What is involved in buying shares in a company and how do I identify target companies?
Business owners looking to expand spend a considerable amount of time formulating a growth strategy. It seems a shame therefore when so many comment “We have a strategy in place, but the opportunities haven’t come along”. Opportunities rarely come to you, you have to go out and find them.
The key to finding the right target is being proactive in your search. Firstly, speak to your professional advisers as they are well placed to pass you acquisition opportunities. Secondly, speak to a corporate finance adviser about acquisition search services to identify targets on your behalf. Most corporate finance advisers have access to powerful databases containing detailed information on all UK companies and, can identify target businesses with the right operational, financial and geographical attributes to match your acquisition criteria.
Your adviser will also use their own network of professional contacts who may be handling sale mandates to identify targets. One major benefit of a proactive search and off market bidding is that targets can often be acquired at a better price in comparison to open market auctions.
When you have found a target company it is important that you spend time to fully understand what you are buying into. Carry out your own analysis on the business and get your advisor to undertake financial due diligence as a minimum so you have solid facts to base your offer on. Once the buy price has been negotiated and due diligence has been carried out, the next stage in the transaction is to agree the terms of the purchase and buy the shares in the target company.
A corporate lawyer will prepare a document called a share purchase agreement which sets out the terms of the transaction. Standard documents are used depending on the size of the share purchase which is then specifically adapted to reflect the agreed terms of the deal between yourself and the Vendor. Within this agreement is the disclosure letter which often becomes the focal point of the negotiations for additional warranties and indemnities on your behalf.
When both parties come to an agreement on the share purchase document completion will take place. Both Vendor and Purchaser sign all the necessary documents and on the transfer of funds to the Vendors you will become the legal owner of the target company.