Initiating the Deal: The Buyer’s
Business strategists often say that it is cheaper to buy a business than to build a business. This approach, together with today’s low interest rates and sellers’ adjusted expectations of valuation, has created a very attractive set of market conditions for cash-rich buyers. Our domestic market has clearly experienced major industry consolidation through acquisitions and rollup strategies. Despite all of the excitement, however, the purchase of an existing business is a complex and challenging task. Buying a company for the right price is both an art and a science. Experienced buyers and their advisors often develop a sixth sense, an instinct, a gut feel for the potential problems and opportunities inside a company that is for sale. They use these instincts to mitigate risk and to uncover hidden intangible assets. Indeed, the market situation and macroeconomic conditions tend to influence these instincts even though we tend to hear the oft-repeated maxim “invest in a downturn.” This chapter leads the buyer through the process, with a focus on preparation for the deal, creating an acquisition plan, and preliminary negotiation tips, as we begin to understand the buyer’s perspective.
Every buyer needs to develop both an internal working team and a set of experienced external advisors, such as lawyers, accountants, investment bankers, valuation experts, and in some cases insurance or employee