There may be a lot of opportunities around you, but if it involves as much investment as does the purchase of a company, it is important to judge the opportunity to make sure it is worth your time and money. Here are four ways you should consider to evaluate the best business to buy.
Quality of the source of the opportunity to buy
The origin of the opportunity will serve as an indication of whether the opportunity is a true one.
Has it come to you through an investment bank or through an unknown intermediary? In the latter case, be more cautious. Is the seller paying an advisor? If so, it means that he or she is truly interested in selling.
Is the sale process formal? Did they make you sign a confidentiality agreement? Is there a sale memorandum?
This information is very relevant because in many occasions, the owner is only trying to test the market to see if there is interest for his or her company or to see what its true value is. In other cases, the operation may come to you through an intermediary but does not know if the owner truly wants to sell.
Are all shareholders selling?
Often, after conducting an in-depth research you discover that the seller is only a minor shareholder that only has 15% and is looking for a buyer to “get out of there.” The usual in these cases is for the major shareholders to buy them. It usually makes little sense to replace the minority shareholder’s problems and pay money for it.
In other occasions, those who sell are major shareholders but the minorities have the right to abort your operation if they are not consulted in the process.
It could happen that a minority shareholder wants to sell, and in this case, it is important to be creative and design formulas that allow you to close the operation. This usually involves a more complicated operation and the likelihood of failure is very high.
Quality of advisors when looking for the best business to buy
If the advising team that surrounds the seller does not have experience in this type of processes (this happens quite often), it is highly likely that the operation is ruined or the execution becomes more difficult. Therefore, you should look at the type of advisors and lawyers that the seller has before embarking on a purchase mandate.
You can tell them that you are willing to study the operation given that the work with corporate finance advisors and lawyers with given experience in the buying and selling of companies.
If their lawyer is a friend that specializes in family law and he or she is helping them with the process (the lawyer could be the first in not selling so that he or she is not left without a client), it may not be a good idea to become involved with a process that has a high likelihood of failure. Without a doubt, the higher the quality of advisors, the higher the possibility of a successful operation.
Is it really the type of company that you are looking for?
When evaluating the best business to buy, you have to clarify whether the company is in a development phase that interests you: start-up, growth, or maturity. Do you really possess the tools you need to compete in this sector?
Is the company part of the sector and type of business that you have the capacity and real experience to manage?
Is the company in a geographic zone that is accessible and close to your location (two hours maximum by car), and in a good geographical zone to successfully develop the business?
You should be sure to reflect on all these things before embarking on a new purchase.
This article was written by Enrique Quemada, ONEtoONE President.