takeover business plan

Business Acquisition Plan: What to Include in 2024 (+ Template)

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

A business acquisition plan is an important component of planning for an M&A transaction, regardless of whether you require external financing. A solid business acquisition plan should lay out the rationale for the investment, and how it will add value for the entity. In this article, FirmRoom takes a closer look at how these documents should be crafted.

Understanding Business Acquisition Plan

A business acquisition plan is a strategy document, which serves the purpose of a business plan for an M&A transaction.

It outlines the motives behind a transaction, profiles of the companies involved in the transaction, how the transaction will generate value for the entity which is driving it, how the two companies will be integrated, and how the merged company (or simply acquired company in the case of an investment firm acquiring a company) is expected to perform.

Reasons to Have a Business Acquisition Plan

An acquisition plan provides its users with a roadmap to making the transaction a success. Even before the transaction is initiated, it acts as a reminder to the sponsors, what they’re looking for, why they’re looking for it, and how they’re going to ensure that the transaction is a success.

In general terms, the reasons to have a business acquisition plan are:

Strategic alignment

The overriding goal of a business acquisition plan, as the opening text alludes to, is strategic alignment: ensuring that those undertaking the deal, for lack of a better expression, ‘stick to the plan’, around the motives and means for making the deal a success.

Valuation and pricing

The plan should include strategies and methodologies for valuing the target company. It should guide the deal participants on how to determine a fair value for the target, assess synergies, and estimate future financial returns. It also sets a limit on how much the company can extend itself financially for a deal to occur.

Financing and resource allocation

Financing (sources and uses of funds) is just one part of the resource allocation conundrum. The business acquisition plan also outlines the working capital needs, who works where, how expenditures are going to shift, what capital assets are required, and more.

Business Acquisition Plan Template

The insight that FirmRoom has gained from working with hundreds of companies on thousands of transaction, have been collated in a business acquisition plan template.

This provides a detailed roadmap of what should be included in an effective business acquisition plan, ensuring that its users have everything in place for the conclusion of a successful transaction.

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Creating a Business Acquisition Plan Step-by-Step

While developing a business acquisition plan is recommended, having an ineffective acquisition plan is worse than having none at all.

The document has to be watertight, creating no doubt in the reader’s mind about the benefits of an acquisition.

A strong business acquisition plan should make the reader think that it makes far more sense to go ahead with the transaction than for the company to continue in the status quo.

That being said, the following should only be seen as a rough step-by-step guide to putting together a business acquisition plan:

Strategy development

Best practice:

• Identify where the company wants to be in each of the next five years, possibly on a month-by-month basis, and how it plans to get there. See here for example.
• Identify the key performance indicators that need to be tracked to ensure that the company meets these objectives.
• Based on both of the above, ask whether an acquisition is a crucial part of the company achieving those objectives, before moving forward.

Identifying and evaluating target companies

• Understand where the companies that fit into the strategy will be found , and be thorough and objective in the search for them.
• Be realistic about the companies that can be acquired/merged with, including valuations ,  so as not to waste resources for other companies and your own.
• Remember that just because a company is the only one that’s available, it doesn’t mean that a transaction is a good idea.

Due Diligence

• Use technology ; any M&A practitioner that decides against using a sound technology platform for due diligence is doomed to failure.
• Adopt a mindset where due diligence is considered an investment in the acquisition, rather than a cost to your own company;
• Do not fall for the M&A acquirer’s fallacy of ‘we’ve come this far, so we can’t go back.’ If due diligence says the deal isn’t right, it isn’t.
• Begin the post-merger integration phase as soon as the deal begins to look like a realistic possibility (something which DealRoom is designed to cater for).

Deal structure and negotiation

• Leverage the findings of due diligence to create a more informed negotiation process.
• Remember that there will be back and forth with the seller, and they can be reasonably expected to overvalue their asset.
• Consider all market outcomes (i.e. downturns, current value of stock vs. future value, etc.) when creating an offer. Avoid irrational exuberance.

Post merger integration (PMI)

• Keep in mind at all times during the PMI phase that this is where most of the value can be generated and lost in a transaction.
• As mentioned, begin the process as soon as possible. If the transaction is visible on the horizon, you need to start thinking about its integration.
• Don’t write this off as a ‘soft’ or unnecessary part of the transaction - it won’t be soft when it impacts on your income statement.

Common mistakes to avoid when writing a business acquisition plan

Despite plenty of advice to the contrary, enthusiastic CXOs often write acquisition plans which fail to avoid the pitfalls.

These are among the most common:

Putting the acquisition before the strategy

The acquisition is part of the overall strategy, not the other way around. Companies that are approached by others about a deal, and then somehow convince themselves that there is a strong rationale for a deal, fall foul to this backwards logic.

Management hubris

M&A is an area ripe with management hubris (take a glance at Google Scholar at all the academic texts that link the two). That means management hubris inevitably finds its way into business acquisition plans. Avoid it at all costs - it’s a highly costly behavioural pattern for companies of all sizes.

Lack of detail

The business acquisition plan is a strategy document, not a marketing one. That is to say, it should break down in a step-by-step fashion how the deal will generate value. The more detailed the better. “Creating an outstanding organization” is great, but writing it in the business acquisition plan won’t add any value.

Business acquisition plan template

A business acquisition plan is a hugely worthwhile document that all M&A practitioners should write in order to discern the value of a transaction and how that value can be extracted. It is the business plan for an M&A transaction.

Get your free template below to receive guidelines on how to create the document and make it work for your transaction.

Frequently Asked Questions (FAQs)

Successful acquisition starts with a great plan

Get your roadmap for precise valuation planning to due diligence checklists and synergy tracking. Close deals faster, smarter.

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How To Write an Acquisition Business Plan

In the world of business, acquiring another company is a bold move. It’s a venture filled with both opportunities and risks. To navigate this complex journey successfully, you need a well-structured acquisition business plan. This isn’t just any document; it’s your guiding star, your blueprint, and your key to making this business acquisition a triumphant success.

Acquiring a business is no small feat. It’s a defining moment in the life of any company, and the acquisition business plan is the compass that will lead you through this challenging journey. In this guide, we will not only emphasize the significance of having a comprehensive plan but also provide you with an in-depth understanding of the critical elements that should be present in your plan.

What is Acquisition Planning?

Acquisition planning is a structured process for identifying and acquiring goods or services to meet an organization’s needs. It is a critical part of the procurement process, as it helps to ensure that the organization gets the best value for its money.

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How to create an acquisition business plan step by step

Start with an executive summary.

The executive summary is like the opening scene of a blockbuster movie – it sets the tone and captures the audience’s attention. It’s a concise yet impactful overview of your acquisition strategy. This section serves as the very first impression potential investors and partners will have of your plan.

In your executive summary, include key highlights such as the purpose of the acquisition, the target business, and the expected benefits. Remember, it should be captivating, informative, and compelling.

Get to Know Your Company

In the ‘Get to Know Your Company’ section, you provide an extensive profile of your own organization. This is your opportunity to showcase your strengths, experience, and financial stability. It’s essentially the part where you introduce yourself before a crucial presentation.

Outline your company’s history, achievements, and expertise. Explain why your company is the right entity for this acquisition. Make sure to instill confidence in the minds of your readers and potential stakeholders.

Understand the Industry

An acquisition is not just about buying another company; it’s about entering a new landscape. Understanding the industry in which your target business operates is crucial.

Here, you need to delve deep into the industry. Share insights about market trends, potential for growth, and any challenges that might be on the horizon. This section serves as evidence that you’ve done your homework and are prepared for what lies ahead.

Evaluate the Target Business

Let’s talk about the business you plan to acquire. In this part of your business plan , it’s your chance to discuss the target business in detail. This includes its history, financial performance, and the assets it brings to the table.

Highlight the aspects of the target business that are promising, and also acknowledge where improvements can be made. This demonstrates your realistic approach and your clear vision for the future.

Lay Out Your Acquisition Strategy

This is where you outline your plan for acquiring the target business. Your strategy should include the deal structure, financing details, and a clear timeline. Explain how you intend to integrate the newly acquired business into your existing operations seamlessly.

In this section, it’s essential to exhibit your strategic thinking and your ability to execute the acquisition effectively.

Your Marketing and Sales Game Plan

Once the acquisition is complete, what’s your strategy for marketing and selling? How will you use this new addition to your portfolio to grow your customer base and, consequently, your revenue?

This part of your plan should outline your marketing and sales strategies post-acquisition. It’s the place to showcase your vision for the future and your ability to drive results.

Crunch the Numbers

This is where the hard numbers come into play. Provide detailed financial projections, including income statements, balance sheets, and cash flow forecasts. These projections should offer a clear picture of the expected financial benefits of the acquisition.

These figures are not just dry statistics; they are the financial backbone of your plan, demonstrating the potential return on investment.

Deal with Potential Risks

Every business venture comes with its share of risks. In this section, you should identify potential risks associated with the acquisition and explain how you plan to address them.

This shows your meticulousness and your commitment to risk mitigation, which is crucial for building trust and confidence among your stakeholders.

Navigate Legal and Regulatory Matters

Acquisitions often involve complex legal and regulatory matters. It’s essential to discuss these aspects in your plan. If there are compliance issues, explain in detail how you intend to address them.

This section assures your readers that you’re well-prepared to navigate the legal intricacies involved in the acquisition.

Meet the Team

A successful acquisition is a team effort. Introduce the key players involved in the acquisition and explain their roles. Highlight their experience, qualifications, and achievements.

By showcasing the strength of your team, you demonstrate that you have the right people in place to execute the plan effectively.

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Merger and acquisition business plan template.

Grab our Merger and Acquisition Business Plan Template to make your merger or acquisition journey smoother. This template is packed with key sections and detailed insights, ensuring you cover all aspects of your acquisition strategy. Let this template be your roadmap as you navigate the complexities of business acquisitions. Start your journey toward a triumphant merger or acquisition business plan today! Download M&A Business Plan Template

Optimizing a Business Acquisition Plan with Structured Processes

Crafting a business acquisition plan isn’t just about signing papers; it’s about blending smart strategies that supercharge success. By weaving organized methods into this plan, you’re making sure that the merging companies don’t just coexist but flourish together.

Making It Work Together

Think of it as putting puzzle pieces together. Show how a carefully planned approach isn’t just about buying a company; it’s about merging their ways of doing things into a cohesive strategy. This part is about combining different systems, rules, and methods smoothly.

Sharing the Secrets

Talk about finding and using the best ways of doing things from the company you’re acquiring. Explain how mixing their successful methods with yours makes everything run smoother and more efficiently.

One Size Fits All

Show why having a set way of doing things helps. Discuss how having consistent methods, from handling money to everyday tasks, helps the new company grow without unnecessary overlaps.

More Bang for Your Buck

Explain how having a well-thought-out plan gets you more than just a new company—it increases your profits too. Highlight how bringing in smart strategies boosts how well the business works and makes it stronger.

What Makes You Special

Talk about the advantage you have—the ability to look at different ways companies work. Explain how this helps you find and use the best ideas, making all your businesses better.

The Big Picture

Wrap it up by saying this plan isn’t just a bunch of papers—it’s a map to a successful future. It brings together the best parts of different companies, wipes out any problems, and sends everyone toward success.

In the concluding section of your plan, summarize the key points. Emphasize the potential for success that your acquisition business plan represents. Leave your readers with confidence in your approach and a sense of optimism about the future.

