Are you a fast-growing company looking for your next acquisition? Or an ambitious investor with capital to spend?
Whatever your circumstances, this guide will walk you through the essential points you need to consider before buying a business in the UK.
Acquiring a company can be a shortcut to business growth that avoids the years needed to build a new venture from the ground up. In many cases, it gives you instant access to new customers, distribution channels, employees and resources. It can also be easier to source finance to purchase an existing business with a track record of revenue.
Despite the pandemic, over 7,500 businesses were bought and sold in the UK during 2020, and the appetite for acquisitions is getting stronger every month. Yet whilst buying a business can prove to be a shortcut to success, there is still plenty of work to make sure you’re making the right decisions at each stage.
Let’s start by looking at each step in the business acquisition process.
When evaluating the type of business you wish to purchase, it’s essential to identify critical features, such as exposure to certain areas of the market, specialist expertise, the type of company culture, characteristics of key people, and business geography. Perhaps you’re looking to acquire a business that operates in a familiar sector and feel you have the right skill set and experience to deliver success. Or, maybe you’re looking to diversify your business interests and expand into a new industry.
You also need to think about how much time you’re able to commit to the transaction and whether you plan to take more of a passive or active role, which will impact the level of professional assistance you will likely require.
If you’re thinking about buying a business, then chances are you have a rough idea of the level of capital you’d be willing to invest. That said, unless you plan on paying a lump sum in cash, you’ll also need to research your financing options to fund the purchase.
It’s worth having these conversations early to lay out all your options and determine exactly how much you, your company or your partnership can borrow. You may fund acquisitions through debt finance, equity finance or a combination of the two. An experienced M&A advisor will be able to source a range of options offered by different lenders and pinpoint the right structure for you.
The next step is to compile a shortlist of companies that fit the criteria established in Step 1 and the approximate budget identified in Step 2.
Connecting with an M&A advisor is an excellent option if you have a business profile in mind but struggle to find companies that match. A good deal advisory service can maximise your reach and introduce you to a vast professional network to find the perfect acquisition opportunity.
Of course, you may already have your eye on a specific business, but it is worth expanding your search to seek similar companies for comparison if this is the case.
Once you’ve narrowed down your options to a manageable shortlist, it’s time to find out more about them. This will involve reaching out to the respective owners to see whether they are interested in discussing a purchase. You may also request limited financial and operational information to inform the negotiation process.
Make sure to stay alert to red flags, such as poor financial records, excessive competition, and high levels of debt, which we’ll discuss later in this guide.
If you’re happy with the outcome of your initial discussions, then you can move forward with formal negotiations. This is a crucial phase in which both sides lay out the main details of the deal in a ‘head of terms’ agreement, including the provisional value of the transaction, alongside other key aspects of the proposed transaction.
This agreement will be the basis for drafting formal legal documents, so it is wise to have a lawyer look over the heads of terms before signing. As the buyer, you also need to ensure an exclusivity clause in negotiations at this stage so that the seller cannot continue discussing a potential sale with other buyers.
After the main terms have been agreed and a deal in principle is on the table, you need to carry out thorough due diligence. This will likely require specialist support from financial and legal professionals to ensure no stone is left unturned before finalising the share purchase agreement (SPA).
Ensuring you appoint the right professional advisers for a transaction can be critical to a successful deal. You will undoubtedly require legal advisers but will also likely require financial DD providers and tax DD providers. You may also need specialist streams of due diligence depending on the deal, such as environmental, political, or regulatory DD. It’s important to review different providers and choose the one you can work best with to drive towards completion.
Effective due diligence can take months to complete, and it’s possible that any findings could present grounds for further negotiation of the purchase price and other terms set out in the Head of Terms. The seller should be motivated to support you through the process and, ideally, will have prepared a virtual data room that includes financial records, balance sheets, tax documents, and other essential information your due diligence team needs.
With the deal nearing completion, it’s time to ensure you are ready to fund the transaction. If you are financing the deal via debt, this may include speaking with your bank and providing due diligence information. Depending on your company’s governance structure, this stage may involve securing approval from the board of directors.
Having reached a provisional agreement with the seller, the next step is to negotiate and draft legal documents in parallel with the due diligence process.
