Contents
- Legal Check Before Full or Partial Acquisition of a Company
- Conducting Due Diligence: DIY vs. Expert?
- Stages of Buying an Established Business in Spain
As investors strive to enter the Spanish market, acquiring an established business or taking over a competitor is becoming a more attractive option compared to starting a business from scratch. This approach is unsurprising, given that an existing business has already proven itself in the market and can generate profit much faster than a new one. However, despite the initial stability of the company, the complexity of such transactions should be considered. In this overview, we will examine why this type of deal requires special attention to legal aspects, especially for foreign investors looking for a business to buy in Spain.
Legal Check Before Full or Partial Acquisition of a Company
A well-planned acquisition strategy is key to a successful business purchase. Even the most promising business can quickly become an expensive nightmare if proper processes are not followed before and after the deal.
This is where comprehensive business examination, known as Due Diligence, comes into play. This process allows potential business owners to thoroughly investigate the companies they are considering for acquisition at the selection stage. Just as you would look under the hood before buying a car, you shouldn't decide to buy a business based solely on optimistic reports from intermediaries. Due diligence is crucial here. It provides a comprehensive understanding of the business, involving analyzing all aspects objectively. Considering all circumstances helps to determine whether buying a company is worthwhile.
Due diligence provides several advantages: it helps to avoid the possibility of acquiring a bankrupt business, prevents unpleasant tax issues, and analyzes significant risks of losing the company in the future or getting into costly conflicts.
Due diligence analysis is most often conducted for several reasons:
- Company acquisition
- M&A transactions
- Business investment
- Acquisition or sale of company assets
- Change in the company's management structure
The review is not only conducted when someone wants to buy a business. In some cases, the evaluation is performed even when the owner is not planning to sell the business but wants to assess its current state objectively.
What is included in a comprehensive review?
No regulations specify the number of stages in due diligence or their sequence. It all depends on the entrepreneur's specific needs. In practice, it is customary to distinguish five stages, each involving a thorough documentation analysis. These stages include checking financial, legal, operational, and corporate matters. They provide a complete company overview, giving entrepreneurs objective information to make informed decisions about buying a business in Spain.
Operational: At this stage, experts examine the organization's founding documents to identify ownership structure, owners' rights, and related risks. They verify the correct registration of shares and other securities and analyze transactions involving them. The outcome is an independent report detailing identified risks in ownership structure and shareholder rights and recommendations for their elimination and mitigation.
Financial: This stage involves analyzing key indicators such as market valuation, economic stability, solvency, and business activity. Financial indicators, including cash flow, EBITDA, and other metrics, are detailed over a specified period. The potential investor receives all calculations, ratios, and an appraiser's conclusion on the business's acquisition prospects.
Fiscal: This section reviews the company's financial and business activities over the past three years to identify its economic state and potential tax risks. It involves analyzing accounting and tax reports, counterparties, main activities, and the company's assets and recommending reducing tax risks.
Legal: This includes analyzing all the company's title documents for each asset and assessing threats from counterparties and government bodies. The report helps confirm the presence or absence of potential losses from legal disputes or regulatory checks. It ensures no liens on assets, unpaid loans, or signs of bankruptcy.
Marketing: This stage focuses on analyzing the company's product from the perspective of market competitiveness. It reviews marketing strategies and the product or service's market position and identifies the risks of ineffective marketing policies.
Conducting Due Diligence: DIY vs. Expert?
Is it possible to conduct the analysis independently? Yes, independent study is possible, but it's important to note that successful Due Diligence requires expert knowledge and an objective perspective that an outsider can bring. Typically, even large organizations hire external consultants to ensure independent and comprehensive research. These experts, including financial analysts, lawyers, and auditors, provide deep analysis and risk minimization, often critical for a successful purchase.
