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As a business owner, you may want to consider scaling your business at some point. This can allow you to expand your product, reach new markets, and compete with large companies. One way of doing this is to acquire a business. A business acquisition can help you grow your market share, increase value for your shareholders, and take your business to the next stage of its growth. This article will explain some key points to look out for if you are acquiring another business, and it will touch on some considerations for how to analyse a target company.
What is an Acquisition?
A company acquisition is where one company acquires a majority stake in a target company. Doing so essentially ‘buys out’ or takes over the target company. Being a majority shareholder in a company means that you can make certain decisions without the consent of all of the other shareholders.
As mentioned, an acquisition can be a great way of expanding an existing business. It can save you time and help you gain valuable assets.
What Should I Look Out For?
If you plan to acquire another business, you should first set out your business strategy and goals. This can help you identify some characteristics of the target company you are looking for. You may look for some of the following qualities.
How the Acquisition Can Grow Your Brand
Developing a brand is an essential aspect for most small and medium-sized businesses. Looking for a target firm that has a positive impact on your brand can help your business reach new consumers in the long term.
Financial Statements of the Target Company
As part of the due diligence process, you will want to make sure that you have thoroughly surveyed the financial statements of the target firm. This will include their assets, liabilities, and cash flow. Furthermore, this can also include the ongoing cost of running that business.
Company Culture
If you are buying another business and planning on taking on some of their employees, it is good practice to check if your two companies have a cultural fit. You may want to examine whether the target company’s employees hold the same values as your employees.
You will also want to examine whether taking on the target company’s employees will create significant overlaps with your business. If so, you may have problems finding a role for all of their employees, and if you cannot, you may have problems ending their contracts.
Potential Legal Issues
Potential legal issues can also complicate the acquisition process and make the target company less desirable.
Legal issues can include competition law concerns about the acquisition. The Competition Markets Authority (CMA) is the UK regulatory authority that looks at mergers and acquisitions and whether they raise any competition law concerns. It is possible to contact the CMA if you are considering acquiring another business, and they will be able to let you know if your acquisition raises any potential problems.
Similarly, the target company may be in dispute with other businesses. This can hurt their cash flow in the long term and their overall brand. However, on the other hand, the dispute could be in their favour and may not be something to worry about. Therefore, it is important to find out any potential legal liabilities that the target firm has at the due diligence stage of the acquisition.
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Key Takeaways
As a business that is looking to acquire a target company, you must look out for several key points in the business you are looking to acquire. This includes the benefit that the acquisition can bring to you, the financial statements of the target company, and any potential legal issues that could come. If you are acquiring another business, it is usually a good idea to seek professional legal advice from an early stage.
If you need help, our experienced business purchase lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
An acquisition is when one company buys another. Both companies usually keep their legal structure as a result of an acquisition.
A target company is a business that you may want to attempt to acquire. An acquisition does not always require the consent of the target firm.
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