This is the first in a series of articles about the legal process involved in buying a business. It is written from the perspective of the buyer. If, rather than buying, you are looking to sell your business, then please see our series entitled ‘Selling a business’.
Why buy a business?
There are many reasons for buying a business.
For example, you may want to expand your existing business faster than by organic growth, remove a competitor from the market or acquire a supplier or distributor to bring your sourcing or distribution systems in-house.
Alternatively, you may want a presence in a new customer market or geographical area, or to diversify into new product lines.
Research has shown that many acquisitions fail to achieve their objectives and that the following elements are essential for success:
- a thorough investigation of the target business, to help ascertain its true value and identify any potential liabilities
- effective management of the acquisition process, particularly if the buyer is running its own business at the same time
- careful planning to decide how to run the business, and integrate it into any existing business of the buyer, after the acquisition.
As the buyer, you may have to pay a high price for the business (particularly if it is well established and has valuable goodwill) and incur substantial expenses and professional fees.
You may also have to spend a huge amount of management time on the process, which can distract you from running your existing business, if you have one. So you must do all you can to make the acquisition a success.
Click here to read the full briefing series: Buying a business.