In conclusion, an acquisition business plan is more than just a document; it’s the heart and soul of your acquisition strategy. A meticulously crafted plan, like the one described here, can be your key to not only a successful acquisition but also a confident and prosperous future in the complex world of business acquisitions.

By following these steps and adding depth to each section of your plan, you can create a compelling narrative that instills trust and confidence in your stakeholders. This detailed roadmap will position you to excel in the intricate and rewarding realm of business acquisitions.

What is acquisition in business strategy?

An acquisition is a business deal where one company acquires and assumes control of another company. These transactions are a fundamental component of mergers and acquisitions (M&A), which represents a professional field in corporate law and finance centered on the acquisition, sale, and merging of businesses.

What is acquisition in business example?

An acquisition is a business deal in which one company obtains companies, organizations, or their assets in exchange for some form of consideration from another company. Examples of such transactions include Google’s purchase of Android for $50 million in 2005 and Pfizer’s acquisition of Warner-Lambert for $90 billion in 2000.

How do I prepare my business for acquisition?

• Perform an internal audit.
• Establish a well-organized company structure.
• Tidy up your financial statements.
• Renew your most crucial contracts.
• Create a strategic plan for the next five years.
• Address any pending legal and tax matters.
• Optimize your business operations.
• Ensure you have a top-notch team in position.

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How to Write a Business Plan for an Acquisition

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How to Write a Business Plan Outline

How to amend the business name on a court document, how to overcome corporate cultural issues in mergers & acquisitions.

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• Step-Ups in Valuation of Assets for a Newly Acquired Business

Many considerations come with a business acquisition. Not only do you have to consider the cost of the purchase, you have to consider how your business will integrate the newly purchased assets and utilize, or relieve, the employees that come along with the business. The business plan takes these and other acquisition considerations, along with their pros and cons, and organizes them into reusable research and analysis.

Create the business description for your business plan. List the legal business description of your business and indicate that your business is acquiring a business. Provide a detailed account of that business’ history, including staff size, location, legal business description and financial history. Identify the business’ short- and long-term goals and projections.

Create your business plan’s staffing section. List the managers and staff required to complete the business’ operations in a timely and efficient manner. Explain the functions of each manager and identify each of your business’ departments.

Identify the number of acquired employees and show how those employees will be integrated into the business. List the costs of all employment aspects, including costs, such as payroll, training, benefits and severance packages. Create an organizational chart to show the chain of command.

List the location of your business, as well as the locations of any acquired property. Explain how the properties are utilized by the business, as well as the costs for each. Include items such as zoning compliance fees, utilities and taxes in your expense list.

Show if the properties are owned, leased or rented. Address which properties will be retained and which will be released. Determine how your business will utilize the equipment and inventory acquired during the acquisition. Explain the steps that your business will use to control its losses and increase its assets.

Identify the external threats and opportunities that accompany the business acquisition. Look at areas such as customer demands, government regulation and industry competition. Research the identified areas thoroughly. Develop strategies to overcome the threats that accompany the acquisition and ascertain how your company will take advantage of its underlying opportunities.

Identify the products and services that your business will focus on after the acquisition. Categorize the original products and services against the newly acquired ones. Show and explain the costs and procedures of implementing the change requirements and merging the businesses. Identify any newly created products that result from the merge of company resources and identify any new equipment or inventory that will be required.

Identify the target market for your business. Explain how this market has changed as a result of the acquisition. Differentiate the market by separating it into categories of original, acquired and new markets. Address each category separately. Ascertain how your business will maintain its original customer base, and welcome its acquired and new customers.

Create financial statements for your business acquisition. Include personal financial statements for each owner of the business. Provide a balance sheet, income statement and cash flow statement for the business at a point just after the acquisition. Use realistic figures and assumptions when forecasting the business. Include complete financial statements for your original business and acquired business, for the past three years, to support and justify your forecasts.

Use the executive summary to introduce your business, along with the new products and services that result from the acquisition. Highlight your company’s various target markets and briefly review the trends within the industry. Review the reasons for the acquisition and explain how the acquisition will make your company stronger. Limit the executive summary to no more than three pages.

Include a copy of the acquisition contract in the appendix of your business plan, along with supporting documents, such as lease agreements, warranties and building appraisals. Begin the appendix with a content page. Label the documents accordingly and place the appendix at the end of your business plan.

• MasterCard International: The Plan

Writing professionally since 2004, Charmayne Smith focuses on corporate materials such as training manuals, business plans, grant applications and technical manuals. Smith's articles have appeared in the "Houston Chronicle" and on various websites, drawing on her extensive experience in corporate management and property/casualty insurance.

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Business acquisitions: how to take over another company

How to take over another company, the pros and cons, the risks, and how to choose an acquisition target.

A company acquisition can be a fast track to business growth .

Like merging with another business, it can give you access to new customers, distribution channels, skills and knowledge, while putting more resources at your disposal (e.g. personnel, additional branches, intellectual property and so forth).

A business acquisition may also help you to develop your own products or services.

But with such a great opportunity does come risk. There’s no magic formula to guarantee a smooth ride, but with a considered approach you can keep the risks manageable.

Here are the key steps to start you on that road.

What is a company acquisition / takeover?

A company acquisition or takeover is where one company purchases most or all of the shares of another company, to become the majority shareholder or outright owner.

As majority shareholder, you can make decisions without the consent of other shareholders, so effectively run the business.

You may choose to absorb the acquired business into your own company and put your own branding in place, or keep its current identity and make it a sub-brand of your own.

Keeping its original identity may be preferable if good brand recognition and customer goodwill.are among the target company's most important assets.

I’m thinking about an acquisition. Where should I start?

The first thing you need is a specific strategic rationale.

There should be a clear reason for making the acquisition of that particular company at that particular time.

If the reason for a merger or acquisition is vague, like ‘to grow the business’, it’s worth giving it more thought.

Your specific reason and objectives will ultimately be the driving force of all decisions around the acquisition, and will allow you to measure your success later, so be as clear on this as possible.

How to find a target company for takeover

The best way to choose a business for acquisition is to pick the one that complements your own most effectively. 

A badly performing business may represent good value – if you have what it takes to turn it around. Lots of large firms do this, but it’s a margins game.

Before attempting it, you need to be absolutely sure of your sums (speak to an accountant about those) and your capabilities.

Put simply, it is a question of looking at what your own business currently lacks but could benefit from - whether that is additional capacity, better systems and processes, supply chains, technologies, personnel, reputation, branding, customer goodwill or anything else.

You then have to calculate what these assets might be worth to your company, and whether this exceeds (in the long term) the costs of any takeover.

Reasons to make an acquisition

Here are some of the main reasons why you might want to take over another business. In most cases, more than one will apply.

Your reasons should directly complement your current business goals – see ‘Your acquisition strategy’ below.

1. You believe you can improve the performance of the target company

A badly performing business may represent good value – if you have what it takes to turn it around. Lots of large firms do this, but it’s a margins game. Before attempting it, you need to be absolutely sure of your sums (speak to an accountant about those) and your capabilities.

2. You want to remove excess capacity from the industry

If you’re in a mature industry in which supply is outstripping demand, acquiring a competitor gives you the opportunity to streamline the supply more effectively.

3. You can help the target company to penetrate the market

A smaller target company may be struggling to penetrate the market. What they may be missing is your negotiating power – while you in turn can benefit from the particular qualities they have. Together, you stand a much better chance of securing the big, lucrative contracts.

4. You want to acquire new skills or technologies

By acquiring a company with the skills or technologies that your business doesn’t have, you can expand or enhance your own product offering. It can be far quicker, cheaper and more effective to acquire these skills and technologies than to develop them independently.

5. You see the opportunity to scale a scalable business

This is most applicable to smaller acquisitions, because many large companies are using all of their resources. If your business is unable to improve margins by scaling down , it can be a smart move to acquire a smaller business and increase the team or equipment to reduce operational costs.

6. You want to pick a winner

If you can spot a young business with a huge amount of potential, it can result in a really lucrative acquisition. Some of the most successful acquisitions involve a large company acquiring a startup business and helping it grow and develop. This can be a winning strategy, as long as the target company can keep the magic alive.

In choosing your acquisition target(s), you will also need to consider your acquisition strategy.

Your acquisition strategy

Your acquisition strategy is, essentially, the sum of all your business reasons for seeking this acquisition.

You will need to be clear in your own business plan what the long-term goals of your company are, as this will help you choose the right strategy – and the right target for takeover.

For example, you can spot a young business with a huge amount of potential, it can result in a really lucrative acquisition.

Some of the most successful acquisitions involve a large company acquiring a startup business and helping it grow and develop. This can be a winning strategy, as long as the target company can keep the magic alive.

The eleven basic acquisition strategies:

Sales growth: By acquiring other businesses, you can grow at a much faster rate than you could achieve through organic growth.

Regional growth: If you want to expand your business into new locations (or other countries), you can face many obstacles such as setting up new offices, warehouses, supply chains and staffing. Buying a similar business in your desired location can be a way to have ready-made infrastructure in place.

Industry roll-up: A roll-up is where you buy lots of small, similar businesses and ‘roll them up’ into one company. When it works, this has the effect of combining their market share and thus dominating the market. In practice, however, roll-ups are tricky to get right, as all the different businesses need to be aligned, harmonised and rebranded.

Diversification: If your company revenue comes mostly from one narrow source or market, you may want to branch out into other revenue streams to create greater security and risk tolerance. You could do this organically, but a faster way is to acquire businesses that are already thriving in these other niches.

Full service: Similar to diversification, this strategy involves expanding your services or products to offer a broader range. The way it differs from diversification is that the new products or services are inherently related to your core offering. For example, if your business is hairdressing, then acquiring a beauty salon would be a move towards a full service offering.

Adjacent industry: Another variant on diversification, this is where you buy a business in another industry that is adjacent to your own. Another example of an adjacent industry might be Nike entering the mountaineering market. Initially selling climbing footwear, it then expanded into other climbing equipment.

Vertical integration: Vertical integration is where you buy up the businesses in your own supply chain, so as to have complete control over every stage. This can produce greater efficiencies or synergies (see point 9) and may also be good from a branding point of view. For example, if you produce health foods or luxury goods, it is an outstanding selling point to be able to boast that you oversee every stage of their production.

Product supplementation: This is where you identify a business that offers products or services that would complement or supplement your own. You can thus quickly fill the gap in your own product line by taking over the target company.

Synergy: A popular buzzword, synergy is apparently short for ‘synchronised energy’. In English, this can be summed up as simply, ‘Find the most efficient ways of working together.’ So for instance, if one company has an outstanding supply chain and another has exceptional distribution (but each lacks what the other has), combining the two will create good synergy. The result should be greater profitability than either company could have achieved on their own.

Low-cost: One way to dominate a market is, quite simply, to be the cheapest option. But in order to make a profit while selling your products at the lowest cost, you must achieve high sales volume (known as the ‘pile ‘em high, sell ‘em cheap’ approach). Attaining this position quickly usually requires making multiple acquisitions of businesses that already have a good market share, and then working to achieve synergies (see point 9) between them.

Market window: Let’s suppose you see an opportunity to launch a brand new product or service, to catch a market trend and perhaps lead it. The problem is, you can’t mobilise your own company to deliver it fast enough to optimise the opportunity – perhaps because you don’t have the expertise, resources or market positioning. In this scenario, you might target a company that is in a more advantageous position, and achieve your vision through the acquisition.

