- Investigate the Target Company.
First of all, when you decide to acquire a business, you need to collect and analyze information about that business. An analysis of financial state, marketing advantages, competitiveness, operations, and products/services of the target company should be conducted to get insight into cost-effectiveness and success of your deal.
- Initiate the Takeover Process.
As a buyer, you must initiate contact with the target company. The best way for doing so is to make a direct call to the company’s president, executive director or owner. This ways makes it easier for you to express your offer, find out whether the president is interested in this offer, and establish a foundation for further negotiations. During a phone call, if you feel the counterpart is open to further negotiation, then make an appointment to discuss details. Try to avoid using voice mail, fax or email for negotiations.
- Conclude the Non-Disclosure Agreement.
Your next step is to enter into an agreement stipulating that the parties are obligated to treat all exchanged information as confidential and not distribute it to third parties. The non-disclosure agreement should be signed by you and your counterpart. This document helps ensure that the information about your companies and the deal will never be spread around the industry, with adverse consequences.
- Estimate the Takeover Price.
The price you should pay for the deal will be based upon a detailed valuation analysis that is carried out by the buyer (that is by you). Such an analysis lets use a 5-year discounted cash flow as the main data for price calculation. An estimated termination value of the business can be used as well to determine the selling price. You can supplement you analysis with a low-end breakup valuation to create a reasonable price rage to be discussed and corrected with the seller.
- Make a Letter of Intent.
After you have discussed and negotiated the takeover price with the target company, now you must issue a letter of intent (also know as "the term sheet") specifying your readiness to get into the deal and pay the price. This document determines a non-binding summary of the primary terms of what eventually you both agree on. Although a letter of intent does not constitute a contract or a direct obligation of the counterparts, the document clarifies what is supposed to be undertaken by the seller to enter the takeover deal and cooperate with the buyer in terms of the deal.
- Due Diligence.
Due diligence means a thorough investigation and analysis of a company’s activities, its financial state, and market condition before a takeover contact can be signed. The purpose is to ensure that the buyer possesses right and up-to-date information about the target company. Thus, you must request your seller on the data about the company’s activities and then analyze this data for operational and financial issues. Due diligence will help you be sure that you take over a business that is really viable and worthwhile.
- Carry out Further Negotiations.
If the due diligence analysis reveals that the company’s finances or operations suffer from flaws or weaknesses, then you must decide whether to carry out further negotiations with the seller, considering the term sheet. It is a great time for you to stop the takeover process and try to discover new facets of the deal. Conducting a high-level review of the business you want to acquire will help you dig into assumptions used for valuation modeling and calculating the takeover price. You can reconsider risks of the deal and make a decision whether you want to purchase the business.
- Make a Purchase Agreement.
If you decide to carry out further negotiations with your seller, then you both should make a purchase agreement. This document determine the acquisition form, specifies the price to be paid by the buyer, and the obligations of the parties. If the seller wants to consider income tax recognition, then the agreement can be structured in a way that ensures complete recognition of taxes.
- Make an Anti-Trust Notification.
If your company is rather large having a substantial ability to control market prices, then taking over another organization in the same industry may require you to deal with governmental anti-trust laws. It means you have to notify the ...