Category: Buying a Business

Thinking about making your first merger or acquisition? Buying a business is a complex process. There are dozens of basic mistakes that business buyers make week in, week out, which could be avoided with proper due diligence and expert help. With that in mind, here are some hints based on experience that you can learn from.

1) Define Your M&A Strategy

Mergers and acquisitions can take many different forms, depending on the way in which you want to expand.

1. A horizontal merger is where two companies with similar products and audiences merge.
2. A vertical merger is where a company merges with a supplier, or a supplier merges with a distributor, to control more of its supply/distribution chain.
3. A concentric merger is where two businesses with the same audience but different products merge.
4. A conglomerate merger is where a business acquires another business in an entirely different industry.

As such, before you buy a business, you have to assess which one of these strategies would work best for you. For example, your business may need to cut costs by controlling its own supply chain, in which case a vertical merger would be ideal. Identifying the most applicable M&A strategy can either be done in-house by the directors, or by a business development manager.

2) Search Broadly

Were you buying anything else, you would shop around. You might check prices in-store, but later that evening, search for better offers online. You would compare prices between different brands and ranges. You would define what makes a fair price and what makes an extortionate price.

In terms of how to buy a business, the same rule applies. Cast your net as far and wide as possible so that you can identify:

• How much you can expect to pay for a turnkey business in your industry
• Whether there are plenty of opportunities available or just a few
• Whether there is a lot of competition among buyers

This will give you a good idea of the price you might expect to pay, how fast you’ll have to move to secure an opportunity, and how long it might take to finalise a sale.

There are several ways to search broadly for a business for sale. There are online directories, trade magazines and brokers that list businesses with owners looking to sell. Alternatively, you could leverage industry connections to see if there are any opportunities not yet made public.

3) Never Skip Due Diligence

Due diligence when buying a business refers to the research into and appraisal of that business by a prospective buyer. This research involves assessing the profitability and sustainability of the business, its assets and liabilities, and its eventual commercial potential.

In short, due diligence means ensuring that the business presents a good opportunity to the buyer.

There may be reasons why a buyer might put less effort into their due diligence than normal. They may be buying a business from a friend or colleague, for example; or, they may have bought many businesses before and not see thorough due diligence as worth their time.

Running through a due diligence checklist is like paying for a survey of a house before you buy it. Should you choose to forgo a survey, then with luck, time will prove that your risk was worth it in the long term. But should you be unlucky to experience any issues, you may lose money on the value of your property. The exact same applies to buying a business.

So, in short? Don’t skip due diligence.

4) Be Discreet in Your Initial Meetings

Bear in mind that the current owner may not want their staff to know about the sale. The problem is that takeovers can make staff nervous, as they can be followed by performance reviews and redundancies. Even if you don’t plan on making significant adjustments to the business you’re buying, staff can get cold feet, and knowing about the sale can lower morale.

As such, when you have an initial viewing and/or meeting with the current owner, try to avoid talk about the takeover when among staff. You should also be prepared to sign a confidentiality agreement (NDA). These are popular among sellers because a buyer in the same industry could use internal information about product lines and revenue to gain a competitive advantage.

5) Decide on Finance Before Offering

There are multiple ways to finance the purchase of a business. It is, of course, possible to buy a business outright with money from your own pocket or from your existing business. Should you happen to have enough, this is an option, although it would be best to keep ready money to hand should your new acquisition run into any trouble.

Many business buyers use finance instead. Options include bank loans, crowdfunding and seller financing. Whether this is the right route for you to take depends on your unique circumstances, and any decision with regard to finance should be made carefully and deliberately. It is vital that finance be arranged before you make your initial offer to the seller. We are specialist business brokers, which means that we find, vet and approach businesses for our buyers; for financial advice, talk to a financial advisor.

6) Get Your Opening Offer Right

There’s no need to agree to the initial price the seller quotes you. If anything, most sellers who know what they’re doing will be surprised that you roll over without negotiating.

The trouble is that you don’t want to make an opening offer so low that it puts the seller off negotiating with you. At the same time you don’t want to overshoot and accidentally offer more than the seller is expecting. So, how do you walk the line?

Part of the equation is to perform market research. How much are similar businesses sold for? If you can figure out an average based on a dozen similar businesses, that will give you a good starting point. The easiest way to do this is to talk to a broker with experience in the industry.

More important, though, is to use your due diligence to your advantage. During the contact stage you may learn things about the business that lower its value, such as maintenance and repair costs, the cost of relocation to a new premises, and so on. Communicate these costs clearly in your opening offer to justify it.

Buy a Business with Chelsea Corporate

We’re Chelsea Corporate, the off-market business buying experts.

We take a different approach to most business brokers. We exclusively operate off-market, which means that we sell businesses that aren’t officially listed for sale through normal channels. In other words, the businesses you can find through our site or through talking to our experts are exclusively available through our private database. By operating off-market, we ensure that our buyers avoid competition and can secure a merger or acquisition at a fair price as a result.

