LEGAL
By Nick Williams and Mark Diamond of DMH Stallard LLP
FINANCING BUSINESS ACQUISITIONS
How ambitious regional businesses can fast track their expansion One of the striking features of the period since the Covid pandemic took hold is that M&A activity involving regional businesses has remained strong in the South East. Many businesses have managed to adapt to the changing business environment and 2022 sees them continuing to look for opportunities to make business acquisitions.
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WHY BUY A BUSINESS? Acquiring another business can provide immediate access to a market or build a market presence. The acquisition may result in economies of scale for the combined business, and in certain cases an acquisition can be a means of eliminating competition. An acquisition strategy enables a business to grow more quickly than it might do organically.
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HOW WILL THE ACQUISITION BE PAID FOR? Some buyers are in the happy position of having sufficient cash to fund a business acquisition. This may be achieved by a single payment on completion of the acquisition, or by partly deferring part of the cash payment, the amount of which is often dependant on the future profitability of the acquired business (known as an earn out). In other circumstances, the seller or sellers may wish to have a continuing interest in the business sold, in which case they may accept payment by way of the issue of shares (equity) in a buyer company in part payment, or full payment in the case of a merger of the businesses. If the buyer is a listed company, then a seller of a business is likely to be more willing to accept the buyer’s shares as payment, as they can be traded on a stock exchange.
Acquiring another business can provide immediate access to a market or build a market presence ❜❜
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