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business sellers and acquirers

Buying a business; Article 3 of 3

Is buying a business an art? Well it may not be an exact science, but there are methods in going about it. This series of articles is derived from a presentation given by Peter Wilson of Anderson Shaw, at the Business Show at ExCel in May 2019 and is geared towards the novice acquirer of an SME business who has had little experience of the buying process.

Moving on to the 4th stage in the process, which is the actual stage of deal negotiations

  • The sellers will consider your offer and either accept the terms or more likely seek some changes
  • Consider very carefully any changes they request
  • The deal needs to work for you - consider changes against your criteria, funding and how you could operate the business
  • Offer counter-proposals if you feel appropriate
  • No deal is better than a bad deal
  • Are there any other prospects that now rank better?
  • Once you have agreed outline deal terms, these are the HOT's
  • If you haven't already (we always advise that you should have by now), appoint a properly experienced lawyer
  • Appoint someone to help with the next so called due-diligence stage to help you out
  • Even if you intend to do the work yourself having someone to look over your shoulder or check at least the principles of the checking that you’re doing things right is sound advice
  • Explain to your lawyer what you're looking at, how you've gone about it and get them to check the HOT's if they've not already been involved
  • Determine exactly what you need to cover in the DD process
  • Financial / Legal / Commercial
  • and decide who is going to do what and agree with each party their responsibility
  • At Anderson Shaw we strongly recommend you use your accountant and lawyer to take most of the responsibility at this point - you can help (and certainly review with them) but unless you’re very experienced in buying businesses they're the experts 

The 5th stage is the so-called Legal and DD stage

  • Your lawyers will work with their opposing number to agree a full sale and purchase agreement (SPA) - this will be based on the HOT's but much more detailed
  • Your lawyers will also work on the legal elements of the DD (legal, compliance, contracts, regulatory etc.)
  • Your accountant will work on the financial and commercial aspects of the DD (accounts, forecasts, insurances, commercial terms etc.)
  • You will need to be patient at this stage
  • You'll be itching to get things completed (as will the sellers no doubt) but you have to let your advisers do their jobs properly
  • Do keep badgering them and ask for proper information updates
  • Do discuss with them what they're finding and go back as soon as possible to the sellers with anything of importance
  • Take this opportunity of preparing your detailed plan for taking on the business
  • Keep in touch with the sellers direct
  • Try to build-up a strong relationship with them; they're goodwill in helping in the transition is normally vital
  • Talk to them about how the business is performing and request up-to-date financials / MI regularly
  • Try (as far as sellers will let you) to be involved in the business itself
  • See if you can meet with the management / 2nd tier management so you can start assessing them yourself

More of the Legal and DD stage

  • Talk to sellers about how the communication with their key customers / suppliers / contractors etc. could work best and get their buy-in to help with it
  • Keep pushing your advisers and if there's a bottle-neck with anything they're asking see if you can talk to the sellers direct to get it moving
  • Time kills deals - the longer this process takes the more one party or the other gets fed up with it
  • On the other hand - the deal is not done so if you don't like something and can't overcome it walk away
  • Renegotiate if something’s not as you thought
  • Push your lawyers to get warranties / indemnities for anything found that you don't like (or your advisers find)
  • If you’re running more than one transaction at a time keep assessing them and compare how they're doing - re-visit against your criteria
  • You will find that there will probably be several drafts of the SPA, get your lawyer to explain what each of the clauses mean … and in layman's terms
  • If you don't understand get them to explain again ... and again .. that 's what you're paying them for
  • Keep working on your takeover plan - the first 90 days are critical
  • Plan in detail and ask your advisers to review it as well - they've done this before - you may not have done
  • Agree with the sellers how communications are going to work - who's going to tell whom / agree specific scripting of words and documents to be used 

The 6th and final stage of actually buying the business is the Completion

  • When you and your advisers are happy with the SPA and all the DD work you can agree a completion date with the sellers
  • Make it a date that works for you
  • Does the business have a cycle that you need to think of?
  • Do you really want to do it on a Friday and leave all the staff wondering about their futures over a weekend
  • Do you really want to complete at the end of July when the business pretty much closes down for all of August?
  • Organise so that you do whatever communications you feel you want to
  • Agree a detailed plan for completion with your advisers and the sellers
  • This will include; signing all the very many documents (you and the sellers), arranging for all the completion events to be dealt with i.e. notify insurers / Companies House / change of bank authority etc.
  • Make sure any of your team who are going to be involved know exactly what they need to do / when and where
  • Build in some contingency around timing of events - something will over-run / someone will miss their train / you'll get more questions from staff than you expected etc.
  • And then … congratulations it’s the champagne moment … the deal is done and all of a sudden you’re now the owner …

Now this is where the work really starts

The takeover / integration plan

  • You've signed all the relevant documents and are now the proud owner of your new business
  • Now ... it's all your responsibility so good luck ..
  • Your advisers disappear off (you've had to pay them good money for what they've done though!)
  • The sellers are happy that it's all come to an end and will no doubt immediately start taking like a bit easier …. they may well not be around at all
  • Anyway you're definitely in the hot seat now
  • You will have completed the initial communications
  • But you've probably got most of the important customers to get in touch with personally and get relationships transferred over to you (or people in your team)
  • This element of the handover is critical
  • You'll also need to really win over the staff from your new business
  • Typically you'll be pretty reliant on them to keep things running as smoothly as possible
  • You'll have to make sure you keep the cash coming in (by making sure the Customers keep paying) but even more importantly you must make sure you pay whoever needs to get paid in the new business
  • It's a very strong message and one that is almost always true - the first 90 days are critical
  • Change the controls (bank etc.) and contact points as soon as you can
  • But unless you know exactly how the business works and are absolutely confident that you can implement change that you can control … do not change how the business operates
  • You've bought it because you've seen it has value and maybe you've seen immediate things you can do with it, but generally the golden rule is leave it be and let it run as it has done in the past for these first 90 days
  • If the old owners are still involved try to keep them happy and don't push them too hard
  • They're part of your insurance policy to help retain what you've just bought working well and there will always be the "I wasn't expecting that" moment which maybe they can help with
  • Take a little time to assess the quality of the staff in your new business, let them show you how they perform without the old owners around - you may be pleasantly surprised
  • Sit back as best you can and watch - is everything as you expected, if so gradually start implementing your change plans, if things are not working as you expected, review your plans urgently and see if you want to amend them and then go ahead and make the changes you think the business need 
  • The Final Word
  • Buying a business is not rocket science, but it does take specific knowledge to identify a good business that is right for you and negotiate deal terms that make sense. There are a lot of important decisions to be made during the process and many of these are probably going to be new to you. Take your time to properly prepare and educate yourself on the various steps and situations you will encounter. 

 

As business brokers, we at Anderson Shaw Corporate Finance Ltd, are always happy to advise business owners about any aspect of buying a business and the processes involved. If you are thinking of buying, now or in the future, please contact us for a confidential, no commitment conversation. We will be pleased to provide support at any stage from  planning, through target setting and evaluation through to negotiating and finalising on a deal.


Anderson Shaw has offices on the outskirts of Coventry and provides business broker and corporate finance services for clients throughout the Midlands and the UK.

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