Buying other businesses to grow your own is an attractive proposition in many ways and for many reasons, especially if the strategy includes buying competitors.
However, any merger or acquisition is inherently complex for reasons outside of the strict financial logic and benefits. Among many issues to consider are :-
- Control – will you retain the same degree of control after the acquisition or merger? Will the purchase need or potentially have to include the senior team or owners of the target business?
- Culture – bearing in mind TUPE law it is difficult to buy a business without taking on the staff and there may be a very difficult culture in the other organisation and loyalties may lie elsewhere. Will you be taking on employment law problems in terms of difficult employees or onerous employment terms and conditions? Assuming you can change employment terms easily is an error and what happens if the staff of the target business are on better employment terms than your existing employees?
- Why is the target business available for sale? – be careful to analyse the underlying reasons and don’t assume you can fix problems easily just because you are bigger or are generally doing well. Are there possible skeletons in the closet that are difficult to know simply based on paper due diligence? It’s important to delve as deeply as possible with market research and human source due diligence as well.
- What is about the target acquisition that adds value to your business? – is it simply scale, are they a competitor? Whilst these may be compelling reasons, is the deal for these reasons alone? If the other business offers products or services which have a synergy or are complimentary to what you already offer or the business has particular clients or contracts you can develop further, thee are strong additional reasons.
- Merger or acquisition? – these terms are often used together but there is a fundamental difference. If you are merging, this generally connotes bringing senior people or owners into the merged entity, possibly with an equity stake, potentially creating a new business structure and entity, which will involve a lot of work and cost. Don’t overlook the legal aspects such as existing contracts or for example altering the name which may mean new marketing materials, new domain name, possibly issues with existing lenders and banks.
- Tax considerations – are there any tax consequences such as advantages or loss of tax advantages?
- Time to bed in the acquisition – it is always important to factor in a significant amount of management time and resource both during the merger or acquisition process or thereafter. This has a time and cost implication and could mean that the existing business stalls or even goes backwards during the first year post acquisition. This aspect should be carefully, planned and costed.
If you are considering a business acquisition or merger, we have significant experience of advising businesses of all types and sizes. Get in touch with David Swede, who has over 40 years experience as a commercial lawyer. David is supported by a team of dynamic and practical lawyers.
See also our service page on buying a business.
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