Curious About Buying A Company? Here's What To Look Out For
Published on: 11/06/2018
Are you actively looking for takeover targets or just curious about buying a company? Whatever your acquisition plans, Plimsoll can help you make the right decisions from the start.
The clues to a company’s takeover potential can be unlocked using the Acquisition Rating element of the Plimsoll Model. We provide a 9-point acquisition checklist on every company in the UK economy so you can instantly see which companies have significant potential.
The 9 key elements are as follows:
Are they growing faster than others in their primary market?
Sales growth above the industry average usually indicates it’s a fairly young company on an upward trajectory and an exciting addition to any portfolio.
Do they have a low financial health rating?
Plimsoll was founded to provide financial health ratings on any company, whatever industry, shape or size. A low rating from Plimsoll indicates that the company is not as financially solid as it could be and may benefit from a capital injection and being subsumed into a larger group.
High gross earnings
What’s left after the cost of sales has been deducted? Companies with high gross earnings are getting the most from their investment in materials and people. A company with high gross earnings but a poor financial rating might have a problem somewhere in their finances that new owners could eradicate quickly, leaving an excellent acquisition.
Low number of shareholders
Simple ownership structures make for a far simpler purchasing process. Lots of shareholders could mean a lot of convincing of people to sell, leading to a much more complex set of negotiations.
Big difference between current and future value
Is there future value in the company in question? Plimsoll not only provides a current valuation on every business it analyses, but also a projection of what it could be worth following a “post-acquisition” financial plan. The difference between the two figures is used to show which companies have the most financial potential for future owners.
Directors fees represent high proportion of profits
Often the real profit of lifestyle businesses is depressed by the personal financial demands current owners place on it. Rightly so! It’s often their life’s work so why shouldn’t they be rewarded? However, new owners can quickly see a sharp increase in profit of a company once directors’ fees are added back to the bottom line, post-acquisition.
Average age of directors is high
Both research and common sense show that business owners approaching their retirement years are far more likely to be open to selling their company than a young, ambitious entrepreneur. An ageing board without a succession plan in place is good for future owners.
Company is privately owned
As you might expect, buying a company from a complex group of companies or a larger parent is far more complicated than from an owner / manager set up.
Low number of directors
As with shareholders, a high number of directors essentially means that the decision to sell and subsequent negotiations are likely to be more complex the more people are involved.
Companies that tick all 9 boxes are, from a financial and personnel perspective, the best targets to look at. Of course, you might want to compromise and choose targets with less than that – the choice is yours. Plimsoll produces industry specific studies on 1600 different UK markets; each one provides an individual valuation, financial health assessment and acquisition rating on every key company, all in one convenient study.
Visit www.plimsoll.uk to search for your market and see how many highly attractive takeover targets there are in your market today.