So, you're thinking of acquiring a business in Spain. Congratulations! Spain is a beautiful country with a rich history, a vibrant culture, and a robust economy that offers plenty of opportunities for businesses and entrepreneurs.
But before you jump head-first into this exciting new venture, there are a few things you need to do to ensure that everything goes smoothly.
Among them is performing due diligence on the business you’re interested in acquiring. This simply means doing your homework to ensure that the company is a good fit for you and that you understand what you’re getting yourself into.
To help you, we’ve put together a due diligence checklist of everything you need to consider before making an offer on a Spanish business. Keep reading to learn more, including the steps you should follow when acquiring a company in Spain.
The Process of Acquiring a Business in Spain
Before we get into the due diligence checklist, let’s briefly review the process of acquiring a business in Spain. Your acquisition process will be more successful if you follow these steps:
Find a Business to Acquire
This step is more than just finding an available business: it’s about finding a business that piques your interest and is worth buying. The goal should be to find a business that promises more profitability. It would be better to find a company operating in an industry you’re interested in, with diverse customers and a long-term growth plan.
But where can you find these businesses? The wider you look, the higher your chances of finding a gem. Try looking for a company that ticks all the boxes from local business brokers, business attorneys, franchisors, and brokers’ websites.
Value the Business
A valuation will help you determine how much you should offer for the business. This process is vital since some business owners tend to overvalue their premises, and you might end up overpaying.
You should consider various things when valuing a business. These include its tangible assets (e.g., property, inventory, and equipment), intangible assets (e.g., brand value, customer base, supplier relationships, and patents), current market trends, industry projections, and recent sales data. You can either do this valuation yourself or hire a professional appraiser.
Make an Offer
After you’ve decided how much the business is worth, it’s time to make an offer. At this stage, you present your price to the seller and try to negotiate a deal. The offer is unbinding and can either be verbal or written.
If your price is close to what the seller expects, you can start negotiating to reach a tentative agreement. You can change the terms later, especially after doing your due diligence.
Submit a Letter of Intent
A letter of intent (LOI) is a non-binding document that summarizes your offer to buy the business. It’s usually used to start the formal negotiation process.
Your LOI should contain information about your negotiation, including the purchase price, how you plan to finance the acquisition, what assets will be included in the sale, and the proposed timeline.
You and the seller will sign the LOI, but it’s not legally binding. However, it shows your seriousness about buying the business and your commitment to moving forward with the deal. It also gives you the exclusive rights to negotiate with the seller for a certain period.
Conduct Due Diligence
This step is critical since it allows you to confirm that the business is worth buying and that there are no surprises. The goal is to find potential problems that could kill the deal or make it unprofitable.
Sign the Purchase Agreement
After completing the due diligence and being satisfied with what you found, it’s time to sign the purchase/sale agreement. This document outlines the final terms of the deal and is legally binding.
The purchase agreement will include the purchase price, how the business will be paid for, what assets are included in the sale, the seller’s warranties, and any escrow arrangements.
This is also when you will need to get financing if you’re not paying for the business outright. Once the purchase/sale agreement is signed, you’re ready to close the deal and take ownership of the company. It’s best to work with a lawyer during the closing phase to ensure that everything is done correctly and that you understand all the documents you’re signing.
What Is Due Diligence?
Due diligence is the investigation of potential business acquisition to identify any risks or problems that could affect the deal. It’s crucial to conduct due diligence in Spain before buying a business, as it can help you avoid making a bad investment or getting into financial trouble down the road.
There are many different aspects of Spanish due diligence. Still, some of the most important things to look into include the financial health of the company, any legal issues it may be facing, and the quality of its products or services.
One of the best due diligences in Spain tips is never to complete the process alone, no matter how competent you feel. You should always consult with a team of experts, including a lawyer, an accountant, and a business broker.
Due Diligence Checklist
When buying a company in Barcelona, one of your biggest dreams is to ensure you don’t end up stuck with a company with no future. This is why you need a buying a company in Spain checklist to help you with your due diligence. Below is a list of items you should always check off during the due diligence process:
- Financial statements(balance sheet, income, and cash flow statements) for the past three years
- Credit report
- A schedule of accounts payable and receivable
- Details of any loans or other debts owed by the company
- Gross profit for the business’s products and services
- Gross margins analysis
- Inventory at hand
- Projections, strategic plan, and capital budget
- Capital structure
- A detailed list of non-operating expenses
- Actual vs projected sales chart
- A list of the company’s assets and liabilities
- Unrecorded liabilities
- Auditor’s correspondence for the past five years
With the help of your Spanish lawyers, you should review the following legal contracts:
- Leases (equipment, vehicles, premises)
- Purchase agreements
- Incorporation documents
- Employee contracts
- Contractor agreements
- Trademarks, copyrights, and patents
- Distribution agreements
- Sales contracts
- A list of all litigation
In this case, you should examine all the information about the Spanish company’s operations. You can break this section into different categories, such as:
- Examine current and past marketing tactics
- Results from the recent marketing campaign
- Marketing trends
- Past successful marketing efforts
- Marketing ROI
- The business’s target customers and their demographics
- Competitors, including whether there are new market entrants
- The geographic economic outlook
- People’s perception of the business
- Has the business been growing, stagnating, or slowing over the past few years?
- Perform a SWOT analysis
- Compare the competitors’ products to yours
- Are the competitors a threat?
- What is your market share compared to competitors?
Products and Services Information
- Have a list of the products and services provided by the company
- Examine the profitability of each product
- Consider the product’s projected growth rate
- Determine whether it’s possible to improve the products or services in the future
- Warranty claims related to the products
In this section, your focus should be on the human capital or the business team. The goal is to understand the qualifications, skills, and talent gaps. Consider the following:
- An organizational chart
- A comprehensive list of current employees, their positions, qualifications, and earnings
- Compare employee wages to industry wages for people in similar positions
- Projected staffing needs
- Policies related to time-off, holidays, and remote working
- The employee handbook
- Details of any benefits packages offered to employees
Your due diligence in Spain checklist would be incomplete without this section. Here, you should focus on understanding the business’s customer base. Consider the following questions:
- What types of customers does the company have?
- Are they retail or wholesale customers?
- What’s the customer churn rate?
- What are the lifetime values of different types of customers?
- How much does it cost to acquire a new customer?
- What is the customer satisfaction rate?
- Has the business lost any major customers over the past two years?
This is one of the most critical sections of your due diligence in Spain checklist. After all, no one wants to get into trouble with the Spanish tax authorities. Some of the critical things you should review include:
- Historical tax returns for the past five years
- The company’s tax structure
- VAT registration
- Employment tax filing
- Documents supporting tax settlement over the past three years
- A list of tax liens
Don’t Overlook Due Diligence in Spain for the Best Investment Opportunity
This due diligence checklist will help you understand a business better before investing in Spain. Remember to work with a professional experienced in identifying business opportunities in Spain.
If you’re looking for such professionals, AvaLanding should be your first stop. We have a team of relocation specialists, economists, real estate professionals, and accountants ready to help you with your business and investment needs in Spain. We will help you identify the best investment opportunities and perform technical and legal due diligence.
Contact us today to learn more about how we can help you make a sound investment in Spain.