Best Ways To Negotiate A Fruitful Acquisition

How Do You Negotiate An Acquisition?

1. Before discussing how to acquire a business, we need to understand what acquisition or business acquisition means.
2. An acquisition is a corporate transaction where one company buys a part or all of another company's shares/assets.
3. What makes acquisitions different from a merger is that both companies survive in an acquisition, whereas only one company survives in a merger.

Specific steps need to be followed to acquire a business/company:

Make A Plan

• The first and foremost step while acquiring a business is to make a plan.
• You should look for reasons to acquire a business; these may include many different points like eliminating competition, acquiring expertise or advanced technology, increasing market share, and many more.
• When you have the reasons why a business is worth acquiring, you should plan to get the most of the target business while spending less.

Build An Acquisition Team

• A plan is all good and ready to be implemented, but who will execute it?
• You must choose a set of talented and expert employees to be a part of the Acquisition team.
• To set up an efficient team, you need employees of the following stature:

1. Executive: Team Lead makes sure that the acquisition is successful.
2. Acquisition Lawyer: Understands and explains the rules of acquiring a company.
3. Investment Banker: Handles your company's finances and looks at the financial stability of the target company.
4. Human Resource Executive: Organises the staff of the target company.
5. IT Expert: Checks the target company's technical infrastructure and merges the new technical infrastructure with the infrastructure of your company.
6. Public Relation Officer: Helps to coordinate and communicate with the company under consideration.

Research and Diligence

1. Proper research on the brand to be acquired plays a vital role in evaluation.
2. Research and diligence play a significant part in the actual acquisition.
3. This helps you to understand the ideology, working, and future scope of the company in question.
4. This is done in two phases:

Phase 1:

• This is the initial research phase.
• Many things, like public information about the company, job listings, web pages, and blogs, are checked.
• This will help you understand whether the target company fits in your acquisition plan.
• This enables you to see any issues that may decline the company's net worth in the future.
• Lastly, this enables you to negotiate the deal better.

Phase 2:

• After doing the research, the next step is to visit the company and tour its corporate facilities.
• While on-site, look for a few facts like the actual numbers, nature of the staff, whether they will help your company, and many more.
• While on the site, you can also check some stats like an annual review of the owner's profit, a summary of top clients, etc.
• Addressing these concerns will give you a clearer picture of whether or not to acquire the company.

Prepare Documents

1. Paperwork is essential in any deal.
2. You need to set things on paper to finalise them.
3. This step involves filing and maintaining the documents regarding the acquisition.
4. Your acquisition lawyer will create and handle the following documents:

• Non-Disclosure Agreement: Makes sure all the confidential information will be handled carefully and not shared at any cost.
• Letter of Intent: This letter states that you have an intention to buy the target company.
• Confidential information memorandum: Provides the buyer with all the information for the initial/first offer.
• Indication of Interest: You need to show interest to initiate a deal.
• Purchase Agreement: Both parties formalise the agreement as a binding legal contract.

Make an Offer

To acquire a business, you need to make an offer. You must always keep some points in mind while making an offer:

• Make a natural first order with an opening for negotiations.
• Offer a fair price because you are not just buying a company, but also its market goodwill and employees.
• Make sure you are flexible while making the offer.
• The first offer should be between 75% to 90% of the market evaluation of the company.

Negotiate the Terms

Once you have made an offer and quoted a price, the next step is negotiating the deal and reaching a consensus agreement.

Keep the following points in mind while negotiating the offer:

• While negotiating, make sure you are firm but not harsh, because being harsh might undermine your success.
• Negotiation should be done so that an agreement is reached leaving both parties happy. This doesn't mean you overpay, but it means you work towards an agreement benefiting both the parties.
• Note that negotiating is not always about money; it's about understanding why the other party is making a counteroffer.
• Next, after settling on the price, you have to take some decision over some soft issues like who'll stay and who'll have to go.

Write Up the Contract

After everything has been finalised verbally, the next up is writing the contract that seals the deal. This is the trickiest part, so it is suggested that you hire a contract lawyer. The contract lawyer will look after the following roles in the deal:

• The contract lawyer must be present while negotiations are taking place to jot down the agreed terms and draft a contract satisfying both parties on the agreed terms.
• After the contract is drafted, and both parties are happy with it, you are only left to sign the contract and complete the deal.

Benefits and Challenges

Now that we have discussed how to acquire a business, let us look at some benefits and challenges that come with it. Some advantages of acquiring a business are -

• New competencies and resources: When acquiring a business, you may look forward to gaining competencies and resources you do not hold currently. This may result in fast growth in the revenues as well as solidifying your financial position.
• Access to experts and capital: If a small business is being acquired, it then may have access to experts on finance, human resource management, etc. Also, a larger capital can be invested in it, which was not possible earlier.
• Fresh ideas and perspective: With new minds entering the workspace, there is a larger probability that fresh ideas and a different perspective may spawn up which is always better for the growth and development of a business.
• Increase in Market Power: Acquisition helps you increase the market share of your company. Also, it helps you in gaining a competitive edge in the marketplace.

Now, let's talk about some challenges that you may face while acquiring a business:

• Clash in the office culture: Acquiring a different business can give rise to cultural shock for the company's employees and cause tension between your old employees and the employees from the acquired business.
• Duplication: All previous contracts of the acquired business must be well analysed and filed to avoid duplication of payments, services, etc.
• Conflict in objectives: Sometimes, employees may have conflicting ideas, and this may affect the acquisition. The acquiring business must hold a single front while negotiating; this can be made possible by sound analysis and understanding of the acquired business.
• Brand Damage: Sometimes, the acquired company may bring damage to your brand name. It can be prevented by analysing and researching well in advance.

Acquiring a business could prove fruitful in the long run. Analyse the bigger picture along with the prospects of the brand to be acquired while planning and analysing. Efficient research and diligence, along with the right paperwork, can lead to fruitful acquisitions.