How to prepare for a company takeover in 9 steps?
Taking over a company is not an easy thing to do: there are steps to take that must be carefully followed in order to avoid making a mistake. Here is a look at the 9 steps to follow for your company acquisition project.
In practice, it takes between 12 and 18 months to find the start-up you want to acquire and develop it. Between questioning, market research, and negotiation, it is important to think carefully before embarking on a business acquisition project. What kind of VSE/SME do I want to take over? Will I be able to develop it properly? All these questions are important for your project. Whether it is a company in difficulty or not, it can involve a major financial commitment. That is why it is necessary to know the steps involved in taking over a business.
1. Preparing the business acquisition project
It is important to start by asking yourself questions before buying a business. Analyze your motivations and objectives: they will give you the answer to what kind of company you want to acquire. It is also important to identify your strengths and weaknesses so that you know whether you are fit to run a business.
Then target the type of company you want to acquire: is it a start-up, a VSE/SME, an ETI, or a large company? Your type of target must be consistent with your motivations and objectives in order to be sure that you can develop the company's business with a masterful hand.
Get support from experts and professionals in the field: you can get help from your relatives or professional contacts. Or you can refer to intermediaries such as accountants or business associations. There are websites specializing in business acquisitions to help you in your search.
If, in the course of your research, you realize that you do not have the necessary profile to manage a business, or the shoulders to stand on as an entrepreneur, do not hesitate to take training! Training can give you what you don't have and improve what you already have.
2. Search for the right business to acquire
The market for company acquisitions can be difficult to access. You can refer to your personal and professional network, in case someone is looking to sell a business or knows someone who is. You can also make a direct approach and make an offer to a start-up you have spotted.
It is also possible to go through intermediary networks such as accountants or lawyers to take over a business. They usually have a fairly extensive network of companies and may be able to give you the help you need. You can also consult the SME transfer and takeover opportunity exchanges.
3. Diagnose the chosen company
Once you have made your selection of companies to be acquired, analyze all of them in order to choose just one. Ask yourself to what extent the company corresponds to your objectives and motivations, but also whether it will be able to become profitable again if it is on the verge of bankruptcy.
There are certain evaluation criteria that should concern you. These include recurring losses, a sharp decline in turnover, a concentrated customer base or a depressed market. You should also find out about the various competitors you may encounter. Other buyers may be interested in buying the start-up you have chosen.
4. Meet the seller of the business
This is the perfect time to check whether the seller is ready to hand over the company. Most of them may still be attached to the company, and therefore cancel the deal at the last moment. This is why it is ideal to gather information and analyze the mindset of the seller. Analyze the information they give you about the business: are they thorough? Is he or she as involved in the project as you are? These questions are important to the success of the takeover.
If you meet the other employees, read the atmosphere to find out if the working spirit is right for you. You can of course make changes in the salary culture, but some employees may be in a particular frame of mind with the former manager present. Make a good impression to give them confidence in you.
5. Estimate and negotiate the price
The first step in this process is to diagnose the business you have chosen. Carry out a market survey to find out if it is viable or not. You will identify the company's competitors and potential customers. Also, analyze the start-up's processes and HR management: you will know if they are a good fit. Study the legal and fiscal ownership in order to know the different shareholders present in the start-up. You will know if you will have complete control or if you will have partners.
Analyze these results using a SWOT (Strengths, Weaknesses, Opportunities, Threats) diagram. This will enable you to take corrective action if necessary. Once this diagnosis has been made, evaluate and negotiate the price. There are three types of methods for evaluating the price of a start-up:
The patrimonial method: the company is worth what it owns
The yield method: the company is worth what it brings in
The comparative method: the company is worth what other companies are worth.
6. Drafting the letter of intent and launching audits
In order to define the framework and limits of the negotiation of the takeover of a VSE/SME, draft and sign a letter of intent. This will also allow the seller to see your interest in his business. Next, carry out audits to ensure that your diagnoses and the information provided by the seller are reliable.
You should also check, thanks to the audits, that the transfer price is not overvalued. This will enable you to avoid any unnecessary loss of money.
7. The acquisition business plan
As with the creation of a VSE/SME, it is necessary to draw up a solid and coherent business plan. You should include the executive summary and a short presentation of yourself. You will present your acquisition plan, specifying the terms of the acquisition and the period of support with the seller.
You will then make a general presentation of the target company followed by a presentation of the company's products or services. You will present the market, the competition, and your development strategy. You will then move on to the financial file, with the financial presentation of the company and the projected financial file. Finally, a timetable and appendices, such as the market study or the CV of the buyers.
8. Financing for a company acquisition
As explained, taking over a company requires a substantial financial commitment. There are several financing methods available to you:
Participatory financing or crowdfunding
Investors with fund-raising
Love money or personal financing
Public aid and other schemes
Depending on the method you choose, you will raise more or less money to develop the start-up.
9. Negotiations and signing of the buy-out contracts
During this stage, you will establish the amount of the purchase, the conditions, and the commitments of both parties. Make sure that the amount is right for you beforehand to avoid unnecessary losses. Once this check has been made, you can proceed to sign the memorandum of understanding and the deed of sale.
After the transfer of the company, it is necessary to reassure the employees when you arrive. They are likely to be upset by the change in management. Do not hesitate to introduce yourself to these employees as soon as you arrive at the start-up. You can then build a scorecard to implement your takeover plan.