The process of purchase of companies is one of the most important strategic decisions an organization can make. Whether it is to expand operations, increase its customer base, access new technologies, reduce competition or generate synergies, this operation goes far beyond a simple commercial transaction.
Involves financial analysisThe acquisition of a new company will require detailed planning, commercial and operational synergies, legal and cultural aspects, as well as a rigorous process to ensure that the acquisition delivers real value.
In this article you will we explain in depth each key stage to make a successful purchase.
Define the strategic objectives behind the purchase.
Any process of purchase of companies begins with a fundamental question: why do we want to acquire another company? The reasons may be diverse.
Some companies are looking for to grow in new marketsothers wish to acquire skills that they cannot develop internallyThey want to accelerate their growth process with a less risky process. It may also be a consolidation strategy, to reduce competition or improve efficiency through operational synergies.
Being clear about the objectives not only allows you to focus your search, but also to design a consistent acquisition strategy with the long-term vision of the acquiring company.
Establish the criteria to be met by the target company.
With the objectives defined, the next step is to translate them into concrete search criteria. This makes it possible to narrow down the universe of potential companies to be evaluated.
Some common criteria include industry sector, company size, geographic location, customer profile, financial health, or desired percentage of ownership (majority or minority).
By defining these criteria, the buyer establishes a "roadmap" that will guide all subsequent stages of the process.
Identify and filter candidate companies through a rigorous scouting process.
Once you are clear about what you are looking for, the field work begins: scouting. This stage consists of identifying companies that meet the defined criteria.
Tools such as specialized databases, contact networks, market analysis and review of public and private information are used for this purpose.
When identifying candidate companies, an initial strategic assessment is key. This initial filter allows to determine if there is a fit with the defined objectives and helps to prioritize the opportunities with the highest potential value.
Conduct a preliminary valuation to estimate the value of the company
Before moving forward with any offer, an initial valuation of the target company. This evaluation considers aspects such as financial statements, revenue and cost structure, client portfolio, competitive positioning and business model.
The objective of this stage is to have a reasonable idea of the company's value, anticipate possible risks and define a price range to serve as a basis for future negotiations.
Issue a Letter of Intent (LOI) to formalize the interest and establish preliminary terms.
When the preliminary analysis is favorable, the purchaser may issue a Letter of Intent (LOI). This document is not binding, but serves as a formal statement of interest and sets forth the general terms of the future transaction.
In the LOI are usually detailed with the estimated purchase priceThe terms of payment, the desired shareholding percentage and the deadlines for carrying out the transaction. It is also common to include an exclusivity period, during which the seller agrees not to negotiate with other buyers.
Sign a Memorandum of Understanding (MOU) reflecting the key commitments prior to the final contract
In some cases, once the LOI has been accepted, both parties decide to sign an Memorandum of Understanding (MOU). While also not a binding contract, this document reflects a greater degree of commitment and aligns both parties with respect to the overall structure of the transaction.
The MOUs usually include aspects such as the estimated timetableThe roles and responsibilities of each party, the confidentiality agreements, the next steps in the process and the conditions to be included in the final contract.
Initiate a due diligence process to validate key information and detect potential risks.
The Due Diligence is a complete audit performed on the target company. The purpose of this stage is to confirm that all the information presented by the seller is truthful and complete. At the same time, it allows identifying risks that could negatively impact the value of the transaction.
This phase reviews financial statements, tax status, key contracts, hidden liabilities, regulatory compliance, organizational culture and other critical elements of the business.
Often, it is at this stage that the decision is made whether or not to move forward with the purchase of companies.
Negotiate and sign the final contract formalizing the purchase of the company.
Once the due diligence stage has been completed, the binding contract is drafted. This document may take the form of a Share Purchase Agreement (SPA) if shares are acquired, or a Asset Purchase Agreement (APA) if specific assets are purchased.
The final contract details the final price, method of payment, legal guarantees, transfer conditions, and any clauses regarding the permanence or departure of current partners. It is the legal instrument that formalizes the operation and protects the interests of both parties.
Execute an integration process to capture the value of the transaction
After signing the contract, an equally critical stage begins: integration. This is where the actions needed to merge the two businesses efficiently are defined. This may include retaining key talent, integrating teams, systems and processes, and managing the organizational culture.
A well-planned integration is key to maximizing the value of the acquisition. On the contrary, a poorly executed integration can generate internal friction and jeopardize the expected return.
Buying a company: a strategic decision that requires preparation and expert support
The process of purchase of companies involves a series of interdependent steps that must be executed with precision. Each stage - from the definition of objectives to final integration - demands technical expertise, practical experience and a long-term strategic vision.
Therefore, having the support of expert M&A advisors not only facilitates the process, but also significantly increases the chances of success.
Are you evaluating the acquisition of a company?
At Valoriza we have accompanied dozens of company purchasing processes in different industries. We help you from initial search to closing and integration, ensuring that every decision is based on data, strategy and experience.
Let's talk. Write us at contacto@valoriza.cl or visit valoriza.com for more information.
