We recently sat down with Peter Jorgensen, Managing Director of All States Vehicle Logistics Pty Ltd trading as Spiral Logistics.

Peter is an energetic, analytical and innovative CPA-qualified senior executive with over 20 years’ experience in the transport and logistics sectors.  He also has a dual role as the CFO of a Property Developer.  He has extensive commercial and business experience, including in relation to business acquisitions.

Peter was instrumental in facilitating and implementing the acquisition of Spiral Logistics, a leading Australian logistics business for specialised freight, with a focus on providing transport services to the steel industry in Victoria, New South Wales and Queensland.  Sierra Legal worked closely with Peter on the legal aspects of this acquisition.

In this Q&A, Peter shares his thoughts and tips on acquiring a business in Australia.

When you look at buying a business, what are you actually buying?

Most people operate their business through a company.  This means that you can either buy the shares held by the shareholders in the company or the assets used by the company to operate the business.  If the business is operated by a sole proprietor or through a trust, then you may be limited to buying just the assets.

Can you share your top 5 tips when acquiring a business?

Tip 1:  Try to negotiate an exclusivity period with the seller, during which the seller cannot deal with other prospective buyers in relation to the sale and purchase of the business.

Tip 2:  Understand your funding options.  Before negotiating with a seller in relation to the purchase of a business, you need to know how you will fund the purchase price.  If you will get the funds from a loan (for example from a bank) you should speak to the bank and obtain a pre-approval for the loan and ensure that the purchase of the business will be subject to the bank agreeing to provide the loan.

Tip 3:  Undertake due diligence.  This is an important process through which you investigate the business to verify its past activities and performance, and its future prospects, to ensure you are paying a fair price for it.  Through due diligence, you can also identify any risks associated with the business and its future prospects and determine whether to proceed with the purchase at all, or how the identified risks can be addressed.  Due diligence can be a time consuming process so this should be taken into account when negotiating the length of the exclusivity period with the seller.

Tip 4:  Understand what protections you may need in the transaction documents as a result of due diligence.  These protections typically take the form of warranties and indemnities from the seller in the transaction documents.

Tip 5:  Engage as early as possible with any third parties whose approval may be required to complete the transaction (e.g. banks, landlords, customers, suppliers etc).  This will assist with the early identification of any requirements that need to be complied with before the approvals are provided and ensure that delays to the completion of the transaction are minimised.

What kind of due diligence would you typically conduct on a target business?

Ideally a buyer should conduct commercial, financial, tax and legal due diligence on a business it is proposing to acquire.  Depending on the buyer’s experience or familiarity with, and the complexity of, the type of target business and its sector, the buyer may choose to conduct the bulk of the commercial and/or financial due diligence itself and only engage external advisers to assist with tax and legal due diligence.  However, depending on the target company and the nature of its business, or based on preliminary findings from the due diligence process, the buyer may also need to engage other experts to assist with the commercial due diligence, such as property/planning experts, environmental experts and lawyers with expertise on employment matters, IP matters (e.g. patent attorneys) and insurance matters.  If costs are an issue, then it is possible to engage external advisers such as accountants, tax advisers and lawyers to only conduct limited scope due diligence on discrete, material areas of the target’s business.

If a buyer will engage external advisers to conduct due diligence, those experts would typically provide a due diligence report to the buyer.  Typically, I would request that a due diligence report is prepared on an “exceptions only” basis (i.e. where the focus is to identify issues that are discovered during the due diligence exercise and which would include recommendations on how to deal with any such issues).  However, for less complex or risky acquisitions, or if costs are an issue, then it may be possible to request a report that only focuses on some key, material areas (i.e. a very limited scope due diligence report).

Thanks to Peter for his time and for sharing these thoughts and tips.

If you are a business that requires specialist freight or logistics support, please contact Peter on +61 411 695 634 or peter.jorgensen@spirallogistics.com.au (https://www.spirallogistics.com.au/).

If you are looking at acquiring a company or business and require legal support with your acquisition, please get in touch with one of the Sierra Legal team.