There are various ways of approaching the growth of your business. Offering new products or services or incorporating processes, for example. When it comes to international growth, you may choose to enter a new market in another country. Sometimes your expansion can be structured through your existing company (organic growth). Alternatively, you may choose to grow through acquisition: you buy another company (inorganic growth). This might be a company that carries out part of your production process, a local competitor or a similar company in a different region or even another country.
But how do you go about the acquisition process?
How do negotiations work?
And what should you bear in mind?
In this article, our Corporate Finance experts discuss the four phases common to almost every acquisition process. We also explain how we can support you at each stage.
Phase 1: the preparation phase
If you wish to make an acquisition but have not yet identified a specific candidate, it is important to draw up an acquisition profile first. The acquisition profile contains the criteria the acquisition candidate needs to meet, such as:
sector and products or services;
geographical location: do you want to acquire a local company (to enhance synergy) or one in a region or country in which you do not yet operate (to expand your sales market)?;
size and profitability of the acquisition candidate;
current management team and internal organisation: you probably want an acquisition candidate that is a match for your business practices and corporate culture.
We can help you identify a suitable acquisition candidate
Based on the acquisition profile (and any candidates you may already have in mind), we use our knowledge of the (SME) market and our (international) network to draw up a longlist. We then decide together which candidates are most suited to being approached. These parties ultimately end up on the shortlist.
With your approval, we approach the companies on this shortlist and arrange introductory meetings with any that display an interest. These meetings can be used to exchange relevant information. Of course, our Legal Advisory experts will help you to draw up a non-disclosure agreement beforehand. If, after talking to a candidate, you are positive about a potential acquisition, the second phase will start.
Phase 2: the purchasing phase
The second phase of the process starts with collecting and analysing the acquisition candidate’s main business, market and financial data. We use this information to provide an indicative valuation. This analysis is of crucial importance to the negotiations and can also be useful for obtaining any financing that may be required.
The outcome of the analysis forms the basis for the acquisition offer, which states the price you are prepared to pay and the terms and conditions you wish to apply to the acquisition. Negotiations take place throughout the entire process. During this particular process, you may well wish to amend your offer several times. Our experts are happy to assist.
In practice, many other factors play a role, such as the negotiating position, your strategic interests and the personal interests of the acquisition candidate. The theoretical value of the company can therefore deviate from the final price.
Financing the acquisition
You can finance an acquisition in a variety of ways, for instance by using your company’s capital. If you wish to fund the acquisition through external financing, whether partly or in whole, we can draw up a financing memorandum that contains relevant information for banks and other financing parties based on the outcome of the negotiations. Depending on your preferences, we have meetings with potential financiers to define the desired financing structure.
Phase 3: the letter of intent
If the negotiating process is successful, we draw up a letter of intent (the term sheet) together with our Legal Advisory lawyers. This document outlines the terms and conditions under which you want to make the acquisition, one example being that due diligence must first take place. This phase often occurs simultaneously to obtaining financing.
The due diligence (audit) takes place once the letter of intent has been signed. We review the financial position of the acquisition candidate and give an estimate of any (hidden) risks that you as purchaser will want to take into account in your pricing. This might include aspects such as tax position and compliance, HR and legal risks, but also the company’s ESG position, overall financial picture and current financing obligations.
You define the nature and extent of the due diligence together with the vendor. Of course, Baker Tilly has all the required expertise for conducting the due diligence for you.
Phase 4: acquisition agreement (purchase agreement)
The letter of intent and outcome of the due diligence audit form the basis for the acquisition agreement (purchase agreement). We draft this together with our Legal Advisory specialists. Further negotiations often take place in this phase, for instance on any guarantees, indemnifications and sureties. Any other agreements which, depending on the final transaction structure, are drawn up in addition to the purchase agreement also need to be taken into account. Examples include resolutions by the general meeting of shareholders, loan agreements, surety agreements and a notarial deed of transfer of title. Once all the parties have signed the agreements, the acquisition is complete!
After the acquisition
You can continue to rely on Baker Tilly’s advisors after the acquisition has been completed. This might involve tax advice, legal or strategic support and HR matters. Please feel free to contact us to discuss how we can help your company to grow.
Our experts are at your service
Whether you are preparing for your first steps in the Netherlands, already have your eye on a company you wish to acquire or still have to start searching for an acquisition candidate, our Corporate Finance advisors can provide you with practical advice. We supervise the process from A to Z and have the right knowledge and experience to bring your acquisition plans to a successful conclusion.
Contact
If you have any questions about acquiring another company, then feel free to get in touch with us. Our specialists are at your service!
The legislation and regulations in this area may be subject to change. We recommend that you discuss the potential impact of this with your Baker Tilly advisor.
