An acquisition happens when one company takes over another.If you want to acquire another company, you will need to understand 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.Within your proposal, you will identify the companies involved, describe the transaction, and attach related business documents.
Step 1: There are logical extensions to your existing 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 looking for companies to acquire, always look in adjacent spaces that are logical extensions to the business plan you already have.Don't try to get into other markets too quickly.You take advantage of your strengths when you make acquisitions.Use manufacturing expertise to acquire other toy companies if you have a strong toy manufacturing team.Don't attempt 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: Make multiple small acquisitions.
Try not to make one big acquisition.You are protecting yourself by making small acquisitions.One failure will not ruin your company.As a portfolio of investments, think about acquisitions.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 will not affect the others.Try to find companies that represent less than 5% of the market you hold.If you have a company that holds $5,000,000 of a specific market, look for companies that hold less than $250,000.
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.Instead, create a team of experts that 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 should be created.
What information are you looking for when your acquisition team reports to you?It is 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 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.Companies that can help you cross-sell products and services are the ones you should look for.There are opportunities to combine facilities and staff.Free technology can increase your competitive advantage and save you money.You should expect modest returns within three years with this type of acquisition.Cost-savings and revenue opportunities are less important with platform acquisitions.More strategic questions should be asked.Do you want to be in this business?Do you know anything about the market?Do you have a brand?Is the acquisition company compatible with your company?The more strategic questions are more important than financial screening.
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 to acquisition.If your business is performing poorly, don't purchase another business.Fix your problem areas from within.You should always expand from your strengths.
Step 6: Start with an introduction.
The factual situation surrounding the proposed acquisition should be described in your proposal's introduction.The agreements that have 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, including your willingness to acquire the other company.If this is a formal proposal with the ability to bind both parties, the section could be written like a contract.Regular paragraphs might suffice if this is more of an informal proposal.
Step 7: Understand important terms.
A list of important terms and their definitions should be 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: Do you know the companies involved?
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: The acquisition should be described.
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 you allow shareholders to keep their shares?Will you make a cash purchase of stock?Will you issue new stock?All of these issues need to be addressed in your proposal.The proposal needs to be detailed in order for the target company and your company to make an informed decision about the acquisition.
Step 10: Valuation calculations should be made.
The financial background of both companies and a description of how the acquisition will be paid for must be included in your proposal.If you're 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 are provisions for the end of life.
You need to think about 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 doesn't allow the acquisition, or if one party violates the proposal.
Step 12: The boilerplate should be inserted.
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 don't need to include these provisions.The following should be included if you are including boilerplate.
Step 13: Additional agreements should be included.
Once both parties agree to the terms of a proposal, an acquisition is completed.Other agreements will 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 additional agreements.
Step 14: There should be space 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: Common reasons for acquisitions should be considered.
There are five common reasons for acquisitions.If you want to acquire another company, you need to know if your reason is related to one of these.Move forward if it does.You should rethink your ability to acquire the company if it doesn't work out.Improving the target company's financial performance is the first reason you could acquire a company.If you acquire a company, you can improve their financial performance.You can improve the 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 are knocking 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 entire market.The smaller company might be acquired in order to get that company's 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.It would take decades to produce superior intellectual property from a company.You buy the technology instead of spending money on it.New companies with great growth potential are the fifth possible reason 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: Start with an offer.
An offer is usually the beginning of an acquisition.This usually begins with your company buying up shares in the company you want to acquire.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 target company negotiate.If the target company doesn't want to be acquired, they can try to stop you.Poison pill schemes or hostile takeover defenses are what these proceedings are called.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 of your shares.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 purchase price.
Step 18: The deal needs to be closed.
The deal will need to be completed after your acquisition proposal is accepted.There are various ways in which acquisitions can be completed.In a cash-for-stock transaction, the target company's shareholders 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 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 the shareholders.You can combine the two transactions.