I want to acquire a business. How can I get it right?

Dec 14, 2011 by Gareth Magee

First, be sure it’s not an impulse buy. Many acquisitions fail simply because the buyer should never have been buying in the first place. Yes, the opportunistic purchase can sometimes work well and there are bargains out there, particularly in the current climate but a strategic approach usually fairs much better. Make sure you know why you are buying.

Don’t pay more than you have to. Buyers are often disappointed by their returns, simply because they paid too much. Get good advice and get your valuation of the business right. Sellers ususally have an inflated view of the value of the business – but buyers often think they can improve profitability going forward. Yes, improvements can be made but be realistic – don’t let your enthusiasm and optimism cause you to pay more than you should.

Do your homework. You wouldn’t buy a house without a survey, so undertake incisive due diligence.

Yes, be sure you know what’s in the balance sheet, but also focus on the future. Do the projections stack up and support the price? Have you raised enough money? What about working capital requirements?

Get the structure right. Should you pay in cash, shares or a combination? Should you buy assets or shares? When should you pay – up front, or with an element of deferred consideration? The right structure will make an enormous difference in terms of tax and your risk exposure.

Don’t relax when you shake hands on price – the devil is in the detail. Too many buyers forget that whilst the price is agreed today, the entry date may be months away. Items such as debtors, creditors and cash move on a daily basis. You don’t want any nasty surprises when you get the keys.
So, again, get good advice and structure the deal in a way that ensures the value will be there at completion. Get this wrong, and you could find yourself shelling out more than you thought.

Get all this right and you won’t look back.

 

 

 

Contact: Gareth Magee, Partner

E: gareth.magee@scott-moncrieff.com

T: 0131 473 3500 or 0141 567 4500

DISCLAIMER

The views and opinions expressed in the blogs are independent and do not constitute endorsed advice or necessarily reflect the views or position of Social Firms Scotland or the Acquiring Business for Good Programme.