Tag Archives: Buy-side services

BUYING A COMPANY: HOW TO PREPARE

Buying a company: how to prepare

Have you ever thought about entering into the business world but don’t feel you have the foundations to do so? There is often a desire for entrepreneurship, but the process of setting up a business from scratch can seem like an almost impossible task. If this is the case, you may not have thought about a good option that is available to you: buying a company.

Buying an existing company that is for sale can be an opportunity to enter into business without going through the process of starting one from scratch. Have you ever been attracted to a company for sale? As in all choices in life, there are companies for sale that will fit your vision and your project and others that will not.

Knowing which company to buy can make the difference between taking the first step towards a successful business venture or, on the contrary, getting off on the wrong foot. Don’t worry: there are professional advisors who can accompany you in this process and advise you on the best choice. So that you can look forward to your business project with the peace of mind of knowing that you are not taking any wrong steps on your way to success.

We present a series of steps to avoid making mistakes when buying a company:

1.Identifying the sector in which you want to buy your company

The first step in buying a company is to define the type of company you are looking for. In which sector do you want to do business? You will need to research the medium and long-term prospects of the sector, look at the competition and pay attention to changes in regulations and laws. If you want to really get to know the possibilities of the company you want to buy and what the service they offer is like, apply as a customer to experience it first-hand.

2.Contacting the company for purchase

After thorough research the next step is to target the ideal company. You need to consider a budget, the size of company desired, the location and annual turnover and, of course, whether you are going to be successful. You should not offer a deal that you cannot deliver.

If you are unclear about how to go about this whole process, it is best to hire professionals for the negotiation.

3.Opening negotiations when buying a company

When the time comes to negotiate the purchase of the company, a detailed picture of the company and the sector in which it operates is already available. Negotiations with the owners can then begin in order to reach the best deal for both parties. The first point of negotiation is the price, based on a valuation. Then a plan must be formulated to bring the transaction to a successful conclusion.

4.Valuation of the company

The valuation stage of the purchase of a company is the most important to ensure success. Assets often make up the largest part of any valuation. These can be the value of property and real estate or also machinery and equipment, depending on the company. The importance of turnover, profitability or current contracts should not be overlooked either.

5.The sale and purchase agreement of the company

The finalisation of the sale and purchase agreement (SPA) marks the final stage of the company purchase process. In the meantime, the heads of agreement set out in broad, non-legally binding terms an overview of the purchase. A purchase and sale agreement will grant both parties their legal obligations.

6.The payment 

There are several options regarding the payment of the purchase of a company, depending on the size and scale of the purchase.

Payment for a large-scale purchase, such as a multinational purchase, can be more complex in operation, with multiple sources. For a smaller scale purchase, the most common method is a direct payment.

Payment may come from private means, investors, banks or lending companies, among others. Sometimes the current owners may give up full control of their business at the sale, but only take a percentage of the full value upon completion, in exchange for an ongoing share of the company’s profits.

After these steps, with the final documents completed, the contracts signed and the payment agreement in place, you will have completed the purchase of your new company.

This process is prior to embarking on your entrepreneurial dream. It can be a slow, strenuous and labour intensive process. It can often wear the buyer down and sap his or her enthusiasm and initiative. But you don’t need to waste your energy on this process.  There are companies like ONEtoONE, which can guide and accompany you, so that you can dedicate all your passion and enthusiasm to your business project, ensuring that you have acquired the right company to make it a reality.

Whether Buying or Selling a Company: Pick the Right Advisor

Pick the Right M&A advisor By PAUL HAGER,  Partner of ONEtoONE Corporate Finance


Have you bought, or sold, a business lately?  If you did, how do you know if you received optimal value on the deal? Did you ask an M&A advisor? It can take years before the value gained can be objectively measured, or even whether the result was a business success. Recent McKinsey and Harvard research shows that nearly 90% of all M&A deals fail to deliver the value expected, or achieve their M&A goals.  How can this be?

