Europe Middle East & Africa N° 1: Know how to prepare your project to take over a company

Before moving on to the operational phase, it is essential to reflect on the motivations and objectives of the operation. The motivations can be multiple and any opacity on the motives will constitute an obstacle to the study of your file by sellers.
In addition, a patrimonial or even personal diagnosis is an essential prerequisite to the operation.

Europe Middle East & Africa N° 2: Never take over a business alone

To take over a company in all its aspects (financial, tax, legal and technical) it is necessary to surround yourself with specialists, from the preparation phase. Do not rely on the seller’s advisor to help you. He is not there for that and represents only the interests of the seller. He would be in a conflict of interest and would be held professionally liable if he gave you advice. It is preferable to join a buyers’ club and to be accompanied by a “buyer” consulting firm for both the audit and negotiation phases. A “buyer” consulting firm is an excellent solution to give credibility to your approach towards the sellers and especially their advisors.

Europe Middle East & Africa N° 3: Define your target precisely

Failure to accurately identify a target will inevitably lead to failure. Don’t think that by increasing the targeting spectrum, you will increase the chances of success. On the contrary! Mergers and acquisitions firms appreciate buyers who have a precise target and stick to it. However, if you only look for a company located in your region with a profitability higher than 10%, you increase the risk of failure.

Europe Middle East & Africa N° 4: The seller chooses the buyer

Many takeovers fail because of a lack of understanding of the psychology of the seller. The latter has often spent several decades of his life setting up and developing a business that supports his family and many employees. He is not selling a property but rather a part of himself. The relational and emotional aspect in the negotiation often appears as a determining element. The buyer must therefore seduce the potential seller. Cases of sellers who have decided to sell at a lower price than the one they had initially decided are not uncommon when the buyer manages to create a climate of trust that reassures the seller about the sustainability of his company.

Europe Middle East & Africa N° 5: Behave like a risk manager

In order to take over a company, you must adopt a risk management approach. First, you must identify the risks of the takeover, particularly in financial (profitability, etc.), strategic (is the company in a buoyant market?), legal (does the company have well-drafted commercial contracts?), tax (has the company not taken certain ill-considered risks), environmental (does the company comply with anti-pollution standards?), and social (is the social atmosphere good?) terms. Once these risks have been identified, you will have to evaluate them and then rank them from the lowest to the highest in terms of loss. In the end, you will have to deal with these risks through insurance, guarantees or transfers.

Europe Middle East & Africa N° 6: Take a financial approach to its impact on tax and legal matters

You must engage the seller in the sale process. To do this, it is recommended that both parties pre-contract their intentions in a joint letter of intent. A well-locked promise makes it possible to limit future discussions and disagreements by setting very precise suspensive and resolutory conditions as well as any resulting indemnities.
The guarantee of assets and liabilities must be carefully drafted by a specialist if its provisions are to be implemented. You will have to negotiate the seller’s commitments, in particular his resignation from the board of directors, his possible accompaniment and a non-competition and non-solicitation clause for the future.

Europe Middle East & Africa N° 7: Keeping a grip on the legal

Be careful before writing a letter of intent, asking for exclusivity, signing a promise, a sales contract, a guarantee of liability...
Try to involve the seller and his counsel from the letter of intent onwards. Do not hesitate to send your draft letters of intent to the seller’s counsel before sending them to his client. Ideally, discuss the LOI with the seller’s counsel in one or more working meetings. You will seriously increase your chances of acceptance of the LOI, as the seller’s counsel knows the negotiating leeway of his client.

Europe Middle East & Africa N° 8: Price is not everything

To take over a company, don’t just focus on its sale price. Try to have a global approach of the company’s value by projecting yourself in the future. The future potential of the company appears to be much more important than the price you will pay at the time of the signature. It is often only 2 or 3 years later that you realize whether you paid too much or not for a company.

The involvement of the seller in the takeover process also appears to be an important guarantee of success for the buyer. Don’t forget that the time he will spend with you during the support period is sometimes more valuable than the price you will pay.

Europe Middle East & Africa N° 9: Without financing there is no recovery

As with any business creation or development project, financial partners will look for a project whose risk is in line with the expected rate of return (IRR). To convince them, whatever the set-up, the essential element lies in the ability of the people involved to succeed in this transition and the development that will follow. The commercial, technical and financial credibility of the buyer will be decisive. The experience and confidence granted to the buyer by the company’s teams will also be crucial… Finally, the quality of the strategic, operational and financial business plan must be irreproachable.

Europe Middle East & Africa N° 10: After the recovery, adapt

You have taken over? Be careful, you are changing your status…
You are no longer an employee or manager of a company, but you are taking the place of a manager in a company that you do not know. Be humble and never criticize past management towards anyone.
Surround yourself with advice at this stage, whether it is your first experience as a business owner or an external growth operation.