The final SPA outlines the terms of the acquisition, such as the consideration, structure, warranties, indemnities, details of future consideration, and much more. It’s essential to retain a corporate lawyer to scrutinise this document from all angles.
Congratulations! After months of research and negotiations, the moment has finally arrived to sign the contracts, sign the contracts and send the required funds to complete the transaction and transfer ownership of the business.
This is just the initial challenge, with plenty of work to be done to ensure a smooth and successful post-acquisition period – but not before popping a bottle of champagne, of course!
By this point, you should have formulated a roadmap that outlines the key steps, timings and milestones you need to meet following completion of the purchase. The nature of the transition will depend on the deal’s structure and purpose of the acquisition.
If the purchase means you’ve also inherited existing employees, make sure you align communications with the seller and start the relationship with your new team on the right foot.
With all of the steps involved with buying a business in the UK covered above, let’s now take a look at some of the questions we commonly receive about the process.
Due diligence is crucial because it allows the buyer to identify risks that can either be mitigated or avoided, reducing the risk of any nasty surprises cropping up once the purchase is complete. The due diligence process also provides the purchaser with significant leverage during negotiations, enabling them to secure a more accurate business valuation and negotiate the price accordingly.
Here are a few common issues and considerations which effective financial due diligence can assist in identifying:
For more information, make sure to read our article on the importance of financial due diligence in mergers and acquisitions.
Buying a business is a major decision that involves many moving parts. Often, investors turn to an experienced M&A advisor to help weigh up their options, lay out a plan for the purchase and deliver successful outcomes at each stage of the process.
At Gerald Edelman, we regularly assist entrepreneurs and ambitious companies with:
Debt financing and equity financing are among the most common options when funding a business acquisition, and each has its pros and cons depending on your specific situation. Debt finance refers to money borrowed from a third-party lender that you are due to pay back at a future date with interest. Equity finance refers to the money exchanged for a percentage of ownership of the business.
You may also benefit from alternative sources of finance, particularly if you have access to a strong professional network. Peer-to-peer lending, angel investment, venture capital and crowdfunding are potential routes to source funding beyond banks and building societies.
For more information, make sure to read our expert guidance on how to fund a business acquisition.
Buyers can transfer the ownership of a business via either a share purchase or an asset purchase. With a share purchase, the buyer purchases the entire business, including its assets, staff, and existing liabilities. With an asset purchase, the buyer only acquires the specific assets they wish to purchase, leaving the remaining assets with the seller. Each route comes with its challenges, and a certain type of structure may actually benefit one party more than the other. You’ll need to talk to a business advisor to establish the optimal structure for your purchase.
If you’re looking to buy a business in the UK, then our friendly Deal Advisory team is here to help. We have extensive experience in business acquisitions and pride ourselves on providing exceptional client service with every step of the way.
Get in touch with one of our advisors today for a free consultation to talk through your options and start laying out a plan for your next acquisition.
如何购买企业 – 一步一步
这只是最初的挑战，还有很多工作要做，以确保后续收购期间的顺利成功 – 当然，这之前要开一瓶香槟庆祝！
交易问题 – 企业通常会以尽可能积极的方式呈现交易数字，特别是在进行销售过程中。在尽职调查中识别目标公司的交易问题是非常重要的，如果存在这些问题，可以降低交易完成时支付的代价。
标准化工作资本 – 在大多数公司交易中，识别和达成“正常”工作资本水平是确保其日常运营在完成后能够顺利进行的关键要素。这是一个主观的任务，并且在大多数交易中是一个关键的谈判点，常见的调整是反映与约定值“正常”工作资本相比的任何差额或盈余。
了解债务 – 债务的定义因交易而异，但通常包括远离常规银行债务的许多项目，例如公司间责任、税务责任、应计奖金、办公室破产准备、租赁义务和诉讼责任。财务尽职调查提供了测试和检查，以识别所有这些债务项目，包括任何未在目标公司资产负债表上披露的潜在责任、承诺或责任。
税务事项 – 税务尽职调查是财务尽职调查的一个关键部分，涉及审查目标公司的历史纳税事务，包括但不限于公司所得税、增值税和个人所得税。这个过程有助于买方了解对税收责任的敞开情况，并通过在股权购买协议（SPA）中包含适当的保护来防范这种风险。
Jack Bettell, Associate Director, Gerald Edelman