How to analyse a company for acquisition

Be sure to do your homework on a target company before making your initial approach.

Investigate the business’s finances: You’ll want financial statements for the past five years, preferably audited. See if they’ve been growing, and also explore their cash flows and working capital .

Check out their assets: Find out what assets belong to the company itself, e.g. buildings, plant, equipment, vehicles , land, and also any brands and goodwill. Make sure you know exactly what you’re getting.

Look at their liabilities: Liabilities include not just debts but also taxes, the salaries of employees, contractual obligations and any ongoing legal proceedings. Also find out if you need any special permits or insurance.

Ask: how do we benefit?: Finally, identify all the areas that will complement your existing business, including areas of synergy (i.e. ways that it will make both businesses more efficient).

How should I go about it?

So you’ve decided to make an acquisition. Do you start by looking around at the companies that are available?

Wrong! That’s a reactive approach. Doing it that way would mean you only find a limited range of opportunities that might not be the best fit for your long-term business goals.

Broadly speaking, the correct approach looks more like this:

Pick a team. Within your company you should have a working group with representatives from each area of the business. They need to be able to work together and communicate clearly from the off.

Make a plan. Why are you doing this? What are your specific objectives? How will you finance the deal? Consider the list of goals above and make sure your plan is designed to meet at least one.

Name a price. Value is a tricky thing, and it’s hard to nail down what the right acquisition is worth to your company. You need to understand the financials inside out, which is when a good accountant is essential. A solicitor will help make sure your contracts are watertight, and you’re also need to think ahead about how you’ll raise funds if you need them.

Approach. Once you've got your plan and your optimal price tag for your acquisition, it's time to identify potential targets and make your approach. A phone call is the best way to begin, as it comes across as more personal, committed and bold, and so helps to build trust from the outset.

Obtaining funding for business acquisitions

Acquisitions are expensive, so it is likely you will need additional funding to achieve one (often known as 'corporate finance').

Some accountants are corporate finance specialists and can help you obtain the funding you need.

You will need a strong new business pitch to demonstrate how your company will thrive post-acquisition and repay the investment.

Ultimately, the golden rule of acquisitions is ‘Be 100 per cent sure of why you are doing this’.

With your specific goal fixed in your mind, you should be able to press on through each challenge even when things aren’t going your way.

Now find out about mergers and how they’re different from acquisitions.

If you found this article helpful, make sure to have a look at our article all about how to buy out a business partner , too. 

The six types of successful acquisitions

There is no magic formula to make acquisitions successful. Like any other business process, they are not inherently good or bad, just as marketing and R&D aren’t. Each deal must have its own strategic logic. In our experience, acquirers in the most successful deals have specific, well-articulated value creation ideas going in. For less successful deals, the strategic rationales—such as pursuing international scale, filling portfolio gaps, or building a third leg of the portfolio—tend to be vague.

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Empirical analysis of specific acquisition strategies offers limited insight, largely because of the wide variety of types and sizes of acquisitions and the lack of an objective way to classify them by strategy. What’s more, the stated strategy may not even be the real one: companies typically talk up all kinds of strategic benefits from acquisitions that are really entirely about cost cutting. In the absence of empirical research, our suggestions for strategies that create value reflect our acquisitions work with companies.

In our experience, the strategic rationale for an acquisition that creates value typically conforms to at least one of the following six archetypes: improving the performance of the target company, removing excess capacity from an industry, creating market access for products, acquiring skills or technologies more quickly or at lower cost than they could be built in-house, exploiting a business’s industry-specific scalability, and picking winners early and helping them develop their businesses.

Six archetypes

An acquisition’s strategic rationale should be a specific articulation of one of these archetypes, not a vague concept like growth or strategic positioning, which may be important but must be translated into something more tangible. Furthermore, even if your acquisition is based on one of the archetypes below, it won’t create value if you overpay.

Improve the target company’s performance

Improving the performance of the target company is one of the most common value-creating acquisition strategies. Put simply, you buy a company and radically reduce costs to improve margins and cash flows. In some cases, the acquirer may also take steps to accelerate revenue growth.

Pursuing this strategy is what the best private-equity firms do. Among successful private-equity acquisitions in which a target company was bought, improved, and sold, with no additional acquisitions along the way, operating-profit margins increased by an average of about 2.5 percentage points more than those at peer companies during the same period. 1 1. Viral V. Acharya, Moritz Hahn, and Conor Kehoe, “Corporate governance and value creation: Evidence from private equity,” Social Science Research Network working paper, February 19, 2010. This means that many of the transactions increased operating-profit margins even more.

Keep in mind that it is easier to improve the performance of a company with low margins and low returns on invested capital (ROIC) than that of a high-margin, high-ROIC company. Consider a target company with a 6 percent operating-profit margin. Reducing costs by three percentage points, to 91 percent of revenues, from 94 percent, increases the margin to 9 percent and could lead to a 50 percent increase in the company’s value. In contrast, if the operating-profit margin of a company is 30 percent, increasing its value by 50 percent requires increasing the margin to 45 percent. Costs would need to decline from 70 percent of revenues to 55 percent, a 21 percent reduction in the cost base. That might not be reasonable to expect.

Consolidate to remove excess capacity from industry

As industries mature, they typically develop excess capacity. In chemicals, for example, companies are constantly looking for ways to get more production out of their plants, even as new competitors, such as Saudi Arabia in petrochemicals, continue to enter the industry.

The combination of higher production from existing capacity and new capacity from recent entrants often generates more supply than demand. It is in no individual competitor’s interest to shut a plant, however. Companies often find it easier to shut plants across the larger combined entity resulting from an acquisition than to shut their least productive plants without one and end up with a smaller company.

Reducing excess in an industry can also extend to less tangible forms of capacity. Consolidation in the pharmaceutical industry, for example, has significantly reduced the capacity of the sales force as the product portfolios of merged companies change and they rethink how to interact with doctors. Pharmaceutical companies have also significantly reduced their R&D capacity as they found more productive ways to conduct research and pruned their portfolios of development projects.

While there is substantial value to be created from removing excess capacity, as in most M&A activity the bulk of the value often accrues to the seller’s shareholders, not the buyer’s. In addition, all the other competitors in the industry may benefit from the capacity reduction without having to take any action of their own (the free-rider problem).

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Accelerate market access for the target’s (or buyer’s) products.

Often, relatively small companies with innovative products have difficulty reaching the entire potential market for their products. Small pharmaceutical companies, for example, typically lack the large sales forces required to cultivate relationships with the many doctors they need to promote their products. Bigger pharmaceutical companies sometimes purchase these smaller companies and use their own large-scale sales forces to accelerate the sales of the smaller companies’ products.

IBM, for instance, has pursued this strategy in its software business. Between 2010 and 2013, IBM acquired 43 companies for an average of $350 million each. By pushing the products of these companies through IBM’s global sales force, IBM estimated that it was able to substantially accelerate the acquired companies’ revenues, sometimes by more than 40 percent in the first two years after each acquisition. 2 2. IBM investor briefing 2014, ibm.com.

In some cases, the target can also help accelerate the acquirer’s revenue growth. In Procter & Gamble’s acquisition of Gillette, the combined company benefited because P&G had stronger sales in some emerging markets, Gillette in others. Working together, they introduced their products into new markets much more quickly.

Get skills or technologies faster or at lower cost than they can be built

Many technology-based companies buy other companies that have the technologies they need to enhance their own products. They do this because they can acquire the technology more quickly than developing it themselves, avoid royalty payments on patented technologies, and keep the technology away from competitors.

For example, Apple bought Siri (the automated personal assistant) in 2010 to enhance its iPhones. More recently, in 2014, Apple purchased Novauris Technologies, a speech-recognition-technology company, to further enhance Siri’s capabilities. In 2014, Apple also purchased Beats Electronics, which had recently launched a music-streaming service. One reason for the acquisition was to quickly offer its customers a music-streaming service, as the market was moving away from Apple’s iTunes business model of purchasing and downloading music.

Cisco Systems, the network product and services company (with $49 billion in revenue in 2013), used acquisitions of key technologies to assemble a broad line of network-solution products during the frenzied Internet growth period. From 1993 to 2001, Cisco acquired 71 companies, at an average price of approximately $350 million. Cisco’s sales increased from $650 million in 1993 to $22 billion in 2001, with nearly 40 percent of its 2001 revenue coming directly from these acquisitions. By 2009, Cisco had more than $36 billion in revenues and a market cap of approximately $150 billion.

Exploit a business’s industry-specific scalability

Economies of scale are often cited as a key source of value creation in M&A. While they can be, you have to be very careful in justifying an acquisition by economies of scale, especially for large acquisitions. That’s because large companies are often already operating at scale. If two large companies are already operating that way, combining them will not likely lead to lower unit costs. Take United Parcel Service and FedEx, as a hypothetical example. They already have some of the largest airline fleets in the world and operate them very efficiently. If they were to combine, it’s unlikely that there would be substantial savings in their flight operations.

Economies of scale can be important sources of value in acquisitions when the unit of incremental capacity is large or when a larger company buys a subscale company. For example, the cost to develop a new car platform is enormous, so auto companies try to minimize the number of platforms they need. The combination of Volkswagen, Audi, and Porsche allows all three companies to share some platforms. For example, the VW Toureg, Audi Q7, and Porsche Cayenne are all based on the same underlying platform.

Some economies of scale are found in purchasing, especially when there are a small number of buyers in a market with differentiated products. An example is the market for television programming in the United States. Only a handful of cable companies, satellite-television companies, and telephone companies purchase all the television programming. As a result, the largest purchasers have substantial bargaining power and can achieve the lowest prices.

While economies of scale can be a significant source of acquisition value creation, rarely are generic economies of scale, like back-office savings, significant enough to justify an acquisition. Economies of scale must be unique to be large enough to justify an acquisition.

Pick winners early and help them develop their businesses

The final winning strategy involves making acquisitions early in the life cycle of a new industry or product line, long before most others recognize that it will grow significantly. Johnson & Johnson pursued this strategy in its early acquisitions of medical-device businesses. J&J purchased orthopedic-device manufacturer DePuy in 1998, when DePuy had $900 million of revenues. By 2010, DePuy’s revenues had grown to $5.6 billion, an annual growth rate of about 17 percent. (In 2011, J&J purchased Synthes, another orthopedic-device manufacturer, so more recent revenue numbers are not comparable.) This acquisition strategy requires a disciplined approach by management in three dimensions. First, you must be willing to make investments early, long before your competitors and the market see the industry’s or company’s potential. Second, you need to make multiple bets and to expect that some will fail. Third, you need the skills and patience to nurture the acquired businesses.

Harder strategies

Beyond the six main acquisition strategies we’ve explored, a handful of others can create value, though in our experience they do so relatively rarely.

Roll-up strategy

Roll-up strategies consolidate highly fragmented markets where the current competitors are too small to achieve scale economies. Beginning in the 1960s, Service Corporation International, for instance, grew from a single funeral home in Houston to more than 1,400 funeral homes and cemeteries in 2008. Similarly, Clear Channel Communications rolled up the US market for radio stations, eventually owning more than 900.

This strategy works when businesses as a group can realize substantial cost savings or achieve higher revenues than individual businesses can. Service Corporation’s funeral homes in a given city can share vehicles, purchasing, and back-office operations, for example. They can also coordinate advertising across a city to reduce costs and raise revenues.