So, interested in small businesses for sale in your industry, but don’t know where to start? Contact us over the phone at +44 (0) 20 3011 1373. Alternatively, fill out our contact form or email us at info@oldchelsea.fusionanalyticsworld.com.

Expanding your business or moving into a new industry is exciting. But if you never have before, it can be difficult to buy a business for the first time, especially if you do so without the help of a broker.

How do you find and buy a business? You have two core options: approach a business broker to do it for you or doing the work yourself. You can find businesses for sale online, through trade magazines, through local newspapers or by using cold outreach to potential targets. On the other hand, a broker can facilitate the entire sale, from sourcing a business, performing due diligence and regulatory compliance to negotiating. This is therefore the approach that most buyers take.

The guide below first details where you can find businesses for sale without the help of a broker, and the advantages and disadvantages of each approach. It then outlines how buying through a broker works and the difference between on-market and off-market deals.

Where Can You Find Businesses for Sale? (UK)

As a business owner or a sole trader, it may be tempting to take ownership of the business buying process. During the early days of running your own business, you may have been responsible for day to day running of the business, hiring and firing, filing taxes, onboarding clients and more; you may want to apply this same self-reliance to expanding your business too.

You have several options should you wish to go through the process alone.

Search Online for Businesses for Sale

Your first option is to search online. There are many sites you can visit, some of which list tens of thousands of businesses for sale. You can filter your search by industry, turnover, location and so on to make your search easier.

This is the starting point that most buyers turn to, as it is so easy to simply use a smartphone or computer to instantly find potential targets. However, with it being so easy for you to find businesses for sale online, it is just as easy for your competition to do the same. Bidding wars, last minute offers and non-committed sellers are common.

Needless to say, it’s easiest to find an online business for sale/internet business for sale when you look online. There are, though, examples of businesses in any industry that you can find.

Businesses for Sale in Trade Magazines

Another approach is to consult trade magazines and newsletters. While this will give you less choice than searching online, it is also more likely that you will find serious sellers and avoid competition. This is the ideal route to take if you need to expand in a technical field, e.g. if you need to find a manufacturing business for sale.

Again, though, there are downsides to this approach. The main one is that sellers are wary of advertising themselves directly to their competitors. Sellers prefer discretion for several reasons; they may not want to sell to a particular competitor; or, they may want to avoid disclosing confidential information like turnover. Your choice is therefore even more limited should this be the route you choose.

Businesses for Sale in Newspapers

Another option is to look through newspaper ads. These feature local businesses for sale, typically only the premises, but sometimes the limited company, too. Newspaper ads are useful for finding local businesses that may not be made available online or through brokers; the seller may be of a generation that prefers doing things the ‘old-fashioned way’.

On the one hand, this is ideal if you are looking to buy a business nearby. But if you live somewhere else in the country, or if you are an overseas buyer, it can be difficult-to-impossible to find these opportunities.

Make Approaches to Cold Leads

It’s also possible to take a sales-style approach and call businesses and their owners directly. You could make a long list of businesses in the industry you want to expand in that may make good targets for mergers and acquisitions.

This approach has distinct advantages and disadvantages. On the one hand, if the seller is interested, you could potentially follow through with no competition whatsoever. At the same time, though, cold approaches have a low rate of success and require particular skills that not everyone has. This approach is best taken if you have staff that have sales or sales-adjacent skills, as they could spearhead your strategy in making the approaches.

How to Find Businesses for Sale as an Overseas Buyer

Buying a business from overseas presents yet more difficulties. Not only will you have to fight the competition described above, now there are added problems:

• Contact and negotiation takes longer because of time zone differences
• Cultural and/or language differences may become apparent
• Rules and regulations differ from country to country
• You may need to apply for a visa if you intend to travel to the UK
• Sellers may seek to take advantage of overseas buyers unfamiliar with the industry

As such, it’s even more important for an overseas buyer to take advantage of a broker’s expertise. However, not every broker operates in the exact same way—some sell businesses on-market while others sell off-market, for example.

Buy a Business Through a Broker

Unless you are very lucky, when you see a business for sale through an advert or directory, its owners will already have received several offers. This means you have to spend time and money trying to outbid the competition.

Therefore, the option that most serious buyers take is to talk to a business broker. A business broker is like a broker in any other industry—they connect buyers and sellers and take a commission upon conclusion of the sale.

Business brokers typically work for the seller, not the buyer. The seller will contact a broker so that they can discreetly put the business on the market. It will be advertised confidentially, i.e. details of turnover and size will be revealed, but the identity of the business will not. However, the broker’s service to the buyer is that they can advise them on opportunities and assist with due diligence and regulatory issues.

The upside of buying through a business broker is that they link you with sellers for free; they are paid commission from the final sale price instead (typically 8-12%).

The core issue with using a normal broker is competition. There is no guarantee that the business for sale is only for sale through that particular broker; there is also no guarantee that the broker won’t have several potential buyers lined up in case a deal falls through. It is therefore possible to still find competition even if you get outside help.

