TALKING INSURANCE: BUYING OR SELLING A BUSINESS (1)
By Yinka Bolarinwa
Our discussion on this topic will focus on key vital points an investor need to know in acquisition or disposal of a business. Generally it takes two to buy a business, a willing buyer and a willing seller, other parties to sale or purchase of a business are brokers, accountants, lawyers, valuers, financial advisors and other experts.
Acquisitions; as defined by investopedia can be either friendly or hostile. Friendly acquisitions occur when the target firm expresses its agreement to be acquired, whereas hostile acquisitions don't have the same agreement from the target firm and the acquiring firm needs to actively purchase large stakes of the target company in order to have a majority stake.
In either case, the acquiring company often offers a premium on the market price of the target company's shares in order to entice shareholders to sell. For example, Nigerian Breweries Plc acquired majority equity interests in Sona Systems Associates Business Management Limited, (Sona Systems) and Life Breweries Company Limited from Heineken N.V. This transaction follows Heineken's acquisition of controlling interests in five breweries in Nigeria from the Sona Group in January 2011.
Difference between an acquisition and a takeover: There is no tangible difference between an acquisition and a takeover; both words can be used interchangeably - the only difference is that each word carries a slightly different connotation.
Typically, takeover is used to reference a hostile takeover where the company being acquired is resisting. In contrast, acquisition is frequently used to describe more friendly acquisitions, or used in conjunction with the word merger, where both companies are willing to join together.
Top 10 tips when planning an acquisition
1. Where's your wish list? The Board should set criteria for potential targets, e.g. minimum turnover or a similar sector.
2. Where are your tip-offs coming from? Contacts of the Board and professional advisers (e.g. solicitors, accountants and banks) or a specialist agency are good starting points for finding a well-priced target. It's best to buy off-market rather than through an auction process.
3. How will you know a potential hot target when you see it? Your checklist of ideal qualities should include: an established track record; a strong management team; a well-spread customer base; good financial history; projections that make sense; a strong asset base and enterprise values.
4. Would you take them for a pint? At any rate, you need to know if personal issues are going to upset things. Meet with the Board of each target as soon as possible. Many a deal has been scuppered by a personality clash.
5. Have you had your sums checked? The value of the combined business should exceed the value of your existing business plus the price of the acquisition.