14.12.2015

Business acquisition

Business acquisition is a form of company acquisition in which the object of the bargain is the business activity, as a whole or partly, of the selling company including fixed and current assests (cf. share transaction in which the object of the bargain is the shares entitling ownership of the selling company).

Sensible form of company acquisition for the buyer

Especially the buying party often tends to carry out the acquisition just as business acquisition. In business acquisition ownership remains the same, therefore the buyer runs the risk only of future business: the financial and legal liabilities of the selling party are not transferred to the new owner.

From the buyer’s point of view an additional benefit is possibility to write off commercial value and inventory. Business acquisition is advisable also because of financing, inventory and machines can be used as security for loans.

Purchase price in business acquisition

In business acquisition usually the balance-sheet cost is used to determine the value of fixed and current assests. Purchase price exceeding the blance-sheet cost is so called goodwill value. Goodwill value reflects the future yield expectation and its cash flow. The goodwill consists also of the difference between balance-sheet value and fixed and current assets. It is worthwhile using an expert in determining the purchase price.

Importance of specifying acquisition object

The bill of purchase should specify the acquisition target accurately enough. In addition to fixed and current assets also contracts and employees belong to the acquisition. As far as the contracts are concerned one should pay attention to their transferability. One should also take into consideration that altering a contract party usually needs the consent of the other party or creditor. Some contracts might even have stipulations that ban transferability. The bill of purchase might have clauses, which entail transferability of essential contracts, in case the matter is beforehand uncertain or it effects on selling price if the entity will not be transferred.

If the business concerned is subject to license, it must be ensured beforehand if the license is transferable or if the buyer must acquire a license of his own. It is profitable for the buyer to have a plan for the license granting period.

The employment relationships will be transferred to the buyer. According to labour law provisions the purchase is considered a transfer of business. The acquirer should familiarize with the regulations of transfer of business before the purchase.

Invest on Due Diligence

The first step prior to well planned business purchase is always due diligence -investigation. Careful due diligence –investigation often takes time, which should be taken into consideration in scheduling the acquisition.

Law Firm Lindblad & Co Ltd assists with pleasure in due diligence and evaluation processes in acquisitions and business transfers.

 

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