A business takeover occurs when one business purchases another business. In most cases, a larger business will buy up a smaller one. There are several reasons why a company would choose to buy up another company, including:
- The business being bought up has a high and regular profitability. This means the company being bought knows how to make money and continuing to do so at a steady pace;
- The business to be acquired is considered a quality business. This means the business is an asset, perhaps, in the form of convenient distribution capabilities, manufacturing capabilities, etc.
- The business is buying up the competition. By purchasing this business, the result may be that the purchasing company may have a monopoly in their particular sector of business. Antitrust laws prohibit these types of actions by any businesses, and can take legal action if these laws are broken;
- The purchasing business is temporarily boosting revenue. A large company may buy up a smaller company in order to boost their revenue without giving sufficient regard to its profit, which generally declines during the business acquisition because of the costs involved.
What are the Advantages of Purchasing a Business?
There are many benefits to purchasing an existing business. The business is already established at a physical location, has employees, and an established customer base. This saves the purchasing business time and energy that is required to start a new company. Purchasing an established company may be more appealing because it is less costly than attempting to start up a new business.
Other benefits may include:
- A customer base that is already established;
- An established business location;
- The business is easier to handle and manage from the start; or
- Already existing inventory or machinery.
Other benefits to an established business may include verified customers, a network of professional contacts, and a financial history. These factors can make securing any needed funding easier, including business loans or investments. In addition, since the business is already established, the funding required would be a lower amount than if the business was just launched.
If the business already has an established inventory and machinery, this can save the purchaser a large amount of money. The business may already have several established locations, including overseas. This is helpful especially if the purchasing business wants to expand the existing business.
Are There Different Types of Business Takeovers?
Yes, there are different types of business takeovers. The type of takeover depends on the status of the acquiring business and the business being purchased and the method used by the purchasing business. The types of business takeovers may include:
- A friendly takeover;
- A hostile takeover; or
- A reverse takeover.
A friendly takeover occurs when one business makes a bid to buy another business. Then, the business that was bid on gladly accepts. The shareholders of the purchased company may receive cash. However, it is more common for them to receive a number of shares in the purchasing company.
A hostile takeover occurs when one company moves to acquire another company even if that company does not want to be bought out. This can only be accomplished with public businesses because the process is completed by the purchasing company buying a controlling amount of shares of stock of the company being taken over.
A reverse takeover can be accomplished in a number of ways. One method of completing a reverse takeover would be when a smaller company buys out a bigger company. Another method would be when a private company purchases a public company. Another option would include a private company establishing a shell company and having that company buy out the private company. This would be done in order to bypass securities regulations and requirements that apply to transforming a private company into a public company.
Why Would I Want to Merge My Business with Another Business?
A merger is often actually an acquisition. One business will purchase another business. Then, those two businesses are combined to form a new company.
If a small business is attempting to grow, merging with another company may be a more lucrative option than making an initial public offering (IPO), especially if the market is erratic. A small business may want to put itself up for sale because being acquired could potentially be an economically safer long-term growth strategy.
If a business is trying to enter into a new market, acquiring another business to merge with that is already in that market may be a cheaper alternative to a costly change in business strategy. Many businesses that are larger in size will choose to strengthen their business by diversifying their product line. Acquiring or merging with other businesses is often the best way to diversify.
What are the Possible Results of a Hostile Takeover?
In most cases, a company will want to purchase another company because that company, which is known as the target company, is highly profitable. In these cases, the target company will continue doing the same business it was doing prior to the acquisition. It will, however, be under new ownership. In addition, the acquiring company will be reaping the rewards of the target company’s business.
A company may also exercise a hostile takeover by a corporate raid. This means the acquiring company wants to forcibly buy up a company that has a low stock price because it may not be doing well but it has valuable tangible assets, such as land or equipment. After a successful hostile takeover, the acquiring company will liquidate the target company by selling the target company’s equipment and land, effectively destroying the target company.
How Can I Avoid a Hostile Takeover of My Business?
There are several steps a business owner can take to ensure a business and ownership of that business will survive a hostile takeover attempt. This includes things such as developing a monitoring system, and creating a strategy to fend off hostile takeovers.
One key to surviving a hostile takeover attempt is to see it coming and be aware of impending threats. This requires being on the lookout for other businesses that have shown an interest in acquiring an individual’s business. It also includes monitoring the purchase of business stocks to determine if one buyer is purchasing unusually large volumes of the company’s shares.
It is also important to create a strategy for fending off attempted hostile takeovers. It is important to put this strategy into action at the first sign of a takeover attempt. This strategy should include the following areas of the company:
- Legal activities;
- Investment banking;
- Public relations; and
- Investigating the activities of the company.
If Another Company Wants to Buy Up My Small Business, Should I Consult a Business Attorney?
Yes, you should consult a small business attorney for any issues regarding the purchase of a small business. Whether or not you desire to sell your business, if another company has requested you sell a business to them, it is essential to have an attorney’s help if you decide to do so.
It will be important to have an attorney with experience in mergers and acquisitions. Your attorney will be familiar with the laws and regulations of the sale of a business as well as the laws that would protect your business if you choose not to sell it.
