Buying or selling a business is much more than submitting an offer and signing a contract. Intelligent business acquisition requires months of research, negotiation and due diligence.
Depending on the economy at the time, it could take even longer. For example, the UK has experienced a decline of 30% in M&A deal volume heading into 2023 as companies look to consolidate in the face of turbulence.
This guide discusses how long it could take and provides a rough timeline for what you can expect to encounter.
Is a business acquisition a long process?
Business acquisitions can consume your company for months. Generally, most acquisitions can take six months to a year, but some can take even longer as unforeseen obstacles crop up.
One of the most recent examples of a delayed business acquisition is the acquisition of G4S, a British security services company. Its American counterpart, Allied Universal, committed to buying the company, tabling an initial offer in December 2020.
However, problems arose when Canadian company GardaWorld attempted to derail the deal by entering into a bidding war with Allied Universal. Matters only worsened when the deal faced regulatory scrutiny in multiple countries, with the UK Competition and Markets Authority (CMA) taking charge of assessing the competitive impact of the deal.
It demonstrates how unexpected hurdles can crop up and hold even a sure-fire acquisition in limbo for months.
Will an acquisition of a startup be a quicker process?
Acquiring a startup can potentially be a faster process due to several reasons, including:
- Smaller scale.
- Cleaner financials.
- More focused business model.
- Founders of startups are often more willing to sell.
- Fewer regulatory hurdles.
For example, in August 2019, an attempt by Apple to acquire UK-based AI startup Xnor.ai was made. Even though Xnor.ai was a startup, the $200 million acquisition deal wasn’t announced until the beginning of 2020.
In essence, startup acquisitions may be faster, but this may only sometimes be the case when significant sums are involved.
How long does a business acquisition take?
Pencil in six months to a year minimum for a business acquisition. Typically, the buyer will have a slightly greater timeline because they also must create a shortlist of targets and find a willing seller.
Other factors going into how long your business acquisition could take include:
Due Diligence – Due diligence is the lengthy process of investigating a company’s disclosures for accuracy and completeness. This will include going beyond the financials and analysing aspects like environmental concerns, employees, health and safety, regulatory issues, etc.
Getting Approved – Larger acquisitions may require approval from antitrust authorities like the CMA or other government agencies.
Negotiation – Deciding on a final price is one part of the negotiations. Still, you must also settle on an acceptable payment structure and work out all the little contractual details.
Legal – Drafting the paperwork so that everything is legally watertight may also add time, especially if you embark upon a more complex acquisition.
Shareholder Approval – In the case of publicly traded companies, you may also require shareholder approval.
Every acquisition deal differs, and you can easily spend months on a potential deal only for it to fall through at the last minute.
In other words, patience is a virtue in business acquisition.
The business acquisition process timeline
Your timeline is guaranteed to differ from someone else’s. However, it’s possible to provide an estimate based on previous acquisitions from across the UK and the world.
This section will discuss each key step in the business acquisition process and provide an average time.
1. Identifying targets – 2 to 4 weeks
The first step is to identify targets that make sense for your company. Any acquisition must align with your goals, whether increasing your market share, eliminating a competitor, gaining access to new technology, or expanding into a brand-new market.
Identifying targets is more than just a matter of finding the perfect fit, but also an owner willing to sell. You should have a strict budget at this stage to help you craft your shortlist.
2. Preliminary contract and negotiations – 2 to 8 weeks
Once you have identified the target, it’s time to make contact. Nothing is in writing at this stage, and you merely wish to buy their company.
It may take some time for a target company to get back to you, and if the response is negative, you may want to shift to another ideal target.
This is also the part where you will begin initial negotiations. Business owners often throw in a ballpark figure and some basics for their ideal deal. Again, the target company may decline, and you may need to return to the drawing board.
3. Submit your letter of intent (LOI) and begin due diligence – 4 to 12 weeks
Your LOI formalises negotiations and demonstrates a commitment on the buyer’s part. A LOI is a non-binding document, so you can still back out at this stage. Furthermore, either company may request that both parties sign a Non-Disclosure Agreement (NDA) if maintaining secrecy is vital.
Typically, the LOI can be managed by your legal team, allowing you to commence with the due diligence stage. Unfortunately, this is where business acquisitions can be delayed.
For example, if a company takes longer than expected to get back to you with its disclosures, it can delay the launch of the due diligence process. Likewise, you may need to return to negotiations if something unexpected surfaces during due diligence.
4. Finalise the deal – 4 to 12 weeks
After completing due diligence and resolving any issues, it’s time to create a purchasing agreement and finalise the deal.
The exact structure and wording of the purchasing agreement can also open the door to further negotiation, especially regarding warranties and indemnities within. Your legal team can draft the purchase agreement only after the acquisition terms have been finalised.
5. Regulatory approval – 4 to 20 weeks
If necessary, you may need to obtain regulatory approval or even government approval. This will involve liaising with various public bodies, including antitrust authorities.
Note that smaller acquisitions can usually skip this step entirely. Regulatory approval may only be required for larger takeovers involving millions of pounds. However, every jurisdiction and industry differ, so stay in close contact with your legal team.
6. Shareholder approval – 2 to 8 weeks
Shareholder approval only applies to public companies. If the company you wish to acquire is publicly traded, you must gain approval from both the board of directors and the shareholders. This isn’t always a straightforward process.
For example, Twitter shareholders approved Elon Musk’s $44 billion takeover of the social media giant, but it was far from unanimous.
7. Closing and integration – 4 to 12 weeks
Closing the deal and transferring ownership is often as simple as signing the final documents, but where your timeline can expand is in the integration of the company.
Depending on your intentions, you may need to wind up other business units or integrate employees who operated using completely different processes before the takeover.
However, establishing an integration plan before closing the deal can speed up this part. An integration plan acts as your roadmap for absorbing your target company into your existing operations with minimal disruption.
Business Acquisitions with Hilton Smythe
Business acquisitions take a lot of work for entrepreneurs. Even startup acquisitions can take months to complete for buyers and sellers alike. Plus, you always risk the deal falling through at the last moment.
Your likelihood of stumbling increases or decreases based on the team you have around you. At Hilton Smythe, we provide experienced professionals who know the ins and outs of smooth business acquisitions.
To learn more about how Hilton Smythe can support your latest acquisition, speak to our team today.
