Buying a ready-made business rather than starting one from scratch can be less risky, providing existing sales are good, costs are under control and cash flow is healthy. It can also work as part of a strategy to grow your existing business. Like anything, buying an existing business comes with various advantages and disadvantages. We’ve listed here five important steps in the process for you to be aware before you make a decision;

1) Why buy a business – Strategic acquisitions can provide a rapid route for a business on its growth journey. Whether it’s about moving into new geographies, increasing market share, taking on different products and services, or growing through building specialist teams and gaining new skills, an acquisition can offer a quick solution to getting the business where you want it to be. By paying the right price and structuring the deal properly, an acquisition can also provide an opportunity to integrate a business that is not only already up and running, but has an established management team, set of skills and attractive customer base.

2) Valuation – Many factors affect the value of a business, including type of business, how well established it is, sector or market, location, profitability, and even the reason for the sale. Acquisitions should be approached like any other business process, which means thorough planning and implementation, and taking expert advice along the way. For a buyer looking to acquire a business, key is valuation, and buyers should seek professional expert advice from their advisor for help with this area, putting them in a better position to make a competent decision on whether or not to proceed with the acquisition. For the buyer, a professional adviser, such as The MGroup team acts as an invaluable buffer in what is an emotive process.

3) Funding – There remains significant appetite in the market to fund acquisitions through a variety of options and providers, and giving a vendor confidence of your deliverability will give you both the best chance of success in your acquisition strategy and the ability to get the best price on the deals you want. Depending on your financial resources and how risky you perceive your target business to be, The MGroup team can advise you on a range of funding options.

4) Due Diligence – After deciding which business you want to buy, you and the seller sign a document called a “Heads of Terms”, which set out preliminary terms agreed in principle by you and the seller. Then you need to carry out comprehensive due diligence. At this point you, your lawyer and accountant should be given full access to the business’s records. Any significant contractual arrangements included in the deal will need to be checked, as will loans and other financial arrangements, actual and pending disputes and intellectual property rights. If due diligence exposes any significant issues, your MGroup team will advise on renegotiating the deal, or even withdrawing depending on the circumstances. In summary, the process of due diligence enables you to find out that what you think you’re buying and what you actually buy, are the same thing. And, crucially, whether you’re being asked to pay a fair price.

Get in touch

Mark Crossfield
Corporate Finance Partner
m.crossfield@themgroup.co.uk

Ian Walker PDipBPM, AIFS
Senior Manager, Corporate Finance
i.walker@themgroup.co.uk

Geoff Pinder BSc (Env. Science)
Senior M&A Advisor
g.pinder@themgroup.co.uk

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