Well-known, high-profile deals like Daimler-Benz-Chrysler; Time Warner-AOL; Quaker Oats-Snapple; Sears-Kmart; Google-Motorola; Sprint-Nextel, are extreme examples of deals not meeting expectations.  A number of factors lead to poor M&A results.  These include: simply paying too much; fundamental cultural mismatch; massive infrastructure incompatibilities; significant redundancies; or no product synergy, whatsoever (i.e., the marriage simply wasn’t ever going to generate products customers would consider more valuable).

As someone who has bought companies as a Fortune 500 investment committee member, and as a valuation and investment advisor for M&A clients, I’ve found the team you select to be your investment advisor plays a significant role in the amount of value created in the deal.  I hope my thoughts might help you pick the right investment advisor, and significantly increase the likelihood of you achieving your M&A goals.  I’ve listed characteristics I think exist in all exceptional advisors.   An exceptional investment advisor:

1) Asks “Why?”.

You’ve likely heard of Simon Sinek’s Golden Circle paradigm or Paul Ambruso’s use of the “5 Whys” to discern the root cause of success and failure.  The “5 Why” approach was derived from Taiichi Ohno’s 1960s Toyota Production System methodology.  Its purpose is to identify inefficiencies, waste, inconsistencies in manufacturing.  Most importantly, the technique can help people discover and objectively assess assumptions, biases, facts, priorities of any endeavor – personal or professional.  In our case, buying or selling a business.  The “5 Why” method states that clear insight leads to the best decision, and that insight is likely to come only after you’ve assessed answers to five iterations of “Why?”.  For example, your investment advisor might ask, “Why do you want to buy a business?, Why do you think buying another company will lead to greater innovation?, Why do you think this type of research capability will lead to needed innovation?  And, so on.  Asking “Why” throughout the M&A process leads to clearer understanding of why a certain type of company or investors would be the best match.  An exceptional advisor asks “Why” to constantly validate assumptions, eliminate wasted effort, explore new deal options, and sustain deal focus.

2) Understands your business

As an M&A advisor, there is no adequate substitute for deep understanding of a client’s operations and industry sector.  Having empirical insight into current and future industry trends, enabling technologies, and inter-dependent industries dramatically heightens the value ceiling.  An exceptional investment advisor will use this insight, and that of her other industry experts, to develop a set of optimal investment candidates for each client.

3) Spearfishes

Last year, a friend of mine told me of her exciting trip to Bora Bora (How nice is that?)  She said the restaurant would take their dinner order the day before, so that snorkelers could search for the exact type and number of fish needed for their guests’ dinners.   No waste in effort, time, or resources (fish not on the menu appreciated that).  The diver knew the depth and location to find the type and size of desired fish.  An exceptional investment advisor will find those investors and companies that most value a specific client’s offering.  Through use of the “5 Whys” and other analytic methods (e.g., Porter’s 5 Forces) to build a well-defined target profile, the advisor will quickly identify superior matches for each client.

4) Leverages global reach and local insight

In searching for their client’s best investment candidates, it is sometimes more efficient and expeditious for advisors to contact corporate, institutional, and private investors with whom they regularly do business – “the usual suspects.”  Because of established trust and understanding regarding these investors’ preferences and capabilities, advisors will work within their established networks.  That’s understandable.  But, the best strategic partner, the one that may most value the client’s offering is often not within any investor’s direct set of contacts.  The best advisor is one who will leverage an expansive global investor network that connects multiple industries.  Investors who most value your offering may be in Singapore, Prague, Estonia, or Shanghai.  An exceptional investment advisor will leverage access to trusted M&A colleagues with deep understanding of financial markets, industries, and companies in each region of the world – allowing them to open discussions with new investors and corporate networks that promise to hold greatest interest in the deal.

5) Takes business, personally

If the human body is 60% water, I surmise at least 60% of a company’s value is its people.  Or maybe, applying the Pareto Principal, 80% of a corporation’s value is its people.  A good investment advisor is constantly mindful that M&A success depends on people to embrace and support implementation – before and after the deal.  Having been an entrepreneur, and having worked to grow small businesses for nearly twenty years, finding a phenomenal, successful M&A match helps to improve the lives of people in each company.  Or, it should.  Cultural rifts and redundancy layoffs can destroy the deal, its value, and peoples’ lives.  Applying the previous four facets helps create and expand deal value.  An exceptional investment advisor knows that business is personal, and that the company’s greatest value asset must be supported, nurtured, and challenged.  A successful M&A deal will do that.

