For most of the companies or startups, for that matter, getting acquired or bought by another firm not only approves that the company is on a growth path in the respective industry, but the companies can also provide a financing bridge which was trying to fill for quite some time. Acquisitions and mergers are exciting and challenging for entrepreneurs of engaging companies.
There are several reasons why a company would want to acquire/buy a startup. If an entrepreneur is ready to sell off the business and move onto a new idea, the company needs a strategy to go through the entire acquisition process. There is a concrete process which will highlight crucial aspects of acquisition and how an entrepreneur can minimize the chances of failure.
The UK business is highly active pertaining to Mergers and Acquisitions (M&A). There were almost 1,400 M&A deals during the first half of the year 2019, in all the sectors like telecom sector, followed by insurance, manufacturing, IT services, and wholesale industry.
Apart from the excitement, acquisitions come with many complicated steps and require a high degree of skills, expertise, and execution. Sometimes, an acquisition process can go wrong and end into failures, there are also megacorporations like Microsoft and Google that get the acquisitions wrong.
Detailed Process of Startup Acquisition
If huge multinational companies want to acquire a particular startup, then the team has achieved quite a lot. For those who are looking for and about to embark on the acquisition process in the near future, here's a brief idea and process of what to expect.
Step 1. Initial Motivation and Consideration
The initial process starts with both the buying company and selling company identifying their industry preferences and expectations, then they consider the size of the company.
By this excitement of an acquisition sets in, the first thing to do is to set clear goals and expectations for the acquisition. The motive is not just personal gains, but a huge number of other factors that will impact on the success of the business. The companies have to make sure that they're financially as well as psychologically ready for this step.
Companies take years to build from scratch and there are countless personal sacrifices made by the founders, so the entrepreneurs should be sure about selling their business.
The questions asked to the selling companies are:
- Why are to sell the business?
- Can the acquirer be the right fit?
- How exactly do you picture yourself with this acquisition?
Review and study on these points individually and then move forward.
Points to be considered to sell the startups could be:
- To work and grow the existing business.
- To get access to financial capital.
- Some Personal factors, such as retirement, ill health, quitting the company or family obligations.
Step 2. Sourcing
Businesses for sale are listed in local magazines, directories and on online portals. There is a real business deal discovery landscape with technology, where buyers and sellers can browse through a number of opportunities and opt for professional deals.
Step 3. Preparing for Due Diligence
Once the buyer and seller are mentally and financially ready for the acquisition, the next step is to get started with the due diligence, which is to consider the legal cases.
Most new entrepreneurs underestimate the power of legal and financial aspects of the acquisition process. The financial experts, lawyers, and tax and financial advisors have to be involved in for a positive outcome, so entrepreneurs have to consider major due diligence.
Step 4. Hiring a Legal Counsel
Considering the entrepreneurs sincerely want to consider the business for purchase. Here are some factors to be paid attention to legally. The acquisition decision will have tax implications and both the party should consult an experienced tax professional to take care of these.
It is almost important for the buying company to check the new business with respect to applicable regulations, the common ones being Company Law, Labour Laws, and approvals by Banks or Financial Institutions which comes under Legal issues.
Step 5. Assemble a Finance Team
Assembling/hiring a financial team is the next step of the acquisition process. The acquisition process will require all kinds of financial reports, bank statements, which includes revenue reports, financial schedules, expense accounts and so on.
The accounting team may find it tough to function these requests while doing the daily accounting tasks. It is mainly advisable to hire a finance team that holds expertise in acquisitions.
Step 6. Prepare the Team for Acquisition
Now that every step has been cleared and studied carefully, the entrepreneurs need to inform their team about the acquisition of the company. A startup acquisition is a good news for most entrepreneurs, it may be otherwise with the working team. It is important to handle the team smoothly throughout the transition and make them comfortable.
Step 7. Seal the Deal
Once all of the steps are cleared and pieces are fallen into place, the parties need to select a date for sealing the acquisition deal. This is a huge step to finalize the deal and start with the actual business acquisition paperwork and start with a new company.
Step 8. Purchase Terms and Conditions
The terms and conditions of the post-transaction will be explicitly captured in the term-sheet and then in a more detailed manner in the purchase agreement. There are important deals like Deal structuring, setting up payment terms and conditions, warranties, post-deal involvement, and rights and obligations of the seller and the buyer are the most important considerations at this point.
Step 9. Post Purchase Advertisement
Once the deal is done and the businesses are set to operate the obtained ownership, it will become important to share information about this transfer of title with key stakeholders of the business such as creditors, customers, etc.
Preparing the team for a merge won't be easy, despite the success. The entrepreneurs will encounter continuous resistance. However, the decision to do do the best for the people and business will be enough providing the existing ones with leadership through the transition. The startup acquisition process is an interesting turn in both the parties' lives.
What does acquisition mean?
The acquisition means a company has acquired another business and has gained control over it by purchasing most or all of another company's shares and assets.
What is meant by merger and acquisition?
A merger means the two or more separate entities have combined authority to control the new joint company and acquisition means taking control over all the authority of another company. Mergers and acquisitions are executed to expand a company's reach or gain market share to create shareholder value.
What is the Process of Startup Acquisition?
Process of Startup acquisition includes the following steps:
- Initial Motivation and Consideration
- Preparing for Due Diligence
- Hiring a Legal Counsel
- Assemble a Finance Team
- Prepare the Team for Acquisition
- Seal the Deal
- Purchase Terms and Conditions
- Post Purchase Advertisement
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