Buying a Business as a going concern
Estimates vary, but an alarming number of acquisitions just don’t deliver on their promise.
Sought-for synergies aren’t achieved. Revenue goals aren’t reached. People politics prevents progress. And culture clashes prevail.
There’s even a name for it: the winner’s curse. In other words, when one company acquires another, a lot of the value goes to the owners of the company that is bought, not the owners of the one that does the buying.
And ultimately, it’s far from unusual for a newly-acquired business to subsequently be sold—often at the wrong time, and often at the wrong price.
Here at The Legal Director, most of our business acquisition lawyers have seen this sort of thing happen.
The two key habits of successful business acquirers
Yet equally, they know that it doesn’t have to be that way.
They know that with some basic commonsense measures, it’s perfectly possible for acquisitions to work out.
And they also know that for those businesses that master the art of acquisition—and it is an art that can be mastered—there are always profitable opportunities in the shape of other businesses to be bought, that previous owners have bought and given up on.
What differentiates these successful business acquirers?
Two things, principally.
First, they approach acquisition integration professionally. And second, they take care to avoid a number of basic pitfalls that await the new owners of any business—fully aware that in acquisitions, the devil is in the detail, and that the detail must be mastered.
Let’s take a look.
An integration team, and an integration plan
Don’t leave integration to chance. To be successful, a newly-acquired business must be integrated—at least in part—with the rest of the organization. In our view, arm’s length operations rarely work.
So there’s a need for some kind of integration team, tasked with achieving this. Preferably, they should be dedicated 100% to the integration mission, although in reality that may not always be possible.
There should also be an integration plan, with firm targets and objectives.
In other words, don’t leave integration to chance, and don’t let things drift.
Details matter in Business Acqusition
Individual circumstances differ. No two businesses, of course, are the same.
But in our experience, paying attention to a few key areas is usually worthwhile: in short, when problems arise, it is these areas that are often implicated.
- Do contracts contain any ‘change of control’ provisions? There may be a requirement to inform contractual counterparties and other third parties that there has been a change of control of the business that you have acquired or even to get their consent in advance of the transfer happening.
- Do you have physical copies of the key contracts that are applicable to the business—especially customer- and supplier-related ones? Are there any significant dates or requirements to be fulfilled, or any unusual terms and conditions? If so, can you adhere to them? More generally, are the acquired business’s standard terms and conditions in line with your own terms and conditions?
- Do the warranties that the seller provided you with at completion properly reflect the state of the business as you found it? Are there critical dates for reporting any discrepancies—and have those dates been noted and diarised?
- Might differences between the employment contracts, benefits, and culture of the acquired business and your own existing business pose any difficulties? How—or should—those employment contracts, benefits, and culture be aligned?
- Have you noted and diarised all the important dates applicable to the newly-acquired business? Who within the organization is going to be accountable for ensuring that these are complied with? Key dates could include cessation of the warranty period under the Share Purchase Agreement, payment of deferred consideration (if any), retention payments, and the business’s financial year end and reporting dates.
Buying a Business as a going concern. What to do?
Are you buying a business? Have you recently bought a business? Your legal advisors’ due diligence process—if carried out in a pragmatic and clear way—should have highlighted areas of concern.
What is important is operationalising and prioritising those warnings, and making sure that problems are dealt with before damage is done, or opportunities missed.
It’s also worth noting that a legal audit or due diligence ‘healthcheck’ can be carried out at any time, and not just in the context of an acquisition, and can flag many of the same potential problems.
Other questions you may have when looking at business acquisition could include:
- Do I need a solicitor to buy a business?
- Buying a business with liabilities?
- Who pays legal fees when selling a business?
- Tax on buying a business?
- What to look for when buying a business?
Here at The Legal Director, we can help your business to navigate these issues when buying a business.
If you are thinking of buying a business and need a solicitor with business acquisition skills and experience contact The Legal Director and get some legal advice from a business perspective.
Contact the Legal Director by phone, email or complete our online form.
