Advice for a successful takeover

Before moving to the operational phase, it is essential to look at the motivations for and objectives of the operation.  There can be many motivations and any opacity could deter buyers from seeing your file.  Furthermore, an asset and liability or even personal diagnosis is also an essential part of the process in order to prepare for its consequences.

Taking over a company needs professional advice (from financiers, tax specialists, lawyers and technicians) right from the preparatory phase.  Do not rely on the seller’s advisor to help you.  They are not there to do that and only represent their clients' interests.  There could be conflicts of interest and it would incur their professional liability.  It is preferable to stick with buyers’ clubs or get help from a buyer advice firm for both the auditing and negotiation phases.  A buyer advice firm is an excellent solution to give your part of the deal credibility in the seller's and particularly their advisors’ eyes.       

The lack of precise identification of your target inevitably leads to failure.  Do not think that raising the spectre of targeting, will increase the chances of success.  Quite the contrary!  Mergers and acquisitions firms appreciate buyers having a precise target, which they maintain .  Conversely, if you only research one company in the region, which has a return of more than 10%, you increase the risk of failure.

Many takeovers fail due to a lack of comprehension of the seller's psychology.  They have often spent many years setting up and developing a business, which feeds their family and those of many other employees.  They are not selling a building, but rather a part of themselves.  The relational and emotional aspect of the negotiation often seems like a decisive element. 

The buyer must therefore ‘seduce’ the potential seller.  Cases where sellers have decided to sell for a price, which is less than they had originally decided, are not rare when the buyer creates a confident climate, which reassures the seller that their company will last.

Taking over a business is similar to risk management.  Firstly, you have to identify the risks of the takeover, in particular, financial plans (durability...), strategic plans (is the business on a growing market?), tax plans (does the business have well written commercial contracts?), environmental plans (does the company respect anti-pollution rules?) and social plans (is the atmosphere good?). Once these risks have been identified, you must then evaluate and organize them from the weakest to the most important in terms of number of claims.  In fine, it is necessary for you to handle these risks by getting insurance, guarantees or transferring.

You must engage the seller in the sales process.  In order to do this, it is recommended for each of the parties to declare their intentions in an attached letter of intent.  A tight commitment will allow you to limit discussions and future disagreements, in particular by setting very specific precedent or subsequent conditions as well as eventual damages, which result from this. 
Liabilities and asset warranties must be carefully written by a specialist.  It is necessary to negotiate the sellers’ commitments, in particular, their resignation of the board of directors, their eventual help and a non- competition clause for the future.

Be careful before writing a letter of intent, before asking for exclusivity, before signing a promise, a sales contract or liability warranty...
Try to involve the seller and their advisors right from the letter of intent.  Do not hesitate to give your letter of intent to the seller’s advisor before telling their client.  Ideally, mention the letter of intent to the seller’s advisor during one or several meetings.  You will seriously increase your chances of your letter of intent being accepted because the seller’s advisor knows their client’s negotiation margin.

Do not focus solely on the price of taking over the target business.  Try to have a global approach to the company’s value by looking to the future.  The company's future potential is much more important than the price that you will pay on signing.  It is often only 2 or 3 years later that you will realise if you have paid too much for a company.
Including the seller in the takeover process is an important guarantee for success for the buyer.  Do not forget that the time that they spend with you during the accompaniment stage is sometimes worth more than the price you will pay.

Like with any other project for setting up or developing a company, financial partners will research a project, whose risk is in line with the rate of expected return (RER).  In order to convince them, whatever the arrangement, the essential element is in their capacity to succeed with the transfer and subsequent development.  The buyer’s commercial, technical and financial credibility will be the determining factors.
The buyer’s experience and confidence will matter to a business team... Finally, the quality of the strategic, operational and financial business plans must be perfect.

Be aware that your status changes after taking over a business.
You are no longer an employee or a manager but have taken on the role of a director of a company, which you do not know.  Be humble and never criticise the past management.  At this stage, get lots of advice.  This will be your first good move as head of the company.