I have selected a company. What are the next steps?

This article is a continuation of the post “I Want to Sell My Company, What Should I Start With? 

 

I have selected a company; what are the next steps?

 

If you have already filtered several suitable companies for negotiation regarding the purchase, it is time to enter the acquisition phase for one of the companies. This part of the acquisition consists of several steps that you should not skip under any circumstances. It is advisable to prepare for the fact that purchasing a company can be time-consuming.

 

Acquisition financing is a viable option

Purchasing a company is often a financially demanding endeavor, for which the buyer usually does not have sufficient equity. In such cases, it is advisable to arrange for acquisition financing from one of the banks. They are generally willing to provide a loan of 50% to 90% of the expected purchase price at a relatively favorable interest rate. However, you cannot simply walk into a bank and request a loan of several tens of millions of crowns. You need to present the bank with documents containing information about the companies you plan to acquire. This includes, in particular, the company's current economic stability, the prospects of the industry in which the company operates, the company's assets (to allow the bank to secure itself), and likely more will be required from you. In any case, it is advisable to approach multiple banks, as this increases your chances of receiving the most favorable offer.

 

Time for a preliminary offer!

After securing acquisition financing, you should present your offer to the current partners. This offer will be preliminary and non-binding, but it should include the price at which you are willing to purchase the company, provided it passes a complete due diligence. This offer will usually also include the method of payment for the purchase price (i.e., in a lump sum or in installments, etc.). It is advisable to simultaneously conclude an exclusivity agreement, which will ensure that the company cannot accept other purchase offers.

 

Due diligence is essential

The next phase is possibly the most demanding of all. The selected company needs to be thoroughly examined from an economic, accounting, tax, legal, personnel, and asset perspective to gather as much information as possible about the targeted company. In simple terms, you need to focus on all aspects of the company to ensure that you are not buying a pig in a poke. At this stage, it will likely be necessary to secure the services of accounting firms and law offices that will perform this task for you. The expenses for due diligence alone will likely amount to hundreds of thousands of crowns or even millions. In the event of discovering certain discrepancies, no one will refund you this amount. In any case, it is essential to realize that it is better to incur this expense than to purchase a poorly managed company, which could have far-reaching consequences.

 

You can learn more here “Due Diligence”

 

Preparation of transaction documentation

The complete due diligence does not conclude everything; now it is necessary to draft the purchase agreement and all documents related to the transfer of the company. Preparing this documentation can take several weeks (sometimes even months), but it is important not to underestimate it and to contact an experienced attorney. At this stage, it is crucial to clarify with the attorney which rights and obligations you want to include in the transaction agreements, while negotiating with the other party, which will often try to do the exact opposite of what you want.

 

Signing the share transfer agreement

After preparing the transaction documentation, the final step is to sign the agreement, register as a new partner in the commercial register, and possibly appoint a new management team for the company.