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The Warsaw Voice » Other » February 18, 2009
Grupa Strategia
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Buying and Selling a Business
February 18, 2009   
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Following the success of my recent article in the Voice on avoiding common pitfalls in investing in Poland, I have been invited back. The topic I've chosen for you today is the whole area of buying and selling businesses.

Obviously on one page I'm not going to give an exhaustive treatise on the topic, but just a few thoughts for you. I've structured this as a series, so to read the whole lot you'll need to remember to get future issues of this newspaper. In the meantime, or if you want proper, full advice for some practical project or situation-come and see us! The initial consultation is free.

Right now, a lot of people are considering buying or selling businesses because of the crisis-they are looking in the main part for so called "distressed" purchases; but the buyers are not always white knights, and the distressed companies they acquire are not always damsels. (More a case of damned if they sell, and damned if they don't!)

That said, the vast majority of businesses which are set up and get past the first year or so of activity will go on either to acquire another business or be acquired by another business at some stage. Acquiring businesses and adding them to one's existing business is a fast-track alternative to growing one's own business.

Buying out one's competitors for their market share may also be a viable alternative to being good enough to win it in the open market by simply offering better value. Great products have sometimes been bought and binned by people simply clearing them and their creators out of the way of their own tidal wave of intentional mediocrity. Selling a business can also be seen as a means of retirement for people who forgot it might be an idea to produce a succession plan (help with succession planning is one of the strategic services we provide, by the way), as well as a way of divesting less profitable businesses in order to concentrate one's resources on the more profitable parts of the business portfolio.

I have also known people sell businesses which they set up in the first place planning from the word go only to achieve a successful start, then sell. Some people are simply wired to get things in motion, but quickly get bored with them, while there are others who have the discipline to take the business forward but not the creativity or the entrepreneurship to start one off from scratch.

So much for the motivations behind buying and selling businesses. In any event most people in business will experience at least one business combination, be they on the buying side or the selling side. Most business owners who sell their businesses do not sell more than one or two businesses in the course of their careers and so they find themselves in a position of not knowing exactly what to do when this magical moment appears in their lives. This is where the accountant comes in: accountants with mergers and acquisitions specialisations will have dealt with hundreds of acquisitions, which means they may well have dealt with dozens of fairly similar acquisitions to the one our business owner is currently contemplating.

There are, after all, a number of different scenarios and no hard and fast rules on how to go about the sale and purchase, but the practice of accountants, consultants and lawyers has resulted in certain fairly standard methods as to how to go about these things, and templates and models exist for the majority of scenarios, for the various documents and procedures people need to go through when acquiring or being acquired.

The advisors employed will know the ropes as far as the usual norms of communication between buyer and seller are concerned and having an accountant on side will help the seller to give away not too much information about his business nor too little. These are equal and opposite errors: giving away too much information means risking allowing potential competitors to know too much about your business, which they could abuse in the future without buying your company, while on the other hand being too cagey with information can result in potential buyers losing patience with the process or simply not being able to make a viable decision. The key is in feeling the bona fides nature of the buyer and whether his information requests are reasonable as well as of course in making sure that proper confidentiality agreements are signed at an early point in the procedure.

Usually when a seller is making known to the market the availability of his business, he or his agent will publish a so-called teaser which will speak about the business and its results and assets in general terms without identifying it. This is critical in order to avoid letting the employees know ahead of time that the business may be for sale: employees usually dislike change in the owners of businesses they work for and need to be coaxed into the idea of a new boss very gently. Even when this boss has all the diplomacy of a modern Metternich, there is always a risk that key people will start to look for new jobs as they fear that any change in ownership will result in higher levels of redundancy in the company and they want to get away ahead of the surge of available labour in the market. It is true that many business combinations are made in order to gain what is called synergies, which is a fancy name for cost savings, and if we look at many business combinations of the type which make the newspapers, we can see that job losses are a frequent result. However many business acquisitions are made specifically in order to gain qualified or experienced personnel, and in these cases careful PR around the acquisition is mission-critical.

David J. James
Vice-President and International Liaison
Partner at Grupa Strategia
www.grupastrategia.com
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