There are many exemplary investment banks and advisory groups around the world.  Whether it be a top-tier large firm, or one with a boutique focus, these firms have phenomenal analytic research, and deal-making talent.  I know this from my own experience.

My only suggestion is that you chose an investment advisor who also possesses the five qualities mentioned above.  If you do, I am confident you’ll capture exceptional value in your deal.

If you are looking to optimize the value of your investment within an operation, I encourage you to evaluate ONEtoONE Corporate Finance: a firm dedicated to provided the highest value services to their clients through transparency and professionalism. For more information click the button below.

The Types of Financing for a Business Purchase

Business Purchase: Types of Financing

If you are thinking of buying a company, there will come a time when you will need to consider how to manage the company’s payment, or as such, how will you finance the purchase. Within the market you will find different types of financing options, and here we will be discussing the main ones.

Crucially, you must have in mind the current point of the economic cycle at the time of your purchase. When the economy has less liquidity, debt is going to be more expensive given the heightened demands from banks with direct respect to the increased interest rates one would face if they were to be borrowing money at the time. In turn, if the bank perceives your venture as high risk, then they will double down with even higher interest rates on top of the already increased levels. As a result, you must be confident in your ability to pay back your debt, if you choose to go down this line of financing during a time when the economy is holding less liqudity.

What does the types of financing depend on?

The types of financing you can access will depend on:

1- The operating cash flow that the company has had to date (net profit plus amortization)

2- The quality of the collateral (guarantees) that you give

3- Your prestige, along with that of your partners

4- The business plan. If you are implementing your business plan, take a look at SIX STEPS TO A GREAT BUSINESS PLAN! This article identifies six steps that entrepreneurs and companies should keep in mind when creating their business plans.

During a company purchase, there may be different bank debt tranches and they are differentiated by the preferences regarding collection and interest paid. The types of debt that are more focussed on collection will typically demand higherinterest because they incur more risk.

Importantly however, when buying a company you can use multiple levers of debt.

Short-term bank financing

If we talk about short-term bank financing you would have:

Loans to finance working capital that are obtained from financial institutions, which may be in the form of loans, lines of credit or discount of effects.

Next, you have financing through accounts receivable such as factoring (the sale of the debts of other clients) and confirming.

Long-term bank financing

On the other hand, long-term bank financing is quite frequent in leveraged purchases (with indebtedness), in which different types of debt are used depending on the excesses and cash needs foreseen for future years:

The one that charges the least interest would be the debt with mortgage guarantees. Given it has physical collateral to support its loan, the bank is reassured that if the debtor does not pay them back, they can keep the asset. The bank therefore assumes less risk and therefore is willing to lower the interest rate in comparison to when there are no assets present to support the payment. As such, it is possible to obtain financing for up to 80% of the value of the property and in turn, you can agree on a longer return period.

There is also the Sale & Lease back concept, which consists of the sale of a company asset and the simultaneous realization of a financial lease contract on that asset. Therefore, the ownership of the property is transmitted but a right to use it is maintained. This allows the seller to take the entire amount generated by a sale and continue in the same facilities, whilst paying a rent.

An option that is typically associated with higher interest levels is that of Senior Debt. It is named this way because it has a preference for collection with respect to the rest of the associated debts. There can be a deadline of agreement between a period of between 5 to 7 years, redeemable annually and with a grace period of 12 or 18 months. This type of debt already has protection clauses (also called financial covenants), which are obligations to meet certain ratios (Debt / EBITDA, EBITDA / Interest, Minimum own funds, etc.). Thes obligations are typically reviewed on a quarterly basis.

