Buyer’s Guide for a Company Transaction
How to plan the acquisition of a company properly?
A company acquisition holds serious risks. The following list will prevent you from missing important criteria: You should be able to answer the following questions before acquiring a company:
Questions you should always ask:
- Can you prove that the ordinary capital has been fully paid (exercise caution with concealed non-cash capital contributions)?
- Were there any unacceptable repayments from the ordinary capital or capital replacing loans?
- In the case of a corporation, does the equity capital cover the company’s debts?
- Do you know on good authority who holds which shares of the company or if there is any restraint on disposal (it is best to get hold of the excerpts from the commercial register yourself)
- Is the liability of the investor effectively limited to the amount deposited as per the contract?
- Could you view the balance sheets of at least the past three financial years as well as a current business assessment apart from proof of costs (does not apply to start-ups)?
- Is there a list of all continuous obligations that are not apparent in the balance sheet (for example, long term rentals, supply or consultancy contracts)?
- Has the company already been entered into the commercial register?
- Have you personally gone to the company location to get an impression of the company and the owner?
- Can the future success of the company be explained conclusively, the best way being a written concept?
- Are there comments by independent expert on this, for example, a chartered accountant?
- Can distributable profits be realistically expected, at least after three years?
- Is the price of acquisition appropriate compared to chances of profit and risks?
- Have there been any inconsistencies or even bankruptcy in the company’s history?
- Has a clear rule been set in case of the death of a co-partner?
- Is damage-free reprocessing guaranteed for an investor if the required equity capital cannot be obtained?
- Are the calculation methods for determining the company value fixed contractually?
- Have your rights to view the company documents at any time been established?
- Can possible claims on additional profits by partners of the owner lead to compulsory sale of the company?
- Is there a possibility of termination by the partners at least within one year?
- Is there a list of business measures in the contract for which you would absolutely like to be consulted beforehand (for example, company acquisitions or sale of the company)?
- Do you have an option to sell or pre-emptive rights at the time of disposal of a partnership?
- In the case of silent partnership: Are you also a partner in the increase of the company value (-atypical silent partnership)?
- Is there a right to information at any time even towards the tax consultant or chartered accountant?
Questions on the company:
- Is there a product specific market and company competition analysis?
- Is there a plausible marketing strategy including cost calculation?
- Is company financing sufficient and has it been ensured on time?
- Can your main bank give you positive bank information on the company?
- Are lawsuits with previous or current financiers or staff pending? Or is a lawsuit regarding the violations of licences or patents pending (economic
basketcases are an exception, see below)?
Questions for economic basketcases:
- Is there a restructuring plan that the banks also approve of?
- Can the restructuring specialist party prove experience and is he legally authorised?
- Is there a bank that is basically prepared to be the company’s main bank after the improvements have been made?
- Is there a list of all liabilities with the respective maturities?
- Has, for example, a trustee, guaranteed that your money will only be paid into the company if the execution of an out of court settlement has been ensured?