understand the counterpart’s motivation
“For sale” does not mean that something is wrong; remember that. People have a variety of reasons to sell a company. What is of utmost importance is to understand why a seller sells. If you understand the motive of the counterpart, it will ease negotiations. The same goes for you – be clear about your buying motivation.
5) Complete Due Diligence
As your mom used to say: Do your homework! We mean, do the research. Team up with experts and do not leave anything up to change, be diligent.
6) Acquire the necessary funding
Funding knows many forms. You can use seller financing (vendor loan, etc.), business angels, venture capitalists, FFF’s (fools, friends and family) or just go knocking at the bank’s door. Whatever you decide to use in your financing cocktail do not overstretch and calculate an error margin.
7) Draft a sales agreement
Protect yourself with a waterproof Sales and Purchase Agreement. The SPA should define the scope of transaction, financial metrics, and formulas in detail. Once all is written down, make sure you understand and agree with every single word on that paper.
8) Keep your communication clear and transparent at all time
Communication is key in any business transaction, especially in one as important as a business purchase. Make sure all parties involved are constantly aware of what is going on.
Eager to learn more on valuation, the acquisition process and our conclusions? Check out the full slideshow here.
This article was written by Jeroen Maudens, Partner in our Brussels, Belgium office. If you would like to learn more about buying a company, take a look at the 10 MOST COMMON OBSTACLES WHEN BUYING A COMPANY.