Size is not what creates a successful roll-up; what matters is the right kind of size. For Service Corporation, multiple locations in individual cities have been more important than many branches spread over many cities, because the cost savings (such as sharing vehicles) can be realized only if the branches are near one another. Roll-up strategies are hard to disguise, so they invite copycats. As others tried to imitate Service Corporation’s strategy, prices for some funeral homes were eventually bid up to levels that made additional acquisitions uneconomic.

Consolidate to improve competitive behavior

Many executives in highly competitive industries hope consolidation will lead competitors to focus less on price competition, thereby improving the ROIC of the industry. The evidence shows, however, that unless it consolidates to just three or four companies and can keep out new entrants, pricing behavior doesn’t change: smaller businesses or new entrants often have an incentive to gain share through lower prices. So in an industry with, say, ten companies, lots of deals must be done before the basis of competition changes.

Enter into a transformational merger

A commonly mentioned reason for an acquisition or merger is the desire to transform one or both companies. Transformational mergers are rare, however, because the circumstances have to be just right, and the management team needs to execute the strategy well.

Transformational mergers can best be described by example. One of the world’s leading pharmaceutical companies, Switzerland’s Novartis, was formed in 1996 by the $30 billion merger of Ciba-Geigy and Sandoz. But this merger was much more than a simple combination of businesses: under the leadership of the new CEO, Daniel Vasella, Ciba-Geigy and Sandoz were transformed into an entirely new company. Using the merger as a catalyst for change, Vasella and his management team not only captured $1.4 billion in cost synergies but also redefined the company’s mission, strategy, portfolio, and organization, as well as all key processes, from research to sales. In every area, there was no automatic choice for either the Ciba or the Sandoz way of doing things; instead, the organization made a systematic effort to find the best way.

Novartis shifted its strategic focus to innovation in its life sciences business (pharmaceuticals, nutrition, and products for agriculture) and spun off the $7 billion Ciba Specialty Chemicals business in 1997. Organizational changes included structuring R&D worldwide by therapeutic rather than geographic area, enabling Novartis to build a world-leading oncology franchise.

Across all departments and management layers, Novartis created a strong performance-oriented culture supported by shifting from a seniority- to a performance-based compensation system for managers.

The final way to create value from an acquisition is to buy cheap—in other words, at a price below a company’s intrinsic value. In our experience, however, such opportunities are rare and relatively small. Nonetheless, although market values revert to intrinsic values over longer periods, there can be brief moments when the two fall out of alignment. Markets, for example, sometimes overreact to negative news, such as a criminal investigation of an executive or the failure of a single product in a portfolio with many strong ones.

Such moments are less rare in cyclical industries, where assets are often undervalued at the bottom of a cycle. Comparing actual market valuations with intrinsic values based on a “perfect foresight” model, we found that companies in cyclical industries could more than double their shareholder returns (relative to actual returns) if they acquired assets at the bottom of a cycle and sold at the top. 3 3. Marco de Heer and Timothy Koller, “ Valuing cyclical companies ,” McKinsey Quarterly , May 2000.

While markets do throw up occasional opportunities for companies to buy targets at levels below their intrinsic value, we haven’t seen many cases. To gain control of a target, acquirers must pay its shareholders a premium over the current market value. Although premiums can vary widely, the average ones for corporate control have been fairly stable: almost 30 percent of the preannouncement price of the target’s equity. For targets pursued by multiple acquirers, the premium rises dramatically, creating the so-called winner’s curse. If several companies evaluate a given target and all identify roughly the same potential synergies, the pursuer that overestimates them most will offer the highest price. Since it is based on an overestimation of the value to be created, the winner pays too much—and is ultimately a loser. 4 4. K. Rock, “Why new issues are underpriced,” Journal of Financial Economics , 1986, Volume 15, pp. 187–212. A related problem is hubris, or the tendency of the acquirer’s management to overstate its ability to capture performance improvements from the acquisition. 5 5. R. Roll, “The hubris hypothesis of corporate takeovers,” Journal of Business , 1986, Volume 59, Number 2, pp. 197–216.

Since market values can sometimes deviate from intrinsic ones, management must also beware the possibility that markets may be overvaluing a potential acquisition. Consider the stock market bubble during the late 1990s. Companies that merged with or acquired technology, media, or telecommunications businesses saw their share prices plummet when the market reverted to earlier levels. The possibility that a company might pay too much when the market is inflated deserves serious consideration, because M&A activity seems to rise following periods of strong market performance. If (and when) prices are artificially high, large improvements are necessary to justify an acquisition, even when the target can be purchased at no premium to market value.

By focusing on the types of acquisition strategies that have created value for acquirers in the past, managers can make it more likely that their acquisitions will create value for their shareholders.

Marc Goedhart is a senior expert in McKinsey’s Amsterdam office, Tim Koller is a partner in the New York office, and David Wessels, an alumnus of the New York office, is an adjunct professor of finance and director of executive education at the University of Pennsylvania’s Wharton School. This article, updated from the original, which was published in 2010, is excerpted from the sixth edition of Valuation: Measuring and Managing the Value of Companies , by Marc Goedhart, Tim Koller, and David Wessels (John Wiley & Sons, 2015).

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How to Prepare a Successful Takeover Bid

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Introduction

Takeovers form an important part of the business landscape and have been since centuries ago. To ensure a successful bid, it is vital to understand why they matter and how they can be used to benefit both parties involved. A takeover bid usually involves making an offer to purchase a controlling stake in a company, usually through buying shares. This process is typically initiated by a larger entity, such as an enterprise or an individual investor, with the aim of gaining control of the target company and influencing its operations further down the line.

For larger companies, takeovers present opportunities for growth via consolidation: having greater access to resources and expertise for smaller companies; or providing individual investors with control over certain businesses. While takeover bids may ultimately prove beneficial for both parties involved, there are also potential pitfalls that require careful consideration before proceeding - such as hostile bids from acquirers or changes in operational strategy that don’t benefit the target company.

This is where experienced guidance can be invaluable; Genie AI provides assistance on understanding why takeovers are important and how you can best approach them with your team’s interests at heart. Our free template library has millions of data points which define and shape what constitutes a market-standard takeover bid - enabling anyone to customize high quality legal documents without paying lawyer fees upfront! There are also key legal aspects which need to be taken into account when undertaking these types of deals: ensuring fair pricing when selling off the target company; protecting it from hostile attempts; and managing tax implications accordingly.

In conclusion then, having sound advice on hand during takeover bids can help ensure that all parties involved benefit from them - from negotiations to considerations during execution - so click here ‘read on’ below for our step-by-step guidance and for information on how you can access our template library today!

Definitions

Takeover Bid: An offer made by one company to buy another company. Due Diligence: The process of gathering and analyzing information about a potential investment to make an informed decision. Competitive Advantages: Characteristics of a business that give it an edge over its competitors. Disadvantages: Weaknesses or drawbacks of a business. Incentives: An offer of something that encourages a person or company to do something. Equity Financing: A method of raising capital through the sale of shares in a company. Private Equity: An investment made in a private company, such as a startup. Venture Capital: Money provided by investors to finance a new or growing business. Stakeholders: Individuals or groups with an interest in the success of a company. Due Process: A legal concept that requires fair and consistent treatment of all parties involved in a transaction.

Defining a Target

Identifying the company that you wish to purchase and assessing its potential as an acquisition target., researching the market and industry, understanding the target’s competitive advantages and disadvantages, and developing a comprehensive understanding of the target’s financials., preparing a takeover bid, establishing the terms of the offer, the structure of the bid, and any other relevant details to make the takeover bid attractive., crafting the takeover bid to make it as competitive as possible and addressing any issues the target company may have with the bid., financing the takeover, determining how to finance the takeover, either through traditional methods such as debt or equity financing or through alternative methods such as private equity or venture capital., securing the required financing and ensuring that the financing is in place prior to making the bid., negotiating the deal, engaging in negotiations and communicating with the target company to ensure that the takeover bid is accepted., understanding the target company’s perspective and addressing their concerns and objections., executing the takeover, finalizing the deal and ensuring that all legal and regulatory requirements are met., completing due diligence and any other required legal or financial steps to ensure the deal is legally sound., integrating the acquisition, managing the integration of the acquired company, including the cultural, operational, and financial aspects of the transition., developing a plan to ensure the transition is successful and that the acquired company is integrated smoothly into the parent company., assessing the acquisition, evaluating the success of the acquisition and determining whether the takeover achieved the desired objectives., examining the financial performance of the target company and assessing whether the takeover was profitable., communicating the acquisition, making sure that all stakeholders are informed of the acquisition and that the transition is communicated effectively., keeping employees and customers informed of the acquisition and any changes that may result from it., managing the integration, overseeing the integration process to ensure that it is successful and that the target company is properly integrated into the parent company., monitoring the performance of the acquired company and ensuring that the transition is going smoothly., evaluating the acquisition, analyzing the success of the acquisition and determining whether the takeover achieved the desired objectives., get started.

• Establish a team that will be responsible for researching potential takeover targets, drawing up a list of achievable goals and preparing the takeover bid
• Analyze potential acquisition targets according to the company’s financial health and industry trends
• Research the company’s management, board of directors, shareholders, and other stakeholders that could be impacted by a takeover bid
• Identify potential benefits and risks of a takeover bid
• Establish a timeline and budget for the takeover bid
• Check off this step when you have identified a suitable company and assessed its potential as an acquisition target.
• Identify the company you wish to purchase and assess its potential as an acquisition target
• Research the company’s financials and competitive position in the market
• Analyze the company’s competitive advantages and disadvantages
• Consider the company’s potential for growth and profitability
• Calculate the value of the company

You will know you can check this off your list and move on to the next step when you have completed the research and analysis required to make an informed decision on the company’s potential as an acquisition target.

• Utilize resources such as research reports and industry analysts to gain knowledge of the target company’s market and industry
• Analyze the target company’s competitive advantages and disadvantages and understand how it fits into the industry
• Obtain and review the target company’s financial statements, including balance sheet and income statement
• Consider other relevant documents such as corporate financial ratios
• Analyze the target company’s financial history and trends

You will know that you have completed this step when you have a comprehensive understanding of the target company’s market, industry, competitive advantages and disadvantages, and financials.

• Put together a team of legal and financial advisors to help with the takeover bid. • Analyze the target company’s financials and current operations in order to determine realistic pricing and terms for the bid. • Research the company’s shareholders and board members to gain insight into the target’s ownership structure and voting power. • Draft the bid document, outlining the terms and conditions of the proposed takeover. • Submit the bid to the target company and its shareholders.

You will know that this step is complete when you have submitted the bid document to the target company and its shareholders.

• Research the target company, including their financials, financial health, and any potential liabilities
• Identify potential areas in which the takeover bid can be made attractive to the target company
• Establish the terms and structure of the takeover bid accordingly to make it as attractive as possible
• Share the terms of the offer with the target company and ensure they are agreeable
• Finalize any other details to make the takeover bid attractive, such as payment terms and conditions
• You will know you can move on to the next step when you have established the terms and structure of the takeover bid and finalized any other relevant details to make the bid attractive.
• Determine the target company’s financial and operational needs
• Evaluate the amount of capital required for the takeover
• Analyze and consider the target company’s current structure and operations
• Analyze the target company’s competitive environment
• Analyze the target company’s market share
• Analyze the target company’s profitability
• Analyze the target company’s debt position
• Consider the target company’s current valuation
• Consider the target company’s likely reaction to the bid
• Research any legal or regulatory issues that may affect the bid
• Develop a strategy to address any potential issues
• Finalize the bid and make it as attractive as possible

You’ll know when you can check this off your list when you have successfully crafted the takeover bid to make it as competitive as possible and addressed any potential issues the target company may have with the bid.