If the company does not comply with these ratios, economic penalties or accelerated depreciation clauses can be activated. Moreover, you will often be asked to pledge the shares of the company you buy. Given that these clauses that the banks require are mainly based on compliance with the business plan, it is recommended that you are conservative in your construction of the plan, because a failure to comply can lead to the bank demanding a renegotiation of conditions that will often charge you more commissions and higher levels of interest. Some additional covenants that can be imposed on you are that of the prohibition to pay dividends, repay loans to the owners or carrying out further corporate operations.

Banks can also add further debt limitations in the contract to that provided in the Business Plan and in turn, require you to contract the lines of financing of the currency with the same financial institution. They can also put limitations on fixed asset investments, by way of not letting you exceed what is established in the Business Plan. They may demand that there be no changes in the shareholding during the life of the debt and negotiate for early repayment formulas, so that you use the excess cash that is generated to repay the debt, instead of allocating it to the growth of the company. All of this will be possible depending on your negotiation strength and the risk of the project.

Participative loans consist of the contribution of funds to a company in exchange for remuneration, which is based on a variable interest rate that depends on the evolution of the borrowing company. The advantage to this strategy is that it is based on an order of priority for repayment, which typically sees the associated bank put behind on that list, with the investors placing participative loans considered the priority. Importantly however, the investor that grants the loan does not get included in the capital structure of the company.

Mezzanine Debt is another form of financing, which perhaps can be considered as subordinated by the previously mentioned types. However, there are funds that are specifically specialized in granting this type of financing. It is called a mezzanine because it is ahead of shareholders in collection rights, but behind with respect to the other creditors. As the borrower assumes more risk, it is a type of financing with higher interest rates (between 15 and 25%), which usually has 100% amortization at maturity and a longer repayment term: 8 or 10 years. It allows the Company to have free cash flow during the life of the debt, in order to implement growth and development strategies. The restrictions (covenants) imposed by the lender are also relatively minor.

This type of debt allows the grantor the possibility of accessing capital through the purchase options released, so that if the project goes well, the borrower can also earn a lot of money. In other cases, the investor also acquires a percentage of the capital and accepts only to charge interest when there are benefits in doing so.

It is usually agreed that the repayment of the loan and its interest must be made in full before the shareholders receive any dividends.

Preferred shares

Along with the different types of debt, you can also choose to give out preferential shares: these shares do not usually have the voting rights associated with them, however they are placed ahead with respect to collection rights in comparison to the other shareholders. Importantly however, they are still behind any type of debt financing in the event of liquidation.

There are infinite models of preferred shares because they are issued according to each company and their individual circumstances. There are preferred shares that give your holder the right to receive a certain dividend and if it can not be paid, accumulate it when possible. Other preferred shares are convertible, so if the company goes very well, they can convert it into normal shares, whilst if it goes poorly they can accumulate their right to dividends until they can be paid, given that they have collection priority. Resultantly, this holder has more upward travel and is considered to be more protected.

 

Within a more globalized world, the sell and purchase of companies is a great way to approach a new market or reinforce a competitive position. The main difficulty involved in this type of operations is knowing how to approach them so as not to be deceived and maximize our value. If you are considering buying a company and looking for advice, do not hesitate to contact us and learn more about the different types of financing!

CONTACT US>>

Buying a business: the due diligence

Once the indicative offer has been placed and the letter of intent has been signed, the next step is to validate that everything that has been said is true and that there are no hidden liabilities. Surprises are not appreciated in business, and especially in M&A when they can cost business owners millions of dollars. So to prevent these surprises from arising, due diligence has to be conducted before buying a business.

What is the due diligence in the buying process of a business?

As stated above, due diligence is an analysis that the buyer does to verify that what we have said is true. The buyer´s objective is to verify that what they are buying is what they are receiving.  This is simply because after acquiring the company, both its advantages and problems will become those of the buyer.

Many inexperienced entrepreneurs tend to easily accept the first option they find and will look for a shortcut with the due diligence phase because they want to close the deal as fast as possible. This may happen because they have been looking for a company for a long time and are weary of negotiating: and above all, they would not want to start the whole process all over again.  However, the due diligence analysis requires calm and objective actions, conducted through a thorough and rigorous revision. It usually takes between four to eight weeks. 

