5 top tips when buying a company
We have identified five key points which anyone looking to purchase a company should consider.
1. Be clear on the purchase price.
The payment structure may not be as straightforward as a fixed price as you may want the amount that you are paying to be adjusted according to the company’s performance.
2. Consider how the deal is going to be funded.
Paying the most money may not always be the most attractive deal. We have acted for buyers who have offered sellers a percentage of shares in another company and this can work very well in specific situations.
If you are relying on third-party finance, start making enquiries early on as failure to do so can often cause delays.
3. Know your industry.
Certain industries are subject to regulations and require certifications. Make sure you are familiar with the process and timings involved in obtaining and maintaining certifications and complying with regulations. Even if certifications and extra regulations don’t apply, keeping up to date with the industry and market information is key and can make or break a business.
4. Carry out due diligence and don’t be afraid to ask questions.
Carry out searches and engage experts where necessary. When purchasing shares the history of the company is included whether this is good or bad. Knowledge of issues following due diligence would not only provide an opportunity to come up with a solution to resolve the issue but may also provide bargaining power with the seller.
5. Finally, make sure you have sufficient protection against any potential issues. Warranties and indemnities can be requested from the seller.
A warranty is a statement, which if found to be untrue provides the buyer with recourse against the seller for breach of contract. Warranties may not be enough for certain issues and if this is the case an indemnity may be more appropriate. An indemnity is a promise to reimburse a loss pound for pound. On some occasions obtaining insurance may be an option. Other options may be to hold back or retain some of the purchase