An acquisition occurs when one company takes over another.If you want to acquire another company, you need to know how acquisitions work and how to find quality target company candidates.Early in the acquisition process, you will be asked to write and submit an acquisition proposal.An acquisition proposal is a formal offer to purchase another company.In your proposal, you will identify the companies involved, describe the transaction, and attach related business documents.
Step 1: Pursue logical extensions of your business.
If you want to acquire another company, you need to find suitable candidates.By following certain rules for finding suitable acquisition candidates, you can be sure that you have a plan in place that will minimize mistakes if the acquisition is successful.When you first start looking for companies to acquire, always look in adjacent spaces that have logical extensions to the business plan you already have.Don't try to get into other markets quickly.When you make acquisitions, you take advantage of your strengths.Use manufacturing expertise to acquire other toy companies if you have a strong toy manufacturing team.Don't try to acquire a distribution company.You can keep your brand consistent when you acquire other companies.In order to succeed, your company must be trusted.It may be difficult to be trusted if you acquire a company in another field.Ask yourself if you can add more value to the company than any other party can.The company might be a good acquisition candidate if the answer is yes.
Step 2: Consider buying more than one small acquisition.
If you want to make multiple smaller acquisitions, try making one big acquisition.You are protecting yourself against failure by making multiple small acquisitions.One failure will not ruin your company.Think of acquisitions as a portfolio of investments.Diversification of investments will produce more predictable financial results over time.If the stock plummets, you lose your entire investment.If you invest in multiple stocks, bonds, and mutual funds, the success or failure of one won't affect the others.Try to find companies that represent less than 5% of the entire market you hold.If you have a company that holds $5,000,000 of a specific market, look for companies that hold $250,000 or less of that market.
Step 3: An acquisition team should be set up.
Don't let existing staff departments handle acquisitions.The department should be focused on acquisitions.Acquisitions are a lot of work and you don't want to take away from an employee's normal employment function so they can focus on an acquisition.The executive team focuses on maximizing shareholder value every day.If you task them with completing acquisitions, you will take time away from their duties, which will hurt the existing business.A team of experts can gauge strategic and cultural fits, identify business similarities, and establish a road map for a successful acquisition.You should keep an eye on this team to report their progress.
Step 4: Clear criteria can be created.
What information are you looking for when your team reports to you?It's important to have clear criteria for your team.There are two types of acquisitions.The bolt-on acquisition is an acquisition that fits into your existing business or market.The platform is the second type of acquisition and it takes your business into a new market.Each acquisition needs to be judged using different criteria.The focus with bolt-on acquisitions needs to be on business similarities and how they will show up in revenues and expenses.If you want to sell products and services, you should look for companies that can do it.There are opportunities to combine facilities and staff in your infrastructure.Free technology can increase your competitive advantage while saving you money.With this type of acquisition, you should expect modest returns within three years.Immediate revenue opportunities and cost-savings are not important with platform acquisitions.More strategic questions should be asked.Do you want to work in this business?Do you know what's happening in the market?Do you have a good reputation?Is your company compatible with the acquisition company?Financial screening is important for platform acquisitions, but not as important as strategic questions.
Step 5: Acquires should be used properly.
If you are desperate, never attempt to acquire a company.You tend to pay a higher price when you are desperate.Look at your desperation objectively and figure out alternatives.If your business is performing poorly, don't buy another business.Fix your problem areas from within.You should always keep your strengths in mind.
Step 6: Start with an introduction.
The companies involved and the factual situation surrounding the proposed acquisition should be introduced in your proposal's introduction.The agreements that have already been reached between you and the target company might be reiterated in your proposal's introduction.If your proposal is for internal purposes only, or if the target company has not been involved up to this point, your introduction might only include your version of the facts.If this is a formal proposal with the ability to bind both parties, this section could be written like a contract.Regular paragraphs may suffice if this is more of an informal proposal.
Step 7: Define important words.
A list of important terms and their definitions is a must at the beginning of your proposal.A lot of industry terms are not known to some people.A definitions section will help the company understand the proposal.Define common terms that include acquisition proposal, company shareholders, deferred compensation plan, disclosure schedule, hedging agreement, intellectual property, and shares.The more complex your proposal is, the more terms you will have to define.
Step 8: The companies should be identified.
Each company involved in the possible acquisition should be described in your proposal.Each section should describe one of the companies.Make sure you include the company's name, registered office, and capital in your description.How much cash they have and whether it is in the form of stock, their board of directors' and how their stock ownership is divided.Your company should be described and include your name and office, the reason you believe your company fits well with the target company, your capital, and how your stock ownership is divided.
Step 9: Tell us about the acquisition.
