Merger and acquisition II – The transaction

You have found a company that suits you well and that you would like to take over. How do you proceed? To make this clear, you must ask yourself specific questions such as: What is the best way to make contact? Who is the best person to approach and which questions do I ask? Do I cut right to the chase or do I first establish a good relationship? In this part of our blog series called ‘merger and acquisition’ we will take a closer look at the transaction.

In this blog we provide answers to these questions based on our own experiences. We have subdivided these answers into five phases.

Phase 1 – Acquiring knowledge

Everything starts with a good basis. It is therefore of great importance to form a clear image of the company to be acquired at the start of the acquisition process. This preparation helps you to:

  • Understand the interests and wishes of the shareholders
  • Gain insight into the company’s strategy
  • Learn about the company’s strengths and weaknesses
  • Gain insight into the financial results and expectations of the company

Based on this gathered knowledge you make a trade-off on how to actually contact the relevant company.

Phase 2 – Making contact

A number of things are important when making contact:

  • Finding the right person. This is often the managing director or one of the shareholders.
  • Who will approach this person? This can be someone from your own company, but in some cases it is inconvenient to immediately show who the interested person is. In this case, hiring an intermediary works best.
  • What is the message that you want to deliver?

Thinking about these topics beforehand helps you to increase the chance of success. After making the first contact, a period of becoming acquaintance often follows. Our experience is that a party often finds it very pleasant to hear that there is a potential interested party, but that in the first instance they are not open to a sale of the company. Then, it is important to maintain contact. The moment a change in this situation occurs, you are the party that they will approach first. In practice, this process requires a long-term focus that is primarily about deepening the relationship.

Phase 3 – Negotiation

Once the other party is willing to discuss a takeover, the next step is the collection of information. This information is needed to verify whether the assumptions made about the company in advance are correct.

Based on this information you can determine what you would like to pay for the company. You do this by drawing up a company valuation, after which the negotiation phase starts.

In addition to the acquisition price, there are various matters that the parties must agree on. You can think of guarantees such as:  does the management of the company to be acquired remain involved, is the purchase price paid in one lump sum or in parts, etc. All these matters are recorded in a so-called letter of intent.

Often people do not realize that it is important, for all parties, that the buyer should also have something to offer the company to be acquired. Only then can a company takeover be successful. In addition to a good price for the company, this offers the company a solid future after the acquisition, because they can grow further with your help.

Phase 4 – Due diligence investigation

It is of importance to make a good estimation of the risks and the reliability of the information about the company to be acquired. As a buyer, you want to look into the administration and get a better view of the business risks. We call this a due diligence investigation. Such a study focuses on financial matters, taxes, legal aspects and possibly also on the market. To make this possible, a so-called data room is set up by the seller. This data room contains the most important information about the company. In most cases this is a digital environment in which the required documents are made accessible. Filling the data room with contracts and other information will have to be done by the selling organization. In order to gain access to this information, beforehand a non-disclosure agreement (NDA) must be signed.

Phase 5 – Completing the transaction

Once the due diligence investigation has been completed, a purchase agreement will be drawn up. The details that emerged during the due diligence investigation are further specified and the agreements made are recorded. This purchase agreement generally includes items such as:

  • Guarantees regarding the financial statement
  • Safeguards for specific risks
  • Non-competition clause

In addition to the purchase agreement, there is a formal transfer. This may involve a transfer of shares or the transfer of assets and liabilities. The actual transfer of shares takes place via a transfer deed that passes at the notary.

In our next blog we will discuss the process of integrating the acquired company in the existing organization.

Are you looking for a company to take over? Or maybe you are about to sell your business? Feel free to contact us to see what we can do for you. Our contact information can be found here.