In other cases, the seller will hold back from sharing all the information with the owner, or the owner may also be afraid to ask for it. Given the complexity and the resources needed on these corporate transactions, it is important to explain all the negative aspects of the business at the starting point as well. By not wishing to harm the relationship with the potential seller, the buyer could leave important matters uninspected. The consequences could be detrimental. If after due diligence the buyer discovers that the reality is different to what was negotiated, it is possible that he won’t even make another offer. He will simply stop the process leaving a bitter taste in everyone’s mouth due to the time and effort wasted.

The results of the due diligence can be an important tool for verifying if the offered price is adequate and the buyer often uses the results as a negotiating tool for price and contract terms. Sometimes, the seller isn’t aware of his own problems until the buyer discovers them in the due diligence.

Main aspects to analyze in the due diligence

In due diligence, there are three areas that must be analyzed: the business, its finances and its contracts.

The following aspects, within these three areas, should be evaluated: the history of the company, its transactions, products and services, the market and competitive position, its clients, the quality of both directors and employees, the established compensation system, competitors, facilities and machinery, stocks, financial statements, the production, planning and control systems, marketing, internal reporting, technology, environmental issues, its legal situation, social security, future prospects, business model, insurance, patents, brands, and debt.

The buyer must prioritize the information that is most relevant for him since the seller usually provides limited information in the due diligence process. Besides, his energy and documentation delivery will slow down as the process develops.

Due diligence provides four types of information:

  • Key facts needed to decide whether to buy a company or not
  • The price range
  • Terms and conditions of the sale agreement
  • Opportunities to improve the company

There are certain findings that can cause a rupture between the buyer and seller. Some outcomes create an insurmountable difference between the expectations of the buyer and the seller. Other results reveal very high risks for the buyer.

Thus, the operation is usually broken when (1) the financial picture after the due diligence is very different from what the seller said, (2) it is discovered that the perspectives of the companies are bad, (3) there are high contingencies, (4) the company depends too much on the seller, or (5) the company requires strong investments to be able to stay or go back.

Lastly, it is advisable to interview former employees before buying the company, as they may reveal other issues which have not yet been exposed.

 

Buying a business is a long and arduous process, accompanied by intense emotions. The advisors that have participated in numerous M&A transactions know it is a matter of perseverance and patience. Finding creative formulas also accelerates the process until the objective is fulfilled. If you are looking for a business to reinforce yours, do not hesitate to contact our team of experienced advisors. 

The importance of a LOI when buying a business

The Importance of a LOI When Buying a Business

Surely you have heard of the expression “words are gone with the wind.” Keep this phrase in mind when you are planning your M&A strategy. You must understand that there is a great difference between a handshake with verbal agreement and a letter of intent. When buying a business, one must write down everything. It is necessary because throughout the conversations amongst each other ambiguities are generated. It’s called selective hearing, when one only hears and listens to what is most convenient for them.

Perhaps you did not know this but during a negotiation there are three conversations being produced: the conversation of the seller with himself, the one of the buyer with himself, and the one with each other. It happens often that when one is speaking the other is not listening because they are invested in the conversation with themselves or they are thinking of what they are going to say next. Consequently, a dialog like this is produced:

Buyer: “we agreed on this”

Seller: “we never made a deal on that”

Buyer: “but I told you and you agreed to it”

Seller: “no, we never even spoke about that”

It does not necessarily mean that the seller is a liar, he was just not listening.

This is why it is important to have your advisors write a letter of intent of everything that was agreed upon between the seller and the buyer, if possible have both parties sign the document. The letters are key to a smooth corporate operation.

The importance of LOI when buying a business

What is a LOI and why is it necessary when buying a business?

The letter of intent (LOI) is a document that is relevant during the selling of a business, due to its implied jurisdictions. This document contains the main points that have been agreed upon by the buyer and the seller.

It is of vital importance that all relevant aspects of the agreement are written down since thereafter, you, as a buyer will invest in auditors and legal advisors. If it’s the case that the most important and relevant points were not addressed in the LOI, then it is possible that the process will fall apart and everyone involved waisted their time and, in your case, a lot of money.

