Business Acquisitions Finance
An acquisition is a strategy of the company to grow rapidly without creating a new business identity or as a scheme to generate more finance. One can buyout the other company or take control over the. In case of symbiotic understanding a merger takes place. The entire process in an acquisition can be friendly or hostile depending on the parties concerned. The entire process of acquisitions is complex and many factors influence the outcome. The company can decide to buy shares or assets of the target companies. The asset can be a plant, division and an entire company.
Process Of Making An Acquisition
- Put together a team of advisors that include lawyers, bankers and the accountant to help review all information before the actual deed of acquisitions. In London, the accountants are listed in the website ‘Chartered Institute of Management Accountants (CIMA).
- Get relevant data of the target company. Determine the current market value of each asset and be absolutely sure regarding the outstanding amounts. Calculate the Net Asset Value, Cash flow, Price/Earnings Ratio and Compare the Entry Costs as against Acquisition Costs.
- Establish the financial health of the company; it could be beneficial to raise more finances if the firm has large equity and less debt.
- The existing shareholders may hold on to their shares to sell in the longer run or may sell immediately which will have a negative impact in the stock exchange. The trust factor diminishes when they sell.
- It becomes imperative to determine the stake of the shareholders of the target company in case of post acquisition which will determine the control factor of each shareholder.
- Plan accordingly in case you have to buy out the shareholders of the target company. It may be a safe and reliable option but will increase the expenses.
- Assess the strengths and reputation of the target company across various customer levels. Understand their SWOTS thoroughly.
- An independent valuator may provide an impartial opinion at applicable consultancy charges but it may be worth it.
- Understand the motives of those owners who are interested in selling their business.
- Make sure the owners are clear regarding the reason for an acquisition.
- In London, the owner of the target company must be (Data Protection Act, 1998) DPA compliant and due diligence is required during the deal and post acquisition.
Account for the cons and then the pros of this effort. The entire process is detailed and comprehensive but is the best way of making an acquisition.
Financing Issue In Acquisitions
Acquisition financing is the capital required for the company to meet its financial requirements in an acquisition. Companies normally look for a line of credit or a traditional loan as a normal choice. The team must have complete knowledge on market awareness and an in-depth understanding of strategies and financial tools. Discuss in details all issues related to finance, budgets and timescales and collateral security interests in multiple jurisdictions. Very few entrepreneurs receive the funding they seek, so it is important to choose the right consultant who can guide you well. There are three types of financiers.
In London, The Clearing Banks, The Building Societies and The Centralized Banks assist companies interested in acquisitions. The Building Societies give you a maximum time limit of 25 years as against 20 years by the others to repay the loan. Leasehold loans can be availed for a period of 10 years only from banks. Banks charge 1%-2% above base rate, Finance Houses charge 2.5% and Building Societies charge 12% above their mortgage rate. The interest rate is directly related to the period of repayment of loan. All financial sources normally consider financing 50%-60% of the loan amount. This can vary depending on availability of adequate outside security. The existing investors may be interested in investing in a successful company. Their confidence on your management skills may enable them to take this risk. Consider this option for better interest rates.
Agree to a valuation price which is a fair deal to both parties and then discuss in detail regarding the earn-out. A good earn-out will simultaneously protect the buyer and also ensures the seller receives the best price. It is best to avail the finance on a structured loan basis. Ensure the balance amount will be paid by overdrafts in 3-6 months time. Projects Finance by Premiere Lender, Clydesdale Bank, Business Finance Services Ltd, Portal Commercial Finance are some financial brokers in London.
Legal Aspects In An Acquisition
It is significant to cover all liabilities of the target company and also verify the claims made by them before acquisition. A lawyer will guide you to obtain proof of all assets including property, copyrights and equipments; details of legal cases, if any; contractual obligations with all employees; impact of an acquisition on existing contracts. Lawyers in London are listed in the Law Society website.
While making the actual acquisition, get a Warranty. This is a written statement from the seller providing warranty on audited accounts and all records related to employees, assets and banking transactions. Seek an indemnity which is a commitment from the seller to support in unreported tax liabilities or any untoward situations. The team of advisors will assist you with respect to the content and adequacy of these procedures.
Staffing Issue In An Acquisition
While integrating the key aspects (legal and financial) of the two businesses, deal with staffing issue as it is an emotional factor also. Protect them from uncertainty and motivate them by retaining key staff, involving them in due diligence process and other such vital aspects of Acquisitions. The Information and Consultation of Employees (ICE) requires you to inform and consult employees on certain aspects especially where mergers happen. Failing which, they can complain to Central Arbitration Committee, London. For best outcomes, cover all aspects that include skill gaps, re-staffing, relocation issues, policies and procedures, trade union matters and the most vital being pay differences amongst the staff of both companies.
While making an acquisition, it is important to remain focussed on the goal, the reasons and the existing business. A mutual benefit is a sure way of determining a successful outcome.
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