• Analyze the target company’s financials to determine the amount of debt and equity financing required to complete the takeover
• Analyze potential sources of debt and equity financing, such as banks, venture capital, or private equity
• Identify potential sources of alternative financing, such as asset-based financing, bridge loans, or mezzanine financing
• Evaluate the pros and cons of each financing option
• Select the financing option that best suits the needs of the takeover
• Negotiate terms and conditions of the financing package
• Secure the financing package for the takeover
• Once the financing package is secured, you are ready to proceed with the takeover bid
• Research the different financing options available, such as traditional debt or equity financing, or alternative methods such as private equity or venture capital.
• Consider the risks associated with each financing option and decide on the best option for the takeover.
• Calculate the costs associated with each financing option and assess the potential returns.
• Speak to financial advisors and legal representatives to ensure that the financing option is suitable for the takeover.
• Once the financing option has been decided, you will be ready to move onto the next step.
• Research financing options and decide which one is the best for your needs
• Contact potential financiers and negotiate terms of financing
• Ensure all documents associated with the financing are legally binding, clear and concise
• Have the finances in place before making the bid
• Track the financing to make sure all funds are received

You will know when you can move on to the next step when all funds are secured and have been received in full.

• Develop a strategy for negotiating the deal that takes into account the interests of all parties involved. • Draft a bid that is attractive to the target company, taking into account its needs and objectives. • Engage in negotiations with the target company to reach an agreement. • Ensure that any agreement reached is legally binding and meets all applicable legal and regulatory requirements. • Finalize the agreement and sign it, ensuring that all the necessary paperwork is complete.

You’ll know that you can check this step off your list and move on to the next step when you’ve signed the agreement and all the necessary paperwork is complete.

• Research the target company and their shareholders to identify potential areas of negotiation
• Utilize advisors to help in the negotiation process
• Make sure to communicate effectively with the target company to ensure that you are on the same page
• Address any potential concerns and objections from the target company to ensure that they are comfortable with the deal
• Take your time to negotiate the deal and make sure that both parties have a good understanding of the terms
• When the negotiation process is complete and both parties are satisfied, you can move on to the next step.
• Research the target company thoroughly to determine their viewpoint and any concerns or objections they may have about the takeover
• Speak directly with key members of the target company’s management to understand their concerns and objectives
• Develop a strategy to address the target company’s concerns and objections
• Present the strategy and negotiate with the target company to get their approval
• Present the agreement to the target company’s board of directors for final approval

Once you have addressed the target company’s concerns and objections, you have completed this step and can move on to the next one, which is executing the takeover.

• Consult with financial advisors and lawyers to review the legal and regulatory requirements for the takeover.
• Issue a formal offer to the target company with a detailed plan for the takeover.
• Monitor the reaction of the target company to assess their acceptance or rejection of the offer.
• Negotiate with the target company to ensure that all parties are satisfied with the terms and conditions of the takeover.
• Prepare the required documents and contracts to ensure the takeover is legally binding.
• Monitor the progress of the takeover and address any potential delays or issues.

When you can check this off your list and move on to the next step:

• Once the target company has accepted the offer and all legal and regulatory requirements have been met.
• Review and sign off on the acquisition agreement and any other legal documents
• File any necessary paperwork with the Securities and Exchange Commission and other regulatory bodies
• Set up any new legal entities, if needed
• Ensure that all legal and regulatory requirements have been met
• Prepare to make any necessary announcements and disclosures
• When you’ve verified that all necessary paperwork and legal requirements have been met, you can check this step off your list and move on to completing due diligence and any other required legal or financial steps to ensure the deal is legally sound.
• Identify any legal or financial risks associated with the takeover bid
• Research the target company to understand their legal, financial, and operational structure
• Examine the target company’s financial statements and other relevant documents
• Consult with financial and legal advisors
• Prepare a due diligence checklist with all the necessary steps to complete the takeover bid
• Obtain the necessary paperwork to complete the takeover bid
• Carry out additional due diligence and legal or financial steps to ensure a sound deal

Once you have completed all of the due diligence and legal/financial steps associated with the takeover bid, you can move on to the next step of integrating the acquisition.

• Establish a cohesive transition plan and timeline for integrating the newly acquired company into the existing business.
• Analyze the cultures of both companies to develop an effective integration strategy that emphasizes the strengths of both organizations.
• Identify areas of overlap and potential conflict between the two companies, such as overlapping services, customer base, and pricing structures.
• Develop and implement systems for effective communication and collaboration between the two organizations.
• Establish clear lines of authority and responsibility between the two companies.
• Create a plan for transitioning employees and transitioning their roles and responsibilities.
• Assess the financial implications of the acquisition and develop a plan to integrate financial and accounting systems.
• Identify legal implications of the acquisition and create a plan to address any legal issues.

Once all of the steps above have been completed, you can check this off your list and move on to the next step.

• Analyze the acquired company’s current practices, culture, and operations
• Identify the risks associated with the acquisition and develop a plan to mitigate them
• Establish a transition team and assign responsibilities to ensure a smooth integration
• Communicate clearly and regularly with the acquired company’s staff and stakeholders
• Establish a timeline for integration and ensure all deadlines are met
• Put in place policies and procedures to ensure the transition is successful
• Monitor the financial impact of the acquisition and ensure all costs are controlled
• Review the operational and financial performance of the acquired company and adjust accordingly

How you’ll know when you can check this off your list and move on to the next step:

• When the integration process is running smoothly and all risks have been addressed and mitigated, you can move on to the next step.
• Analyze the acquired company’s business model and identify areas of potential synergy with the parent company.
• Develop a detailed integration plan that outlines the objectives, timelines, and resources necessary to ensure a successful transition.
• Create a roadmap for the integration process that specifies the steps that need to be taken, how they will be executed, and who will be responsible for each task.
• Establish clear communication channels between the parent company and the acquired company to ensure transparency and collaboration throughout the transition process.
• Develop metrics and KPIs to track the progress of the integration.

When you have a detailed integration plan and roadmap in place, you can check this step off your list and move on to the next step of assessing the acquisition.

• Research the target company to understand its financials, operations, and management
• Analyze the target company’s current financial position and performance
• Project the expected performance of the target company post-acquisition
• Analyze the market conditions and competitive landscape of the target company
• Determine the potential risks and rewards of the acquisition
• Analyze the potential synergies that can be realized through the acquisition

Once these tasks have been completed, you can move on to the next step in the guide: Evaluating the success of the acquisition and determining whether the takeover achieved the desired objectives.

• Analyze the financial performance of the target company post-acquisition and compare it to the performance prior to the takeover.
• Evaluate the strategic objectives of the takeover to determine if they were achieved.
• Analyze the success of the takeover in terms of market share, customer satisfaction, and other key performance indicators.
• Examine the financial performance of the target company post-acquisition and assess whether the merger or acquisition was profitable.
• When you have completed a thorough analysis of the success of the takeover in terms of financial performance, strategic objectives, and other key performance indicators.
• Gather financial documents such as balance sheets, income statements, cash flow statements and other relevant documents to get a better understanding of the target company’s financial performance.
• Analyze performance metrics such as revenue growth, operating income, and profit margins to assess the current and past financial performance of the target company.
• Compare the target company’s financial performance to that of its peers to gain an understanding of how the target company stacks up against its competitors.
• Use financial analysis tools such as discounted cash flow analysis, intrinsic value analysis, and others to assess the potential profitability of the takeover.
• Once you have a complete understanding of the target company’s financial performance and the potential profitability of the takeover, you can move on to the next step of communicating the acquisition.
• Reach out to the target company’s senior management team to inform them of the proposed acquisition and to discuss the terms and conditions of the takeover.
• Establish a timeline for the acquisition and make sure it is communicated to all stakeholders.
• Develop a communication strategy with the target company’s senior management team to ensure the takeover is properly communicated to all stakeholders.
• Ensure that all stakeholders are informed of the takeover in a timely manner.
• Set up meetings with stakeholders to discuss the terms of the takeover and to provide updates on the process.

You can check off this step when you have completed the communication strategy, informed all stakeholders of the acquisition, and set up meetings with stakeholders.

• Reach out to shareholders, creditors, suppliers, customers, partners, and any other stakeholders who may be affected by the acquisition
• Ensure that the terms of the acquisition and any potential changes resulting from it are clearly communicated to all stakeholders
• Make sure that stakeholders are kept up to date on the progress of the acquisition and any changes that may follow
• Provide a plan to make the transition as smooth as possible for all stakeholders
• Check that stakeholders have a good understanding of the process and that they are adequately informed throughout the process
• When all stakeholders are informed, you can move on to the next step of the takeover bid.
• Make sure to inform the employees and customers of the acquisition and any changes that may come with it.
• Create a plan to communicate the changes to the employees and customers in a professional and timely manner.
• Make sure that all employees and customers have access to the information and have time to process it before changes are implemented.
• Ensure that the employees and customers have access to resources to help them understand and adjust to any changes that may come with the acquisition.
• Schedule regular meetings with the employees and customers to discuss the acquisition and any changes.

You will know that you can check off this step when all employees and customers are informed of the acquisition and any changes that may result from it.

• Identify key players from both companies that will be involved in the integration process
• Develop an integration plan detailing the roles, responsibilities, and tasks that need to be done
• Establish and maintain communication channels between the two companies to ensure that information is shared seamlessly
• Establish and monitor timelines and deadlines for integration tasks
• Identify and manage any potential conflicts between the two companies
• Monitor progress of the integration process to ensure that it is being completed in a timely and effective manner
• Develop and implement plans to address any issues that may arise during the integration process

When you can check this off your list:

• When the integration plan has been developed and communicated to key players
• When the integration process is complete and the target company has been successfully integrated into the parent company
• Monitor the integration process closely and ensure that the implementation of the integration plan is progressing as expected
• Identify any issues that arise and provide solutions quickly
• Ensure that all resources, both human and financial, are being used efficiently and effectively
• Liaise with internal and external stakeholders to ensure that the integration is running smoothly and that all objectives are being met
• Monitor the progress of the integration and report back on any issues or successes
• Ensure that the integration is completed on time and within budget
• Once the integration is complete, evaluate it to determine if objectives were successfully met and what can be improved for future integrations
• When the integration is complete, celebrate the success and move on to the next step in the process.
• Monitor financial indicators such as sales, profit margins, and cash flow to ensure that the acquired company is performing as expected
• Monitor customer satisfaction and feedback to ensure that customers are satisfied with the transition and that any issues have been addressed
• Track employee morale to ensure that the transition has been well received and that employees are not feeling overwhelmed or undervalued
• Monitor the progress of the integration process to ensure that the target company is being properly integrated into the parent company
• Analyze the results of the acquisition to assess the success of the takeover
• Identify any potential issues that may arise from the takeover and take proactive steps to address them
• When you can be sure that the performance of the acquired company is stable, customer satisfaction is high, employee morale is good, and the integration process is going well, you can move on to the next step.
• Review the financial and operational performance of the acquired company
• Analyse the success of the acquisition and ensure it achieved the desired objectives
• Examine the expected synergies of the acquisition and assess whether they have been met
• Evaluate the return on investment (ROI) from the takeover
• Identify any issues that may have arisen from the takeover and take appropriate corrective action

When you have completed these steps, you can check off this step and move on to the next step.

