Buying Process

Purchasing an existing business can be both exhilarating and intimidating. Generally, buying an established business is viewed as less risky compared to starting from scratch. This is because when you buy an existing business, you acquire an operation that is already generating revenue and profits. Additionally, the business will have an established customer base, reputation, and experienced employees who are knowledgeable about all aspects of the business. Furthermore, buying an existing business ensures immediate cash flow since the business will have a financial history that provides insight into what to expect and can aid in obtaining loans and attracting investors. To make the process smoother, it is helpful to create a checklist that includes all the necessary information to consider before purchasing a business, and to update it as you gather information.

Step 1: Set objectives for the acquisition or investment

• Identify critical features, such as exposure to certain areas of the market, specialist expertise, business geography, company culture, and characteristics of key people.

• Determine the amount of time you can commit and the level of professional assistance you require.

Step 2: Know your budget

• Research financing options to fund the purchase.

• Determine how much you can borrow through debt finance, equity finance, or a combination of both.

• Seek the advice of an experienced M&A advisor to pinpoint the right financing structure.

Step 3: Identify potential targets

• Compile a shortlist of companies that fit the established criteria.

• Reach out to an M&A advisor to maximize your reach and professional network.

• Expand your search to similar companies for comparison.

Step 4: Initial contact and discovery

• Contact the respective owners to see if they are interested in discussing a purchase.

• Request limited financial and operational information to inform the negotiation process.

• Stay alert to red flags, such as poor financial records, excessive competition, and high levels of debt.

Step 5: Enter negotiations and agree ‘heads of terms’

• Formal negotiations with both parties laying out the main details of the deal.

• Agree on the provisional value of the transaction and other key aspects of the proposed transaction.

Step 6: Prepare for due diligence and appoint advisers

• Carry out thorough due diligence with support from financial and legal professionals.

• Review different providers and choose the best to drive towards completion.

• Ensure the seller has prepared a virtual data room.

Step 7: Secure Your Funding

• Speak with your bank and provide due diligence information to finance the deal.

Step 8: Finalize the legal documents

• Negotiate and draft legal documents in parallel with the due diligence process.

• Retain a corporate lawyer to scrutinize the final agreement from all angles.

Step 9: Complete the transaction

• Sign the contracts and send the required funds to complete the transaction and transfer ownership of the business.

Step 10: Manage the integration

• Formulate a roadmap to ensure a smooth and successful post-acquisition period.