Buying a Business – Acquisition Process
Buying a business is different than any other purchase in the American economy for the following five reasons:
- No shopping venue exists with an inventory of all the possible variations of businesses that participate in the US economy.
- Information related to businesses available for sale is not generally available in the public domain.
- The purchase of a business is typically a career changing activity.
- Valuation of privately held companies and family owned businesses is subjective science.
- A post transaction relationship between old and new ownership is generally needed for the continued health of the business.
IBA typically does not represent business buyers. However, every day we provide information to business buyers regarding the companies we represent and facilitate negotiations related to the transfer of ownership of privately held companies and family owned businesses.
Our interaction with a business buyer starts with the establishment of an environment of confidentiality. This process involves the completion of a legally binding confidential disclosure agreement by the buyer. This non disclosure agreement is the buyer’s assurance that they will not make public any information related to a business represented for sale by IBA without written permission from IBA and the business owner.
This administrative activity completed IBA will begin supplying information to the business buyer for review and consideration. Initial presentation of the information will be in the form of a verbal overview and/or written introductory profile on the business summarily detailing the history, economic health, equipment, and facilities utilized by the company. If applicable the buyer will also be given the opportunity to visit the business as a customer. This presentation should provide enough information to allow a business buyer to make a preliminary decision regarding their level of interest in the opportunity.
An interested business buyer will then be presented with a detailed presentation on the company by IBA containing financial records, equipment and inventory information, facility lease or real estate specifics, and any other relevant data on file. Following the review of this information, a buyer will be provided with an opportunity to confidentially tour the facilities and meet with the business owner to discuss operations. It is our goal during this time period to create an environment of full disclosure. We welcome requests for additional information and gladly schedule additional meetings with ownership to assist the buyer with their evaluation process.
At this point a knowledgeable buyer will enter into negotiations related to the purchase of a privately held company or family owned business. These negotiations will occur on multiple levels. The obvious negotiations will occur on price and financial terms. However, additional negotiations will occur on subjects such as transition period training, the non competition agreement, and tax allocation. IBA’s goal as the facilitator of negotiations is to create an environment where agreement can be reached on the sale price and negotiated terms that provide fair compensation for existing ownership and an opportunity for future success for the buyer.
Tentative agreement established. IBA will then facilitate due diligence by the buyer’s accounting professional on the company and legal document preparation for the transaction. These administrative activities completed; we will supervise escrow activities and help plan for the smooth succession of ownership with the buyer.
IBA is also available during the evaluation/purchase process to assist the buyer with securing the necessary funding from the lending community to successfully complete the acquisition. IBA has excellent relationships in the financial community and we welcome the opportunity to introduce individuals & companies considering acquisitions to quality bankers who have a track record for successfully funding merger & acquisition transactions.
We also encourage business buyers to seek the counsel of legal & accounting professionals during the acquisition process. It is our assumption that both sides of the transaction will have assembled an appropriate team of professional advisers for the transaction. If a business buyer does not have an attorney and/or accountant, IBA is happy to provide the buyer with the names of parties with transactional experience who have successfully assisted clients in the past with merger & acquisition transactions.