The agreement should include if the deal is about capital extensions, a purchase of financial assets and financial liabilities or shares, the price, percentage at purchase, what form of payment will be used, payment deadlines, adjustment formula for price and any other sort of reimbursement ( consulting fees for the buyer).

An agreement of confidentiality and a term of exclusivity (in which the seller cannot negotiate with other buyers) that proceeds with due diligence and a contract of trade. Often a deadline is placed for the signing of the contract and a calendar of financial performances.

There can be an incorporation of the type of banking debt that will be used for the purchase.

In various occasions it is established what the due diligence will cover, but of course, the seller should facilitate the information necessary for the due diligence.

In this agreement you must establish that the business will continue to be managed until the purchase in the manner established. It shall remain intact and without any alterations of significance to the working capital nor the relationship with the providers and clients; you cannot distribute dividends or make extraordinary expenses or sell financial assets; it is prohibited to sign other contracts different to those of the normal management, change salary or compensation plans etc. For this type of action, written authorization of the buyer is required.

You must condition the validity of the agreement until you are satisfied with the due diligence, to obtain the financing necessary from the banks and, of course, until there is no substantial changes in the financial or operative aspects of the company.

Moreover, it is recommended to make an agreement that states that if the seller retracts himself or leaves the sell, he should pay the expenses of the due diligence. This is crucial because the seller can become nostalgic in the final steps of the sale and cancel the process.

The LOI is what you will present to the banks so they can begin financing what was agreed upon. Do not let the “words are go with the wind,” if you truly desire to buy the business.

If you want to know more about how to do a LOI, download our EBook here.

As the days pass, the world that we take part in becomes more globalized, buying a business presents itself as a magnificent path towards new markets or to reinforce a competitive position. The biggest challenge that emerges with these opportunities is knowing how to approach them to be able to maximize profit and not be deceived. If you are planning on buying a business and you are looking for advising, do not hesitate to contact us for strategic advisory!

Process for buying a business: the indicative offer

Buying a Business: the Indicative Offer

You already have identified the best business to buy, started the acquisition process and met the seller. Now, if you are interested in learning more about the company you want to buy, it is time for you to make a move and present an indicative offer.

Advantages

When writing an indicative offer, the most important advantage you have is that there’s no juridical implication.

Moreover, the indicative offer shows the buyer intentions and what the seller can expect from him. The seller needs to get the indicative offer to decide if he wants to start the negotiation and understand if there are good chances to close the deal.

For buyers, the indicative offer also represents a great way to show that they are reliable.

Content

When writing the indicative offer, you are indicating an approximate price range, whether you are going to acquire the company buying shares o paying full price, and when you would like to sign the Letter of Intent. It will also help you to prepare a calendar with the steps you need to take to close the transaction. At the same time, it could be a vague document, because its goal is writing a first proposal to start the negotiation process.

Many business owners aiming the sell their business told us they were really impressed when they received the indicative offer, especially because it gave them a great motivation to start the negotiation business. Business owners usually sell their company once in a lifetime and buyers have to pay attention to details and make sellers feel important.

Indicative offers could also have an unexpected impact on business owners that weren’t interested in selling their business yet. If you are interested in buying a company and you are not sure whether it is on sale or not, think about it!

 

The process of buying a business is a long one, in which there are moments of intense emotions, of breakdowns,of crisis, in which it seems that the operation has reached a total impasse. As advisors who have taken part in numerous operations, we know that it is a question of tenacity, of not giving up, of looking for creative formulas which resuscitate the operation time after time until we achieve our goals. If you are looking for a company to strengthen your competitive position, don’t hesitate to contact us!

CONTACT OUR TEAM

Steps to Buying a Company: the Initial Contact

The Initial Contact: Buying a Company

We will discuss the steps to buying a company and how the initial contact plays a key role. In this article we will find out why the initial contact is so important and we’ll analyse some techniques on how to buy a business obtaining the best price.

