There are a number of different ways in which a company or business can expand and develop. One way is by acquisition of another business.

Acquisitions may take a number of different forms but generally they fall into four categories:

(a) an acquisition that is complementary to the existing business;
(b) the acquisition of a supplier or distributor;
(c) an acquisition in order to gain entry into new markets; or
(d) an acquisition in order to gain entry into a new geographic area.

Stage 1 is of course having a good and justifiable reason for wanting to acquire  a new business at all. Every buyer should have clear logic and a strategy which gives reason for the acquisition.

Stage 2 is to filter the many businesses that are "out there” and to choose the right target company.

Stage 3, when a target company has been identified, is that the buyer can begin to establish and consider the target's value. Differing methods and multiples can be used to value the target company, depending on the particular sector the target business operates in. A prudent buyer may compare the results of using more than one method of valuation. Value does not necessarily equate to price, which will obviously be affected by the circumstances of the parties, and the respective needs and negotiating positions of the parties.

A buyer may have multiple reasons for wishing to buy but a seller's motives to sell tend to be straightforward financial reasons (to realise value) or - more usually in owner-managed businesses - entirely non-commercial reasons such as poor health or even simply looking for change or retirement. These are all "voluntary” reasons for selling. Voluntary reasons can also include the requirement to release funds for other investments or a shift in the area that a business operates in due to a strategy change.

There can also be "involuntary” reasons for selling. Involuntary reasons are normally based on financial pressures or hostile action being taken against the company. The reasons behind a sale often have a significant impact on the negotiation and pricing of the transaction.

Whatever the reason for the purchase and the sale, there are two ways in which the acquisition can take place - the buyer can buy the shares in the target company, or the buyer can just buy the assets of the target company. See below for more details on the two routes - Buy the Shares or Buy the Assets?

Once the form of transaction and the key terms are agreed, then the buyer will start its examination of the target business in earnest - this stage is called "due diligence”.  

Due diligence is an information-gathering process carried out by the buyer to gather information about the target company. Because of the greater risk generally assumed in a share purchase, the level of due diligence required will normally be greater than for an asset purchase. The legal due diligence will focus on where the value of that company lies and the precise form the due diligence will take is tailored for each acquisition and will depend on the nature of the company being acquired.

As well a legal due diligence an assessment of the financial, legal and commercial status of the target will also be undertaken. These are typically undertaken by the buyer's financial and legal advisers together with the buyers themselves.

Provided due diligence has not raised any deal-breaker type concerns for the Buyer, the documentation and contracts to give legal effect to the transaction can then be drafted and negotiated between the parties and their advisors.

Due to the general complexities of a business or share sale the documentation is often lengthy and detailed. Much negotiation takes place until both parties are content with the position reached. Once agreement is reached the documentation is signed and completion takes place.

Our corporate, merger and acquisition lawyers can help you with input from as early as when you are thinking about acquiring another company. They can help you identify target companies, and can help in your assessment of targets that you have chosen.

Once you have locked into a target, then - as they have done with so many companies over the years - our corporate lawyers can help you in your deliberations over whether it ought to be a share purchase or an asset purchase, and they can work with you and your accountants when it comes to a valuation of the target, the due diligence stage, and the contract negotiation stage.

Our Corporate Team have shared many a bottle of champagne with buyers (and indeed with sellers that they have acted for too) when the great moment of completion is reached.

If you are thinking of acquiring (or disposing of) a company, please do not hesitate to speak to our corporate law team - they would be delighted to hear from you, and will happily to talk with you about your business plans at no charge. We are confident that your thinking will benefit from a chat with them.

As we say, we are always there for businesses who are in our BLUE LAW scheme, so we invite you to join BLUE LAW now. Once you have joined, we try to answer any legal enquiries that you have, free of charge. If legal work is needed, we give you a price, and you are then free to "shop around".  If you wish to speak to us now, please click on "Please Contact Me Now” or call us on 0800 084 3256. We look forward to always being there for you.