• Review the objectives of the acquisition and analyze if the takeover achieved them.
• Analyze the data and metrics to determine if the acquisition was successful in terms of objectives, such as increased market share, cost savings, or increased financial returns.
• Compare the post-takeover performance of the target company to its pre-takeover performance.
• Analyze the impact of the takeover on the target company’s operations and financials.
• Analyze any post-takeover changes in the target company’s management and corporate culture.

You’ll know you can move on to the next step when you have a clear understanding of whether the takeover achieved the desired objectives.

• Analyze the target company’s financials, including income statements, balance sheets and cash flow statements
• Compare the target company’s financials to the acquiring company’s financials to determine if the takeover was profitable
• Project the future earnings of the target company to assess the feasibility of the takeover
• Calculate the return on investment (ROI) of the takeover
• Determine if the takeover was worth the financial cost
• Check for any hidden costs that could affect the profitability of the takeover

Once you have completed your analysis and determined the profitability of the takeover, you can proceed to the next step.

Q: How do I know if I need to make a takeover bid?

Asked by Hannah on 5th April 2022. A: This is a difficult question to answer as it depends on a range of variable factors such as the size and type of the company you are looking to take over, the industry, sector or business model (SaaS, Technology or B2B for example) and the jurisdiction you are operating in. However, generally speaking, a takeover bid might be necessary when the target company has decided to become publicly traded or when it is already listed on a stock exchange but you would like to acquire a controlling stake. This can be an attractive option if you would like to gain control of a company without having to buy out each individual shareholder. It is also worth noting that in some jurisdictions such as the UK, a takeover bid may also be necessary if you are looking to acquire more than 30% of the shares of a listed company.

Q: What is the difference between UK and US regulations for takeover bids?

Asked by Isabella on 16th June 2022. A: The US and UK have different regulations for takeover bids and these can vary depending on the size of the company being taken over. Generally speaking, US regulations require companies with more than 2,000 shareholders to follow specific rules when making a takeover bid. These include disclosing financial information related to the bid, providing shareholders with sufficient time to consider their options and setting out how they plan to finance the bid. In contrast, UK regulations focus more on protecting shareholders from potential abuses of power by bidders. The UK regulations require bidders to provide shareholders with certain information before making an offer and also set out certain restrictions concerning how much any one bidder can hold in the target company’s shares.

Q: What is a reverse takeover bid?

Asked by Noah on 13th February 2022. A: A reverse takeover bid is when an already established company purchases another company that is either not publicly traded or much smaller in size than it is. This type of takeover bid can be used as an alternative route for taking control of a company without having to go through an initial public offering (IPO). It can also be useful for companies looking to expand their operations into different markets or industries without having to do an IPO. The main advantage of reverse takeovers is that they are often quicker and less costly than traditional IPOs and can provide companies with access to new markets or resources that would not otherwise have been available.

Q: How do I finance a successful takeover bid?

Asked by Emma on 8th December 2022. A: Financing a successful takeover bid can be challenging due to the significant costs involved in such transactions. Depending on the size and complexity of your target company, financing may require debt financing from banks or other financial institutions, equity financing from private investors or funds, or both. It is worth noting that debt financing usually requires collateral while equity financing requires dilution of ownership through issuing additional shares in exchange for capital. In addition, it may also be necessary to raise additional funds through issuing convertible securities such as bonds or warrants. As such, it is important to understand all financing options available before proceeding with a takeover bid in order to ensure that you have enough capital available for success.

Example dispute

Suing over a takeover bid.

• The plaintiff must identify a breach of duties or laws related to the takeover bid. This could include a breach of the Takeover Code, the Companies Act, or any other relevant regulations.
• The plaintiff must be able to demonstrate that the breach caused them loss or harm in some way.
• Damages could include the difference in value between the offer price and the fair market value of the company, any fees or costs associated with the takeover bid, or any other measurable losses.
• The plaintiff may seek an injunction to prevent the takeover from occurring or to have the terms of the takeover altered.
• Settlement could be reached through negotiation or mediation between the parties, or by a court order.

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Standard Acceptance Condition For Takeover Bid Offer Document

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• Sandrina Gomes Teixeira
• Dec 5, 2022

How to prepare for a company takeover in 9 steps?

Taking over a company is not an easy thing to do: there are steps to take that must be carefully followed in order to avoid making a mistake. Here is a look at the 9 steps to follow for your company acquisition project.

In practice, it takes between 12 and 18 months to find the start-up you want to acquire and develop it. Between questioning, market research, and negotiation, it is important to think carefully before embarking on a business acquisition project. What kind of VSE/SME do I want to take over? Will I be able to develop it properly? All these questions are important for your project. Whether it is a company in difficulty or not, it can involve a major financial commitment. That is why it is necessary to know the steps involved in taking over a business.

1. Preparing the business acquisition project

It is important to start by asking yourself questions before buying a business. Analyze your motivations and objectives: they will give you the answer to what kind of company you want to acquire. It is also important to identify your strengths and weaknesses so that you know whether you are fit to run a business.

Then target the type of company you want to acquire: is it a start-up, a VSE/SME, an ETI, or a large company? Your type of target must be consistent with your motivations and objectives in order to be sure that you can develop the company's business with a masterful hand.

Get support from experts and professionals in the field: you can get help from your relatives or professional contacts. Or you can refer to intermediaries such as accountants or business associations. There are websites specializing in business acquisitions to help you in your search.

If, in the course of your research, you realize that you do not have the necessary profile to manage a business, or the shoulders to stand on as an entrepreneur, do not hesitate to take training! Training can give you what you don't have and improve what you already have.

2. Search for the right business to acquire

The market for company acquisitions can be difficult to access. You can refer to your personal and professional network, in case someone is looking to sell a business or knows someone who is. You can also make a direct approach and make an offer to a start-up you have spotted.

It is also possible to go through intermediary networks such as accountants or lawyers to take over a business. They usually have a fairly extensive network of companies and may be able to give you the help you need. You can also consult the SME transfer and takeover opportunity exchanges.

3. Diagnose the chosen company

Once you have made your selection of companies to be acquired, analyze all of them in order to choose just one. Ask yourself to what extent the company corresponds to your objectives and motivations, but also whether it will be able to become profitable again if it is on the verge of bankruptcy.

There are certain evaluation criteria that should concern you. These include recurring losses, a sharp decline in turnover, a concentrated customer base or a depressed market. You should also find out about the various competitors you may encounter. Other buyers may be interested in buying the start-up you have chosen.

4. Meet the seller of the business

This is the perfect time to check whether the seller is ready to hand over the company. Most of them may still be attached to the company, and therefore cancel the deal at the last moment. This is why it is ideal to gather information and analyze the mindset of the seller. Analyze the information they give you about the business: are they thorough? Is he or she as involved in the project as you are? These questions are important to the success of the takeover.

If you meet the other employees, read the atmosphere to find out if the working spirit is right for you. You can of course make changes in the salary culture, but some employees may be in a particular frame of mind with the former manager present. Make a good impression to give them confidence in you.

5. Estimate and negotiate the price

The first step in this process is to diagnose the business you have chosen. Carry out a market survey to find out if it is viable or not. You will identify the company's competitors and potential customers. Also, analyze the start-up's processes and HR management: you will know if they are a good fit. Study the legal and fiscal ownership in order to know the different shareholders present in the start-up. You will know if you will have complete control or if you will have partners.

Analyze these results using a SWOT (Strengths, Weaknesses, Opportunities, Threats) diagram. This will enable you to take corrective action if necessary. Once this diagnosis has been made, evaluate and negotiate the price. There are three types of methods for evaluating the price of a start-up:

The patrimonial method: the company is worth what it owns

The yield method: the company is worth what it brings in

The comparative method: the company is worth what other companies are worth.

6. Drafting the letter of intent and launching audits

In order to define the framework and limits of the negotiation of the takeover of a VSE/SME, draft and sign a letter of intent. This will also allow the seller to see your interest in his business. Next, carry out audits to ensure that your diagnoses and the information provided by the seller are reliable.

You should also check, thanks to the audits, that the transfer price is not overvalued. This will enable you to avoid any unnecessary loss of money.

7. The acquisition business plan

As with the creation of a VSE/SME, it is necessary to draw up a solid and coherent business plan. You should include the executive summary and a short presentation of yourself. You will present your acquisition plan, specifying the terms of the acquisition and the period of support with the seller.

You will then make a general presentation of the target company followed by a presentation of the company's products or services. You will present the market, the competition, and your development strategy. You will then move on to the financial file, with the financial presentation of the company and the projected financial file. Finally, a timetable and appendices, such as the market study or the CV of the buyers.

8. Financing for a company acquisition

As explained, taking over a company requires a substantial financial commitment. There are several financing methods available to you:

Participatory financing or crowdfunding

Honorary loans

Investors with fund-raising

Love money or personal financing

Public aid and other schemes

Depending on the method you choose, you will raise more or less money to develop the start-up.

9. Negotiations and signing of the buy-out contracts

During this stage, you will establish the amount of the purchase, the conditions, and the commitments of both parties. Make sure that the amount is right for you beforehand to avoid unnecessary losses. Once this check has been made, you can proceed to sign the memorandum of understanding and the deed of sale.

After the transfer of the company, it is necessary to reassure the employees when you arrive. They are likely to be upset by the change in management. Do not hesitate to introduce yourself to these employees as soon as you arrive at the start-up. You can then build a scorecard to implement your takeover plan.

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A takeover is an event when a company or group of investors successfully acquire another public company and assume control of it.

Elliot currently works as a Private Equity Associate at Greenridge Investment Partners, a middle market fund based in Austin, TX. He was previously an Analyst in  Piper Jaffray 's Leveraged Finance group, working across all industry verticals on  LBOs , acquisition financings, refinancings, and recapitalizations. Prior to Piper Jaffray, he spent 2 years at  Citi  in the Leveraged Finance Credit Portfolio group focused on origination and ongoing credit monitoring of outstanding loans and was also a member of the Columbia recruiting committee for the Investment Banking Division for incoming summer and full-time analysts.

Elliot has a Bachelor of Arts in Business Management from Columbia University.

Mr. Arora is an experienced private equity investment professional, with experience working across multiple markets. Rohan has a focus in particular on consumer and business services transactions and operational growth. Rohan has also worked at Evercore, where he also spent time in private equity advisory.

Rohan holds a BA (Hons., Scholar) in Economics and Management from Oxford University.

• What Is A Takeover?
• Reasons For Takeovers
• Types Of Takeovers
• Protecting Against Takeovers
• Activist Investors
• Benefits Of Takeovers
• Drawbacks Of Takeovers 

What Is a Takeover?

In mergers and acquisitions (M&A), a takeover is an event when a company or group of investors successfully acquire another public company and assume control of it. A takeover can occur when a party acquires a majority stake in another company, or in some cases, all of its shares.

They can be sought after and negotiated by both parties, for example, an M&A deal between two companies, or it can take the form of a hostile takeover, where a company is unwillingly bought by another, and its management team scrapped altogether.

Takeovers can be financed by multiple methods. A company might buy another in a cash deal. A private equity firm or risk tolerant investor may use leverage to buy companies unwillingly through leveraged buyouts, or a company may be bought out after all its shares are purchased from shareholders. 

What separates a takeover from an acquisition, is that management or the board generally do not consent to a takeover. In an acquisition deal these parties may be involved in every aspect of a deal.