| The advantages of conducting independent analysis | The drawbacks of conducting independent analysis |
|---|---|
| Cost Reduction: Saving on fees for external consultants. |
Limited to Small Companies: Comprehensive analysis of businesses requires high expertise and significant time investment, resources that small companies often lack. |
| Knowledge in the Field of Core Activities: The ability to conduct a more accurate analysis of internal processes, leveraging the expertise of in-house specialists. |
Challenges in Diversification: Conducting independent due diligence when purchasing a business in an unfamiliar industry can be challenging due to the potential for numerous pitfalls. |
| Impartiality and Independence: The procedure requires an objective perspective, which can often be challenging to achieve within the company. |
«In business, every decision is an investment in the future. Through Due Diligence, we don't just analyze numbers — we create a strategic compass pointing to optimal development. Our approach is grounded in a deep understanding of client needs, encompassing financial and legal aspects as well as the unique characteristics of their business. As a result, you receive more than just a report; you gain the key to sustainable growth, freedom from risks, and a vision of a future illuminated by success.» — David Sherozia, CEO of Laduchi Consult.
Stages of Buying an Established Business in Spain
Buying a business in Spain is a complex and multifaceted legal process. Successful completion of each stage depends significantly on a deep understanding of both business aspects and a thorough grasp of legal intricacies. Let's walk through the critical stages of buying a business.
- The selection of investment areas and defining preferences:
A key element of successful investment is carefully defining preferred sectors. At Laduchi Consult, our experts actively engage with clients through detailed consultations to understand their investment preferences. During these discussions, we emphasize investment parameters such as budget, sector preferences, the need to form their team, level of involvement in operational activities, and more. This approach not only provides us with more precise information but also forms a clear understanding of whether the investor intends to be a passive participant or plans active management participation.
- Signing a Non-Disclosure Agreement (NDA):
After determining preferences, the next step is to enter into a Non-Disclosure Agreement (NDA) with the potential investor. This stage is crucial to ensure the confidentiality of information regarding the investment opportunities being discussed and to protect against possible data leaks.
- Providing a brief project overview:
After signing the NDA, we select potential opportunities and send the client a brief presentation on the proposed options. This helps further clarify the investor's interest and provides a deeper understanding of specific business aspects.
- Conducting Due Diligence:
If the proposed opportunities have piqued the investor's interest, we move on to the Due Diligence stage. Typically, we analyze the last two years but always accommodate the client's requests. For instance, in the case of legal support for the real estate investment deal in Barcelona, we analyzed the last four years.
- Report Preparation:
After completing the Due Diligence process, we begin compiling the report. This document includes detailed information on the organization's business structure and financial condition, enabling the client to assess the threats and potential issues associated with the upcoming purchase. The report also provides information regarding legal aspects, contracts, the company's market position, and other vital areas.
- Transaction Support:
After making a favorable investment decision, Laduchi Consult initiates active transaction support, including price negotiations, contract review, and execution. At this stage, our lawyers ensure that all documents comply with Spanish legislation and the client's interests. Subsequent steps involve accompanying the client to the notary and monitoring formal procedures and documents to ensure smooth transaction legalization. Additionally, we conduct checks for any encumbrances. An essential component of this process is resolving tax issues. We collaborate with tax authorities to fulfill formal obligations and prevent future disputes. The final stage involves completing the transaction itself, followed by post-sale support to minimize risks and ensure the stable development of the acquired business.
Conclusion
For foreign investors looking to enter the Spanish market, acquiring an existing enterprise presents an attractive alternative to starting a new business. However, it's crucial to understand that such transactions require thorough study and risk assessment.
The Due Diligence process is pivotal in ensuring a profitable acquisition by helping investors identify potential issues and minimize risks. The experts at Laduchi Consult have the knowledge and experience to assist you in making informed decisions and completing the transaction with maximum benefit. If you seek a reliable partner for your investment strategies, do not hesitate to contact us. We are ready to provide comprehensive support and help you build a successful, systematic, and inspiring business in the Spanish market.
Please note that all materials contained on this site have been prepared for informational purposes only. This data does not constitute or replace professional financial, legal or tax advice. The information is general in nature and does not take into account your personal circumstances. Always seek professional advice from officially licensed professionals: financial advisors, accountants and lawyers.
