Companies are bought, sold and merged. All companies start small and they grow and expand, if they have a good business and are well managed. Organic growth, that is increasing sales by attracting new customers and launching new products onto the market, is the initial route that all companies follow to expand. However, at one point, and in certain circumstances, growing by buying another company is an option that every entrepreneur should keep in mind and value within their strategy.

What are the entrepreneur’s reasons for making a purchase?

Here’s a brief list of the reasons which may lead an entrepreneur to purchase a company:

• • Purchasing to optimise resources. A company with a good business model that is growing and has a good management team may decide to acquire another company in order to grow faster, integrate new customers and apply their business model in a more efficient way. This is a good option for growing businesses that want to expand geographically, whether in the domestic or international market.
  • Purchasing to acquire a new market segment or distribution channel. Let’s think of a company that sells its products to a determined market segment and wants to sell to another segment using different distribution channels. The opportunity to enter by purchasing another company that already sells to customers in this new segment is an option to consider.
  • Purchasing to complete the range of products by including products from the other company in our offer. This is an option to consider when both products have the same customers and can be bought together.
  • Purchasing to integrate the value chain. Whether acquiring a company that ensures a major source of supply (upstream) or one that allows us to complete our existing products and have a better offer (downstream).
  • Purchasing for innovation. This is a very special and strategic reason for purchasing and selling which we have dedicated a special section to later on.

Having checked the reasons and accepted that in business life there are often circumstances to purchase a company, the next question would be:

How simple is it to purchase or sell a company?

This type of transaction is relatively simple for a specialist, as it’s what they do every day. However, for a company having its first experience of purchasing, the process is laborious and has an important technical, financial and legal component. Therefore, you should understand the process completely before deciding.

These are the main points to consider during the process:

1. Definition of business strategy after the purchase.
2. Contact with the selling company.
3. Preliminary analysis of the business’ basic information.
4. Indicative offer and letter of intention.
5. Due Diligence.
6. Sales contract.
7. Closing of the operation.

These 7 steps often last between 12 and 24 months from the start of the operation to its close.

If you are interested in starting the purchasing process, we recommend that you contact a law firm specialised in this type of transaction and have a non-binding meeting to find out how a professional can help you with this management.