What do large organisations look for when acquiring businesses? Generally large organisations are already profitable businesses. However they generally look to acquire businesses because the acquisition will either increase growth more rapidly than organic growth within their business or provide new product or service offering they are unable to offer. So what do these purchasers value?
Client relationships
Whilst clients are a source of revenue for a business, clients cannot be “owned”. Having a business with good clients attached to it can be lost just as easily unless there is a strategy to maintain those existing relationships post completion. When preparing your business for a sale, consider ways in which you can strengthen those relationships. You don’t want purchasers to ascribe less value to your business because they think your clients can easily walk away from the relationship or your staff have the potential to destroy the value in your business by walking away with your clients!
Practical tips from Aspect Legal:
- Strengthen your contractual relationships with clients. Make sure it isn’t easy for clients to terminate their contracts should you sell your business. But more importantly, keep your clients happy!
- Incentivise and strengthen your contractual relationship with key staff who deal with clients.
Proprietary Intellectual Property
If there is proprietary intellectual property used in connection with the business, then make sure you can show the business and not a third party owns the intellectual property. Not all hope is lost just because you cannot show the business owns the intellectual property. It may be possible to establish value if you can show that it is the skill of your employees in using the intellectual property that brings value to the business. Purchasers might seek to negotiate a reduction in the purchase price or walk away from a deal if they find out during due diligence that your business does not own what it thought it owns!
Practical tips from Aspect Legal:
- Before you start promoting your business for sale as having proprietary intellectual property, make sure you can show a chain of title in ownership of that intellectual property.
- If not, establish value some other way!
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