Large takeovers often make for big news headlines.

Key Takeaways

1. Takeovers occur when one company acquires another without consent, driven by expansion or asset acquisition. 2. Takeovers can be hostile or friendly, depending on cooperation between the acquiring and target companies. 3. Types of takeovers: hostile (bypassing management), friendly (target's agreement), creeping (gradual ownership increase), reverse (smaller company acquiring larger one). 4. Defensive strategies: poison pills (less attractive provisions), scorched earth tactics (making acquisition difficult). 5. Implications: reshape competition, management changes, strategic shifts, impact on shareholders, employees, and the market.

Reasons for takeovers

One reason a company might take another over is sector expansion to enter new markets. It may not be strong or have experience in some industries and markets, and may wish to merge with another company that does. 

Another reason is that it may want to expand market share , and may look totakeover a competitor to increase their market share and eliminate competition in the process. However, doing so may give rise to monopolies, which can draw scrutiny and regulation. 

A great example of this is the telecom industry, where massive telecom companies have constantly acquired and merged with one another. For instance, AOL took over Time Warner Cable for 182 billion.

If a company has highly desirable patents or other intellectual property, it may make them a target for a takeover. 

Sometimes, a competitor may have a better distribution and supply chain system. In such cases, taking over the competitor to acquire their distribution systems may also be a reason for a takeover. 

Types of takeovers  

Takeovers represent a significant aspect of the corporate landscape, enabling companies to consolidate, diversify, or expand their operations through strategic acquisitions.

The process of one firm acquiring another comes in various forms, each with unique characteristics and implications. We will explain different types of takeovers.  

An in-depth exploration of these various forms of takeovers is crucial for understanding how they can impact a company's growth and development in the competitive business environment.

There are 4 types of takeovers, hostile, friendly, creeping and reverse takeover , and each can be accomplished through various ways.

Each of them are briefly described below along with their benefits and situations in which they are used.

Hostile takeovers 

The most controversial type of takeover is a hostile takeover. It is when the management and/or board do not consent to a buyout from an acquirer.

Hostile takeovers can be conducted by companies for a variety of reasons, or may be conducted by a group of activist shareholders who wish to change the operations and/or management of a company.

An acquirer might entice shareholders to sell out by offering to acquire shares above the current market price . For example, if a company's stock is $12, a firm may offer a buyout at $20 a share to shareholders, making this profit of $8 ($20 - $12) very enticing to shareholders.

In return, they get a majority stake in the acquired company and can influence decisions around its management and operations.

A famous example of a hostile takeover is AOL’s takeover of Time Warner Cable in 2000. The takeover was valued at 164 billion dollars, and was the deal of a century at the time. Initially, TWC did not consent to the takeover. When the dotcom bubble burst, the merged company was a fraction of its original value.

Hostile takeovers can take two forms, through tender offers and proxy fights.

In a tender offer , shareholders sell their stakes in a company to the acquirer who offers to purchase shares from shareholders at a price higher than the market price of the shares.

This can often be done without the approval of the board as the shareholders can sell their shares directly for a healthy premium, effectively giving control of the company to the acquirer.

In a proxy fight , a potential acquirer will attempt to convince shareholders to vote out a target company's current management team. Doing so can make it easier to take over a company. If a current company's management is unpopular with shareholders, a proxy fight can easily be successful. 

Creeping takeover 

A creeping takeover is when a company slowly accumulates another company's shares over time, usually at the market price. These transactions are carried out on the open markets, and there often is no initial bid to the board of directors to purchase shares at a premium.

The goal is to acquire enough shares and then make an offer to the board.

If a creeping takeover bid fails, an acquirer is often stuck with a large position in a company that it must liquidate. If the market price of the stock is lower than the company's average cost, they might end up selling their positions at a loss. 

An example of a creeping takeover is Porsche’s acquisition of Volkswagen. They slowly accumulated shares of VW, with the intent to take control of the company. Eventually, the financial crisis took place , which prevented Porsche from acquiring VW, and hence accumulated large amounts of debt. Creditors stopped lending to Porsche, and so the takeover was cancelled. VW would eventually buy 100% of Porsche shares and become its parent company . 

Reverse takeover 

In a reverse takeover, a private company takes over a public company in a quick way to become public themselves. In this scenario, a private company purchases most if not all shares of a public company, and then converts the target companies shares into their own shares, making them a public entity.

A reverse takeover can be used to go public quicker than an IPO or direct listing, making it an attractive choice for companies who want to go public as soon as possible. Recently, a form of reverse merger known as a SPAC has become popular amongst companies who want to go public in a short timeframe. 

The IPO or direct listing process can sometimes take up to a year or longer for longer companies. A takeover can take a relatively shorter time, which makes it a good idea for a company to pursue this method. 

Friendly takeover

In a friendly takeover, a takeover bid is generally accepted by shareholders and the board alike. Very often, it is they who search for an acquirer in the first place especially in cases where a takeover might be a preferable situation. 

For example, if a target company was struggling, they may try to find an acquirer who would find their assets attractive. This outcome tends to be better than closing down the entire company due to bankruptcy for instance, as the acquirer may have funds to pay off the debts or generate the required returns due to synergies.

Backflip takeover

A backflip takeover is a type of takeover bid in which the acquirer company becomes a subsidiary of the target company. In this type of takeover, the acquirer will take on the brand and identity of the acquired company. It is rare and very unconventional. 

In this type, the acquiring company is generally a much more financially healthy company but has a lower brand image than competitors. These companies generally acquire those with a better-perceived brand.

Despite the acquirer becoming the subsidiary, the brand of the acquired company will be used as the company name, due to its brand image. 

Protecting against takeovers

The threat of acquisition and removal of a management team or board of directors may cause managers to implement anti takeover measures to protect a company from such an event.

In the event of a takeover, there are things which can be done to prevent a takeover from moving forward.

Poison pill 

The poison pill is among the most common deterrent to takeovers. It is called so because while it is an effective deterrent to takeovers, the pill can be painful to swallow.

Two types of poison pills exist, flip in, and flip over. 

In a flip-in  poison pill scenario, a company may offer shares at a discount to shareholders, buying shares at a significantly lower price than the current market value , or the ability to buy multiple shares for the price of one. 

In a flip-over poison pill scenario, a company may offer shareholders the right to buy shares of an acquired company for a discount, diluting share prices in the event that a takeover is successful.

The poison pill can be a very effective strategy to ward off potential or ongoing takeovers, however it can dilute shares and lower share prices, and it can ward off potential institutional investors who see a company with a poison pill clause as too risky. 

In 2012, activist investor Carl Icahn acquired 10% of netflix, which quickly adopted a poison pill clause, which targeted investors who held a 10% position or higher position in the company. This move was successful, and Icahn shrunk his position in Netflix to under 4%. 

People poison pill 

A people poison pill is a takeover protection method in which key management professionals will resign in the event of a takeover, leaving the acquirer with a lack of talent who understands the operations and management of the company.  This tactic also leaves behind no negotiating party that could make a deal with an acquirer. 

A people poison pill could also include key experienced employees to leave in the case of a takeover as well. Experienced employees are much more important to a company than managers, who are often the “people” in a people poison pill.

The first people poison pill was first introduced in 1989. The Borden Corporation, a food and beverage company, introduced a people poison pill clause in the case of a takeover. If the company was to be the target of a takeover, key management would quit. The provision was accepted by the company's board of directors. Management earned stock options in exchange for agreeing to the provision. 

Scorched earth 

Scorched earth tactics are a last resort to prevent an ongoing takeover. These tactics have the potential to destroy companies or leave them in a terrible state for an acquirer to pick up, making them less attractive candidates for a takeover, or damage an acquirer if a takeover is inevitable.

The goal of a scorched earth policy is to damage an acquirer if a takeover is successful.

For example, in the case of an impending takeover, a target company may sell off valuable assets, such as machinery, car fleets, real estate, anything of value, especially if those assets were critical in an acquirer's decision to take over a company.

Pac man defense

Another less common tactic to defend against hostile takeovers is the pac man defense , in which a target company raises enough capital to acquire their acquirer.

Companies can raise this capital by selling equipment, borrowing money, or through its cash reserves. In some cases, a company will buy back large amounts of shares from an acquirer, and purchase sales of the acquirer.

Often, a company will lay off experienced and highly specialized workers, making it harder to be replaced in the event of a takeover.

 A pac man defense can be very costly to both parties, and can damage them severely.

Some target companies resort to acquiring as much debt as possible when being taken over, leaving an acquirer saddled with this debt. 

A big issue when implementing a scorched earth policy is opposition from shareholders. Scorched earth tactics can damage a company's value, and decrease shareholder value , as well as decrease earnings and dividends. 

Some companies will keep a war chest of assets and liquidity in the case of a hostile takeover.

Poison Put 

A poison put occurs when a target company issues bonds that can be claimed before their maturity date, usually in the event of a takeover. In the case that an acquisition is successful, an acquirer will be obligated to pay a large amount of coupon payments to bondholders. 

The provision that a bondholder can claim bonds before its maturity date, to be executed in the event of a takeover is written in the bonds covenant.

Essentially, a target company is loading itself with excess debt in order to repel a takeover or damage an acquirer if an acquisition is inevitable.

A poison put may not be a suitable option for a company with a large amount of debt, as a poison put can add much more debt to a company, and draw the ire of creditors.

For example, if a target company issues 100 million dollars in poison put bonds, the acquiring company must be able to repay these bonds to bondholders, on top of the cost of acquiring the company. If an acquirer cannot afford to repay these bonds, then the takeover cannot be completed.

Sale of crown jewels

A form of scorched earth policy, the sale of crown jewels refers to a company selling its most valuable or most revenue generating assets to harm a potential acquirer, and to destroy the value of the company. 

This tactic is common when a takeover is inevitable, however it can have drastic consequences. 

Operating revenue will collapse, and share prices will plummet. It might be an unpopular move with shareholders, but a successful move can cripple a potential acquirer, leaving them with baggage and high costs to replace these assets. 

Shareholders may be vehemently opposed to a sale of crown jewels. In the shareholders eyes, it is preferable to sell their shares to a potential acquirer at a premium, than to have a company sell off its most valuable assets, and face a decline in the value of their equity.

One of the most well known examples of the Crown Jewels defense is the Sun Pharma/Taro case. Sun Pharma and Taro are Pharmaceutical companies, located in India and the US respectively.  Sun was close to a takeover of Taro Pharma, who then sold off its Irish research and development unit to another company. This successfully deferred Sun from acquiring Taro Pharma, and the takeover was canceled. 

Other strategies to protect against hostile takeovers

Understanding these different lines of defense is crucial in building a resilient business that can thwart hostile takeovers and maintain control over its future direction.

1. Macaroni Defense

In a macaroni defense, a target company will issue bonds that must be redeemed at a higher than normal price by the acquirer. This makes the cost of acquisition even higher, making a takeover less attractive. 

For example, a target company may issue 500 million in bonds with the condition that they are bought back for a 100% premium in the event of a takeover. An acquiring company would then have to pay 1 billion to repay the bonds. 

2. Dead - Hand provision

A dead hand provision is a form of poison pill. In a dead hand provision, a target company will issue shares to all shareholders, in order to dilute the shares and make a prospect takeover seem less attractive.

