Front page news: 65 – 85% of the company takeovers fail. Misleading, because this is only part of the reality.
In this blog, you can read what you as a buyer must consider in the sale of a business and how you can prevent a failed business takeover.
First objection: the terminology
My first objection is the limited terminology. Simple: when someone buys something, someone else must also be selling. If the buyer has bought something expensively, this means that the seller has generated high revenue. In short, it depends on whether you take the perspective of the seller or the buyer as to whether a transaction is considered successful or not.
Second objection: only public
The second objection is that the measuring almost exclusively concerns the public transaction of listed companies and other big boys. A large proportion of the transactions, however, take place in SME, out of sights of the news sites and scientific studies. Of these, not a great deal of information is available. Prices are regularly not made public. And, measuring whether a transaction generated profit for the buyer cannot be distilled from the generally accessible sources. SME buyers are often down-to-earth entrepreneurs who immediately feel it in their own wallets if they buy a company at an overpriced rate. So, they usually don’t, in comparison with managers and CEOs who can pass the burdens on to shareholders. A good CEO is worth his weight in gold, but that’s another matter.
To increase the chance of a successful takeover it is wise to prepare a number of matters properly. Here are some precautionary measures for sensible buyers:
- First look at the strategic added value of the company you have set your sights on. If it doesn’t fit in your vision, don’t get involved.
- Make sure your hands are free to also integrate after the purchase. You can calculate synergies, but if after the takeover, you do not start streamlining, integrating and changing, the scale advantages will rarely manifest.
- Buying something with borrowed money is excellent for the leverage effect. But don’t forget that the person from whom the buyer borrowed money will want a share of the cake. And usually before the buyer himself. Finance with moderation and not excessively.
- Make sure you have alternatives for only buying the company. Work out what it would cost to set up something yourself compared to buying an existing company. And don’t just look at one company; look at multiple companies. Sometimes supplementing the management team is sufficient to generate a boost.
- A good entrepreneur sees things others don’t. To stay on course, it is always important to have several experts; somewhat boring, yet competent people, nearby. They won’t keep you with both legs on the ground; rather, with one leg on the ground so that you can take a step forward.
- Elusive, but timing and culture are so important. Peacefulness, decisiveness, overview and knowledge are several key words that make this phenomenon somewhat controllable. They are the deal makers or breakers.
Will these measures automatically make the buyer a good buyer? Well, no. But in uncertain periods, which buying a company certainly is, those areas for which you have taken precautionary measures will cause you less trouble. Our experience is that in SME the new purchase is not always thoroughly shaped according to the wishes that existed beforehand.
In short, if after thorough preparations and calculations, you have bought the company of your dreams, it has just begun. Roll up your sleeves; this is where the real work starts.
Do you want to know more about business successions? Please contact us!
drs. Jurgen Boer RA, Partner