The acquisition will be described in great detail in the bulk of your proposal.You will need to explain how the acquisition will affect both your company and the target company.When describing the acquisition, you should state that your company will purchase the target company and that it will be under your control.In order to complete the transaction in a legal manner, you need to cite any laws and regulations you must follow.To reflect the acquisition, the target company's articles of incorporation need to be changed.What will happen to the employees, directors, and board members of the target company will need to be described.How stocks in the target company will be handled is one of the most important provisions in this section.Will shareholders be allowed to keep their shares?Will you make a cash purchase of the stock?Are you going to issue new stock?All of these issues need to be addressed in your proposal.The proposal needs to be detailed so that the target company and your company can make an informed decision about the acquisition.
Step 10: Valuation calculations should be made.
The financial background and description of how the acquisition will be paid for must be included in your proposal.If you are buying a company, you might want to know their assets, liabilities, and net equity.The proposed purchase price will be identified.The proposed purchase price needs to be broken down in detail to describe how it will be funded.You can fund the purchase with debt or equity and cash for ownership interests.To get a good idea of how this section needs to be set up, look at examples and templates of proposals.
Step 11: There is a draft of terminated provisions.
You need to consider how the acquisition can be terminated before it happens.Penalties should be assessed if the deal is abandoned after the allowable time table is described.You need to give a description of what should happen.For example, you might allow for mutual written consent by either or both parties, if the government does not allow the acquisition, or if one party violates the proposal.
Step 12: It's a good idea to insert boilerplate.
Boilerplate is a term that describes how the agreement will be read by a court.If your proposal is meant to be a binding contract, these provisions should be included.If your proposal is meant to be a soft offer, you might not need to include these provisions.The following should be included if you are including boilerplate.
Step 13: Add additional agreements.
Once both parties agree to the terms of a proposal, an acquisition is completed.Other agreements can help move the acquisition forward and complete the deal.Depending on where you are in the process, your acquisition proposal might include additional agreements.The agreements are attached to the end of the proposal.Confidentiality and access to information agreements are examples of other agreements.
Step 14: Space is needed for signatures.
If your proposal is meant to be a binding contract, you will need to provide a signatures page where both you and the target company can sign.You don't need to give this space if your proposal is internal or informational.
Step 15: Take a look at common reasons for acquisitions.
There are five common reasons for acquisitions to happen.If you are interested in acquiring another company, you need to know if your reason is related to one of these.Consider moving forward if it does.You should rethink your ability to acquire the company if it doesn't change.Improving the target company's financial performance is the first reason you could acquire a company.Your financial performance improves if you acquire a company.You can improve margins and cash flow by purchasing a company.The second reason for acquiring a company is to remove excess capacity in your industry.You can increase your ability to produce goods and services when you acquire a competitor.You knock out a competitor when you acquire a company.Market access for the target company's product is a third possible reason for acquiring a company.A small company with an innovative product may not be able to reach the whole market.The smaller company might be acquired in order to get the product to more people.There are four possible reasons for acquiring a company, the fourth being to get skills or technologies faster or at a lower cost than they can be built.You can take decades to produce superior intellectual property from a company.You buy the technology instead of spending money and time on it.There are five possible reasons for acquiring a company.If you can acquire a company early, before it starts to grow, you will be able to pay less for that company and reap the benefits of its growth down the road.
Step 16: You should start with an offer.
An offer is usually the start of an acquisition.This usually starts with your company buying up shares in the company you want to acquire.Only 5% of the company's shares can be purchased before you have to file with the SEC.You will have to reveal how many shares you own and if you are going to buy the company in that filing.After some preliminary negotiations, you will submit an acquisition proposal to the company you want to acquire.
Step 17: Wait for a response.
The company you want to acquire will need to respond to your acquisition proposal.The target company can accept your proposal, attempt to negotiate, execute some sort of takeover defense, or find another company to make the acquisition.If the target company agrees to your acquisition proposal, you can proceed with the deal.It will most likely be over the purchase price, job retention agreements, or compensation packages if you and the company negotiate.If the target company doesn't want to be acquired, they can try to stop you.Poison pill schemes and hostile takeover defenses are what these proceedings are called.In general, the target company will allow all of their shareholders to purchase additional shares in the company at a dramatically reduced rate.This will make it harder for you to purchase a majority.If the target company doesn't want to be bought by you, they may look for a white knight company to come in and offer a comparable price.
Step 18: It's time to close the deal.
The deal will need to be completed after your acquisition proposal is accepted.There are many ways in which acquisitions can be completed.The shareholders of the target company will receive cash in exchange for their shares in the company.The shares can be bought and you can push out hostile shareholders.You may not be able to afford the large amount of cash required for these deals.It's not ideal for the shareholders to have the sale of their stocks taxed.There is a simple exchange of share certificates in a stock-for-stock transaction.The target company's shareholders exchange their certificates for new ones in the new company.If the existing shareholders are open to the acquisition and you don't have enough cash on hand to pay for existing shares, this can be good for you.The exchange will not be taxed for shareholders.You can combine the two transactions.