How to communicate with the seller

The best candidate when buying a company is the business owner who doesn’t know that he wants to sell his business yet. Why? Because nobody is interested in buying his company. Therefore competition doesn’t exist.

When calling a business owner, try something like “Good morning Mr. Smith, this is Enrique Quemada speaking. I am interested in buying a company in your sector and the Industry Association told me that you are very successful, that is why I thought you could give some interesting suggestions. Could I have the chance to meet you?” If he likes the idea, he is potentially intersted in selling his company. If not, he will tell you who you can try to reach out to.

PRO TIP: Don’t start the conversation asking “Are you interested in selling your business?”. It would sound intrusive and you will not get the information you want!

Verify if the business owner is interested in selling his business

The initial contact is one of the most important steps to buying a company and it requires the ability to understand as fast as possible if the business owner you are talking to is really interested in selling his company. We participated in many mandates investing time and money and eventually finding out that was no seller.

Many times the price you will be asked to pay for a company may be too excessive. That means the business owner doesn’t want to sell his business. In other cases he doesn’t want to accept the real value of his company. Moreover, he may not be sure about the idea of leaving his company behind yet. In this case, the key question is: “Do you need to sell your company?” If the answer is yes, you can eventually succeed and acquire it.

If the company is very interesting and the business owner wants to sell, don’t let the price scares you. There is a long negotiation process and the business owner will eventually accept the real value. Many evaluations are based on emotions, that is why you need to let business owners understand how to calculate a fair value.

When a business owner decides to spend some money, you may be certain he wants to sell his company. For example, contracting advisors is a really good sign.

Try a “ONEtoONE” negotiation

If you want to obtain the best price, you need the business owner to only negotiate with you. That could be a milestone for you to succeed in your goal.

One to one negotiation will be frequent when companies you are negotiating with are small or in crisis. For this reason, those companies are not attractive enough for private equity firms and many potential strategic buyers wouldn’t waste their time negotiating these transactions.

In the case you want to buy a leader company, a competitive process will start and there will be many interested buyers like you. As consequence, the price will raise due to treacherous bidding.

4 things to evaluate the best business to buy

4 ways to evaluate the best business to buy

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 business 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.

5 Places to Find the Right Company to Buy

5 places to find the right company to buy

Once you have made the decision to buy, it may be hard to find a company for the purchase. The first thing to do is to get the word out – in your surroundings and among the key actors in the world of mergers and acquisitions. Then, look in these places and, more than likely, you will find the best buy for you:

1. Gather information and ask around

First of all, get to know the industry that interests you, contact the professional association of the sector, speak with its leader and show him or her your interest, ask them to let you know if they hear of any company for sale.

2. Directly contact business owners

Another alternative is directly contacting the owners of the companies that interest you. You will be pleasantly surprised. Over the years, I have called many business owners in name of clients who were interested in buying them and these calls have always been well-received. In fact, some owners have shown great interest. Many business owners love to hear that you want to buy their company. They feel flattered and are willing to sell.

3. Use the internet

Another way is to put an ad on the internet, on corporate buying and selling websites. In these websites, there are a lot of ads for selling but very few for buying. This means that your ad will stand out and will provide you with a lot of leads. It is much better to have companies come to you than for you to go to them. This will increase your negotiation power.

YOU MIGHT ALSO BE INTERESTED IN, “6 STEPS TO IDENTIFY THE IDEAL SECTOR AND COMPANY TO BUY.”

4. M&A banks

Of course, it is important to make public your desire to buy a company. Head to M&A banks. There are not that many (ONEtoONE Capital Partners is one of them) and are easy to find on the internet. However, you should show them real interest in buying because bankers like those who show true interest and will not want to waste time with those who are not serious. The advantage of contacting one of these entities is that they have sale mandates and the seller has paid them so that they make a sale notebook and create documentation about the company, meaning that they will be able to give you a lot of information.

5. Lending entities, such as banks and venture capital firms

Risk entities, such as lending banks or venture capital firms, are also an amazing source. They know the companies for which the business owners are close to retirement or where they are overwhelmed and are looking to find substitutes to take on the company leadership.