On-Market vs. Off-Market Businesses for Sale

As a buyer, you can find a small business for sale either on-market or off-market.

When a business is sold on-market, it means that it’s publicly listed for sale. Whether directly or through a broker, a buyer can find the business for sale and approach it. The easiest way to do this is through online marketplaces. These are comparable to other kinds of online marketplace for goods and services.

The majority of businesses sold in the U.K. are sold ‘off-market’, however.

What Is an Off-Market Sale?

An off-market sale is where a business trades hands without ever officially being listed for sale.

Discreet deals like these are struck between parties with good industry connections. Rather than list the business for sale online, a seller can privately reach out to a potential buyer they know and trust to confidentially discuss terms. This benefits the seller as they need only talk to buyers they trust, and can avoid alerting their competition to the fact their business is for sale. Alternatively, a buyer may approach a seller to register interest, perhaps having heard through connections that the owner is interested in selling.

Which Is Better: Off-Market or On-Market?

There are several advantages to the off-market approach. One is that the seller and buyer can both be sure that the other party is serious. A positive for the buyer is that they can avoid competition and last-minute bids from competitors, while a positive for the seller is that they can ask for a fair price and not expect aggressive negotiation.

Part of the issue is that most businesses listed for sale are not actually for sale. It’s thought that somewhere around 90% of businesses listed in online marketplaces don’t sell. The core reason why is that some business owners only want to know how much they could sell their business for, as opposed to actually selling.

The biggest advantage to off-market buying, however, is that the most profitable and sustainable businesses are typically sold this way. Owners prefer discreet sales for all the reasons described above. But for the buyer, this means that the most profitable businesses for sale are sold before they even have a chance to approach them. Finding your way through this hidden market is difficult unless you have exceptional connections in your industry. Understandably, this also means that overseas buyers have an even harder time.

How to Find Off-Market Businesses for Sale

We are Chelsea Corporate. Our speciality is connecting buyers with off-market opportunities they could never otherwise take advantage of. We find, vet and approach potential sellers discreetly; those that do want to sell become part of our exclusive private database. We give our buyers access to these businesses which are available nowhere else but through us.

Many of our clients are overseas buyers. We can offer local representation through finding and negotiating with UK businesses on your behalf. Everything we do can be done remotely, so that not only can you complete the deal from overseas, but without even leaving home.

If you’re interested in how off-market selling works and how it could benefit you—whether you’re looking to expand your own business, or you’re an overseas buyer interested in British businesses—contact us today. You can reach our expert team over the phone at +44 (0) 20 3011 1373. Alternatively, fill out our contact form or email us at info@oldchelsea.fusionanalyticsworld.com.

Buying a Business vs. starting up

First of all, buying a company is usually much better than just starting up from scratch. It’s easier, more predictable and can increase your chances of success, for the simple reason that there’s already an existing track record that you can draw insights from.

More than that, the time is right for buying businesses. The Baby-Boomer generation (people born between the early 1940s to 1960s) are reaching retirement age. After the 2nd World War, a lot of new owner-managed businesses have been established. In many of these cases, the owner’s children have chosen to pursue another path rather than managing their parents’ business, which is why at this time many of these owners are looking to sell.

While there’s never been a better time to buy a business in the UK, particularly when you consider the trying economic times are convincing many business owners to sell, there are a few types of businesses that are very sought after, due to these very qualities:

High Asset Value Businesses

A high asset value business will have a lot of value in terms of stock and equipment. You can generally purchase a bigger business with less money if you were to take a loan against the assets of the business. Think around 75% of the NET asset value. Also, if the business is not going as well as you would have hoped, this is usually a more secure investment due to the fact that you can sell the assets and get a big portion of your money back. We’re strong supporters of businesses in sectors like Manufacturing & Engineering and have helped many clients acquire these types of businesses in the past.Continue reading

This article deals with the possible pitfalls and issues that may arise from time to time during the due diligence process in business acquisitions.

Due diligence is a process whereby one party conducts checks on the other party. In the context of M&A this process takes place immediately after heads of terms are signed and a deal is agreed.

The main checks are done on the seller and the company or business acquired in order to satisfy the buyer, their advisors and lenders (if appropriate) that the business is as described.

The three main sorts of due diligence are commercial, legal and financial although there may be many other areas that require checking before a deal can be concluded and these areas normally arise from initial checks in the main three areas which are commercial, legal and financial.

Commercial due diligence

This is a set of checks around the commerciality and the commercial validity of the business going forward. The buyer usually needs to satisfy themselves that the business performance is not likely to decrease due to market conditions (example: political or legislation change) or due to any internal situation (example: employment termination).

Legal due diligence

This is a set of checks that is usually done by the lawyer representing the buyer.

This set of checks is meant to satisfy the lawyer acting for the buyer that the business is not experiencing any litigation or legal challenges. The lawyer usually reviews the contracts with customers suppliers and employees to uncover any potential or immediate risks to the smooth operation of the business. Issues that arise from a legal view point can be mitigated by putting additional paperwork in place to minimise the risk involved in the findings.Continue reading