Bagging a Bargain?

For many company owners buying a business from an administrator or a receiver appears at first glance, a quick and cheap way to add new customers, enter new markets or vertically integrate. Yes there are many success stories, however, history is riddled with stories of it going wrong and even bringing down the acquirer.

So how can you make sure you are in the success camp? Here we outline four key considerations:

1. Understand what you are buying

Almost always, you will be buying business and assets. Whilst this can allow you to leave behind some of the liabilities, this does not make the transaction risk free. For the acquisition to have value you will need to understand how the transfer of contacts, customers, suppliers, employees, leased equipment and most importantly intellectual property will work. This area is a minefield. The secret to success is to get quick, focused due diligence.

2. Understand why you are buying

Have a plan for what you are going to do with the acquisition. Make sure you have a very clear written business plan for your integration and future trading of the combined business. This should include how you are going to manage the process and particularly what resources will be required and how this might impact on the smooth running of your own business.

3. Ensure you have adequate funding

It is easy for entrepreneurs to under estimate the cost of making an acquisition in terms of future working capital, required investment and, if need be, costs of shutting down unsuccessful elements of the acquisition. A well drafted business plan will help to identify likely issues and ensure that there is sufficient contingency.

4. Get well advised

Choose experienced financial advisors to ensure your due diligence is appropriate, to assist in writing the plan and raising the capital. Choose experienced commercial lawyers who will know what is important and negotiate the right points without becoming bogged down in legal issues. Speed of response is nearly always critical to success.

The insolvency practitioner is looking for speed and certainty when looking for a buyer. Provide them both and with the right homework you optimise your chances of success.