If you are looking for companies in crisis, ask around at these banks. They have many of them as clients and will be happy to look for an alternative leadership.

The aggressive debt of companies and the fall of revenues and EBITDAs (earnings before interest, taxes, depreciation, and amortization) provoke many companies to have difficulties when facing the debt. In these circumstances, banks find that these companies are the most willing for a change in leadership.

The banks are aware that if a company is insolvent, it will go into bankruptcy soon and they will lose most of what they have loaned the company.

Therefore, to avoid this situation, financial entities are taking control of the situation and are forcing business owners to oblige them to sell their company with the goal of recuperating most of the amount loaned.

Speak with venture capital firms that are focused on your sector. Most will have sectorial preferences. You can find them at www.webcapitalriesgo.com.

Other tips

If you are looking for small companies, you can speak with the Chamber of Commerce in your area or with a broker.

Other actors that can show you companies are law firms, financial offices, or auditors.

Do not forget about head hunters, those to whom financial investors hire to find an executive for their company. In these cases, you are the last in coming to the operation and, even though you can get a percentage of capital, your negotiation power is much less.

If may seem like a lot of work having to do a search, but as the saying goes, “no pain, no gain.” Behind this search could be an opportunity that cannot be matched. If you do not like your current situation, do not conform; create your own destiny.

Do not overlook the company you are working for at the moment. You may be in an ideal buying opportunity, but you did not realize it. Appearances fool and maybe, while you look for an opportunity outside, owners of the company where you work are secretly looking for a buyer. You will not be the first executive to whom it happens.

This article was written by Enrique Quemada, President of ONEtoONE Corporate Finance.

6 steps to identify the ideal sector and company to buy

steps to identify the ideal sector and company to buy

When buying a company, it is important to know how to find the best company, and in order to do that, one must know how to first identify the ideal sector. In this article, we walk you through the 6 most important steps to finding that ideal company for you.

Choosing the ideal sector

“If I had an hour to solve a problem I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.” – Albert Einstein

All sectors have a tendency: to go up or down.

1- Analyze if the industry is concentrated (with only a few but large-sized players) or fragmented (many but small players). In those industries that are very concentrated, the leaders establish price. If it is fragmented, you have more possibilities of finding a leading candidate within a niche. Try to buy a company with a dominant position in that niche.

2- Analyze the structure of the industry and where it is going in the next 5 years. The ideal industry is one that will grow in the future and is fragmented – where the companies tend to be of small or medium size. Try to find one of these industries to which you can apply your experience and knowledge. In a fragmented industry, you avoid the presence of a giant that can disrupt the competitive landscape by, for example, changing the prices or conditions of the market.

YOU MIGHT ALSO BE INTERESTED IN, “HOW TO FIND AND BUY A COMPANY.”

3- Avoid industries in decline since they tend to hurt themselves with constant price reductions of the competitors to cover fixed costs and end up destroying margins.

4- Try to not enter industries that have intense competition, with low barriers to entry, high consumer negotiation power, and are subject to external factors that cannot be ignored (regarding regulation, technology, environment, fashion, etc.) The three key factors that determine the intensity of competition within an industry are the competition within the companies that are in it, the threat of new entrants, and the threat of substitute products or services. The level of competition in the sector is an indicator of the potential for high or low margins.

5- The size of the company you should buy depends on you and your experience. However, if you are not a “mega-executive” and do not have experience buying companies, it is best to buy a company that has a turnover between 6 to 12 million euros. That is an ideal size for your first operation because in those sizes, there tends to be a corporate structure to which you can make changes to significantly alter its ability to create value.

6- If you do not have a sector that you specialize in or do not know where to look, it is best to look in sectors that are fragmented based on geography or product line.

The ideal company

The ideal situation would be finding a company that is growing and that has a competitive advantage, that generates a healthy and constant margin, with profits above 15% of sales and with growth possibilities on various fronts.

In this ideal company, customers do not change and their concentration is low. Naturally, these companies are not cheap, but it is much better to buy a good company than to buy a bad one at a bargain price.

This article was written by Enrique Quemada, ONEtoONE President.