Growing by acquiring a business

Consolidate

Growing through acquisitions, also known as consolidation, naturally starts with finding a potential acquisition candidate. Or even better, more acquisition candidates, says acquisition specialist Caspár Bijleveld from Rembrandt Mergers & Acquisitions. “If you explore more options, you will get a better idea of ​​exactly what you are looking for. It can save a lot of time and money later.”

First showing

Have you compiled a list of potentially interesting companies? Or have you hired an external advisor to compile such a list based on a specific acquisition profile? Then it’s time for a first showing ‘on the outside’, Bijleveld outlines. “A company’s website often gives a good first impression. What type of business is it? What customers do they have? What is the size of the team? What does the building look like? ”

Shareholder structure

“In addition, the Chamber of Commerce also offers useful information in this phase; not only basic financial information, but also, for example, about the shareholder structure and the age (s) of the shareholder. Someone in their late 50s will probably be more open to a takeover bid than someone who is 35. One can also often deduce from this information whether a son or daughter might be ready for the inheritance. ”

First contact

Have you formed a good first impression of the company you want to take over? Then it’s time to make the first contact, says Bijleveld. “Of course you can choose to pick up the phone and just express your interest. The downside to this is that your identity is immediately known. Many buyers therefore choose to express their interest on an anonymous basis, eg through an intermediary. By hiring an external advisor, you also immediately show that you are a serious discussion partner. ”

letter of inquiry

“What we often do in such cases is to send a letter on behalf of the buyer, on our own letterhead, to the entrepreneur’s private address. This prevents you from immediately revealing your identity. But the takeover candidate also often appreciates such a discreet approach; if the employees hear that another company is interested in an acquisition, it can lead to unrest – and of course you want to prevent that. ”

Neutral terrain

Is the acquisition candidate open to discussion? Then a first acquaintance takes place, Bijleveld continues. “Such a conversation often takes place on neutral ground. Although it can sometimes also be useful – outside office hours – to visit the company itself, for example if it is a production company with an extensive machine park. ”

Get a better picture

“Such an introductory meeting is primarily intended to familiarize oneself with and determine whether there are sufficient areas of overlap to investigate an acquisition. Important financial information – such as financial statements and margin calculations – is generally not yet shared at present. However, you can try to get a better picture of the company’s size and profitability, the composition of the team, the role of CEO-major shareholder (DGA), the culture and the relationship with and dependence on customers and suppliers. ”

Letter of commitment

Are both parties well after this first conversation? Then it is time to make agreements about the follow-up process in the form of a so-called letter of commitment, Bijleveld outlines.

“What does the follow-up process look like? And what about secrecy? Ideally, you should also make exclusivity agreements during this phase. As a buyer, you will now bear the necessary costs; for the further analysis, valuation and preparation of a reasoned bid. Then it is nice if you know for sure that there are no private individuals on the coast for an agreed period. ”

questionnaire

“As soon as the letter of commitment is signed by both parties, we will send an initial questionnaire for our analyzes,” says Bijleveld. “This involves quantitative information, such as economics, but also qualitative data to properly understand the history behind the numbers.”

“What opportunities are there to strengthen the market position? How is the management of the company organized? What does it take to absorb DGA’s departure purely managerially? Especially in a somewhat smaller company, DGA is often a key figure to which employees feel closely attached. Corporate culture also plays a role that should not be underestimated. A well-coordinated culture of buyer and goals is an important prerequisite for a successful acquisition. ”

Financial analysis

On the basis of the information received, an indicative valuation is made and advice is given regarding the offer price and structure. “In this phase, we also look at how the buyer could finance a possible purchase price; with equity, bank financing and / or eg a subordinated loan. It makes no sense to make an offer if you cannot finance it afterwards. ”

The negotiation phase

Are all signals green? Then it is time to submit an offer, including additional conditions, eg regarding any acquisition or rental of the business premises and a transfer period from DGA. Did you base the bid on certain assumptions? Then you also include it in the offer to research it in the next phase of the process.

Bijleveld: “After submitting the indicative offer, the negotiation phase follows. Has an agreement been reached on the most important transaction conditions? This is then stated in a letter of intent. As soon as this document has been signed by both parties, it will be completed in the form of a due diligence arranging the transaction financing and the final contracts. “

Book research

In this due diligence, you check, among other things, whether all the information you have previously received and which is the basis for your bid is in fact correct. You can also outsource the coordination of this process to an external party. Such a party has various accountants, tax specialists and legal advisers in its network who can support the client in this regard. ”

Transaction financing

All kinds of practical matters are also involved in this final phase, such as the transfer of insurance and the mediation of tax cases. You are also arranging the transaction financing at this time. Here, too, it is wise to hire an external advisor, because in Bijleveld’s eyes, you must submit a good funding application at once.

“If we draw up a substantiated and comprehensive financing memorandum, this will significantly increase the chances of successful transaction financing.”

New owner

Has the due diligence investigation been completed satisfactorily? Then you take over the agreements from the declaration of intent – possibly after the last further negotiations on details – and it is time to get a handle on the transaction documentation, Bijleveld says.

“Everything is signed at the notary, and the money is transferred to the seller. Traditionally, it’s time to congratulate each other, have a glass of champagne and call yourself the new owner. ”

Substantiated say no

Bijleveld’s most important piece of advice if you are considering taking over another business? “Prepare well before you start approaching companies and preferably address more companies.”

If you have a good idea of ​​what you are looking for, you can evaluate proposals faster, and you can therefore say no faster and better substantiated before entering the expensive analysis phase. It is also wise not to let an acquisition process last unnecessarily long, in order to keep its reputation high in the market. Buying is (sometimes) the art of saying no. ”

Leave a Comment