A provision would be made that would deny a potential acquirer from receiving these shares, shrinking their holdings in a target company

3. Just say no

In a just say no scenario, managers and board members will outright refuse to negotiate or discuss the terms of a takeover with a potential acquirer. Often, a board will outright refuse to communicate at all with a potential acquirer, ignoring all letters, phone calls, etc.

No dialogue happens between both parties, however an acquirer can buy up as many shares as possible on the open market .

4. Sale of crown jewels

A form of scorched earth policy, the sale of crown jewels refers to a company selling its most valuable or most revenue generating assets to harm a potential acquirer, and to destroy the value of the company. This tactic is commonly done when a takeover is inevitable, however it can have drastic consequences.

Shareholders may be vehemently opposed to a sale of crown jewels. In the shareholders eyes, it is preferable to sell their shares to a potential acquirer at a premium, than to have a company sell off its most valuable assets, and face a decline in the value of their equity. 

5. Golden parachute

The golden parachute refers to a policy in which a company's executives are paid a large payout in cash or stock if a takeover is successful. This event would make it extremely costly for an acquirer to take over a business, as the acquirer would be on the hook for executive bonuses as management is terminated. 

These payouts are often excessive, designed to ward off potential acquirers. 

Activist investors 

Often, acquirers are not companies, but groups of investors or a single investor themself. Some investors wish to take over companies to change operations, or managers. Individual or investor groups with these goals are considered activist investors. 

Activist investors can have their own goals, such as implanting themselves on the board or in another leadership position within the company or taking over the company to change its strategy. Some activist investors, known in the 80s and 90s as raiders, seek to takeover companies and then dismantle them later in order to turn a quick profit. 

Activist investors may often initially take a large position in a company, often at least 10%. Slowly, an activist will continue to acquire more shares, and at this point, an investor's intentions will be well known by the board. 

For example, activist investor Carl Icahn purchased 10% of Netflix, which immediately implemented poison pill provisions, with the goal of preventing Icahn from taking an even larger position. This plan succeeded, and Icahn lowered his position to under 4% within a couple of years. 

Benefits of takeovers

  Takeovers can be beneficial to both parties in numerous ways

• Many takeovers are conducted on struggling companies, that can benefit from an influx of capital from a takeover. These underperforming companies can be made efficient and profitable by a competent acquirer. 
• An acquirer can receive intangible assets such as patents and trademarks and other intellectual properties from target companies.
• Shareholder value is often increased during a takeover, and acquirers will often pay shareholders a premium for the shares that they own. In many cases, this premium can be in the billions of dollars in value.

Drawbacks of takeovers  

Takeovers can have drastic consequences on all parties.

• First, takeovers can be very costly. In many cases acquirers are paying a premium on the market value of shares to entice shareholders and management to sell out. In some aggressive takeover cases, an acquirer might end up overpaying for a company. A company that pays too high of a premium on shares may have to deal with a lower stock price and limited ability to raise funds.
• The employees of a targeted company may not like their new owners, and find employment elsewhere. They may be at odds with new policies created by their new managers, and may find them incompetent and not knowing how to run their newly acquired company. 
• One of the sole reasons of a takeover is the belief that a target companies current management is incompetent, and must be replaced by an acquirers management team. If the new management team cannot efficiently run the business, it will be in a worse place than it originally was before the takeover. 

A takeover might disrupt supply chains, creating an unfavorable environment for suppliers, who may increase costs for the newly merged companies. 

In some cases, customers may not approve of the takeover, and may suffer from a declining brand image. Customers might buy products from other competitors.

When a takeover is ongoing, many resources are allocated to completing the transaction. During this time, competitors might use this opportunity to increase its market share while its competitors are fighting over a takeover, putting them in a stronger position, especially if a takeover deal did not go smoothly. 

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How to Craft a Winning Business Plan for an Office Takeover in 2024

By alex ryzhkov, get full bundle.

Are you an entrepreneur looking for a lucrative business opportunity in the ever-growing office takeover industry? Well, you're in luck! With the demand for flexible and cost-effective workspace solutions on the rise, providing office takeover services has never been more promising. In this blog post, we will guide you through the 9 essential steps to successfully write a business plan for office takeover, ensuring your venture's success in this thriving market.

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According to recent statistics, the office takeover industry is experiencing a significant boom, driven by the need for adaptable workspaces and the rising trend of remote work. In fact, it is projected to grow at a staggering rate of XX% annually over the next five years . With such impressive growth potential, now is the perfect time to seize the opportunity and establish your presence in this dynamic industry.

Before diving into the nitty-gritty of writing your business plan, it is crucial to thoroughly assess the market demand and competitive landscape. Determine the current needs and preferences of potential clients and analyze your competitors' offerings to identify gaps and opportunities for differentiation. This comprehensive understanding will lay the foundation for your unique value proposition.

Market research is an indispensable step in any business plan. Conduct in-depth research on the office takeover industry, analyzing market trends, customer preferences, and potential growth areas. This will equip you with critical insights to make informed decisions and tailor your services to meet the evolving needs of your target audience.

In order to effectively cater to your target audience, it is essential to define your ideal buyer persona. Consider factors such as industry, company size, location, and specific workspace requirements to create a comprehensive profile of your target customer. This detailed understanding will enable you to effectively market your services and build strong client relationships.

With numerous players in the office takeover industry, developing a unique value proposition is paramount to stand out from the crowd. Clearly articulate the benefits and advantages your business offers compared to your competitors, whether it be exceptional customer service, cutting-edge technology, or tailored workspace solutions. Your unique value proposition will be the driving force behind your marketing efforts and the key factor in attracting and retaining clients.

A solid business concept and strategy are the cornerstones of a successful office takeover venture. Define your business objectives, outline your service offerings, and identify your target market segments. Additionally, devise a comprehensive strategy that encompasses pricing, sales tactics, and operational processes. This well-defined roadmap will guide you towards achieving your business goals.

Identifying the required resources and budget is instrumental in ensuring a smooth office takeover operation. Determine the essential physical assets, such as office furniture and equipment, as well as other resources like staffing and technology. Calculate the associated costs and requirements to accurately estimate your initial and ongoing budget.

No business plan is complete without a detailed financial plan and projections. Compile a comprehensive analysis of your projected revenue, expenses, and cash flow. Include a break-even analysis and financial forecasts for the first few years of operation. This financial roadmap will not only guide your decision-making but also serve as a compelling document when seeking funding or investment.

Strategic partnerships and supplier agreements play a vital role in the office takeover industry. Collaborate with reliable suppliers and service providers to ensure the seamless provision of utilities, maintenance, cleaning services, and additional amenities. Creating mutually beneficial partnerships will enhance the overall quality and value of your office takeover services.

Your marketing and branding plan will define how you position your business in the office takeover market. Clearly outline your marketing objectives, target channels, and strategies to reach potential customers effectively. Include branding initiatives, such as logo design, website development, and social media presence, to establish a strong and recognizable brand presence. Laser-focused marketing efforts will help generate leads and establish your business as a go-to provider of office takeover services.

With this comprehensive checklist, you are well-equipped to write a compelling business plan for your office takeover venture. Follow these essential steps to create a roadmap for success in the rapidly expanding and lucrative industry. Don't miss out on the opportunity to capitalize on the increasing demand for flexible and cost-effective workspace solutions. Start drafting your business plan today and embark on your journey to establish a thriving office takeover business.

Identify Market Demand and Competitive Landscape

In order to successfully write a business plan for office takeover, it is crucial to first identify the market demand and competitive landscape. This step involves conducting thorough research to understand the current market trends, customer preferences, and the level of competition in the industry.

Start by analyzing the demand for office takeover services in your target location. Is there a growing need for flexible and cost-effective workspace solutions? Are businesses looking for options to reduce overhead costs and simplify their operations? Understanding the market demand will help you assess the viability of your business idea and identify potential opportunities.

Next, conduct a comprehensive analysis of the competitive landscape. Identify existing office takeover service providers and evaluate their offerings, pricing strategies, and target audience. This will help you identify your unique selling points and differentiate your business from competitors. Additionally, studying the competitive landscape will provide insights into industry best practices and potential gaps in the market that you can capitalize on.

Tips for identifying market demand and competitive landscape:

• Utilize market research tools and platforms to gather data on market trends and customer preferences.
• Attend industry events, conferences, and trade shows to network with professionals and gain industry insights.
• Conduct surveys and interviews with potential customers to gather qualitative data and validate market demand.
• Research online forums, social media groups, and review platforms to understand customer feedback and opinions about existing office takeover services.
• Stay updated on industry news and developments to identify emerging trends and potential business opportunities.

By identifying the market demand and understanding the competitive landscape, you will be equipped with the necessary information to develop a business plan that addresses the needs of your target audience and sets your office takeover service apart from competitors.

Conduct Thorough Market Research

To ensure the success of your office takeover business, conducting thorough market research is essential. This step allows you to gather valuable information about the market demand, current trends, and competitive landscape. Market research helps you make informed decisions and develop a solid business strategy.

Start by identifying the target market for your office takeover services. Determine the size, location, and industry of potential customers who would benefit from your services. Research industry reports, surveys, and studies to gain insights into the demand for flexible workspace solutions in your target market.

Next, analyze the competitive landscape in your chosen market. Identify existing office takeover providers and examine their pricing, services, and customer reviews. This analysis will help you understand your competitors' strengths and weaknesses, allowing you to differentiate your business and offer a unique value proposition.

Tips for conducting market research:

• Utilize online resources, such as industry websites and forums, to gather market insights.
• Attend industry conferences and networking events to connect with potential customers and industry professionals.
• Conduct surveys or interviews with businesses in your target market to understand their workspace needs.
• Stay updated on market trends and emerging technologies that could impact the demand for office takeover services.

By conducting thorough market research, you can gain a deeper understanding of your target market, identify potential opportunities, and make informed decisions for your office takeover business. Remember, the more knowledge you have about the market and competition, the better equipped you'll be to meet customer needs and succeed in the industry.

Define Target Audience And Buyer Persona

Defining your target audience and creating a buyer persona is a crucial step in developing a successful business plan for office takeover services. Understanding who your customers are and what they value will help you tailor your offerings and marketing strategies accordingly.

To define your target audience, start by conducting market research to identify the specific industries, businesses, or individuals who are most likely to require office takeover services. Consider factors such as location, industry size, and growth potential to narrow down your focus.

• Identify the types of businesses or organizations that frequently undergo relocations or expansions.
• Look for industries that value flexibility and cost-effectiveness in their workspace solutions.
• Consider the geographic areas with a high concentration of businesses looking for office takeover services.

Once you have identified your target audience, develop a detailed buyer persona to gain deeper insights into their needs, preferences, and pain points. A buyer persona is a fictional representation of your ideal customer and should include demographic information, job roles, challenges, and aspirations.

To create an effective buyer persona:

• Conduct interviews or surveys with individuals who fit your target audience.
• Gather data on their job titles, responsibilities, and decision-making authority.
• Identify their pain points and challenges related to office setup and management.
• Understand their motivations for seeking office takeover services and what they value in a provider.
• Consider utilizing online tools and resources to assist in creating buyer personas.
• Utilize social media platforms and industry forums to gather insights directly from your target audience.
• Regularly revisit and update your buyer persona as your business evolves and new market trends emerge.

By defining your target audience and creating a detailed buyer persona, you can tailor your business offerings to meet their specific needs. This strategic approach will increase your chances of effectively attracting and retaining customers in the competitive office takeover services market.

Develop A Unique Value Proposition

In order to stand out from your competitors and attract potential customers, it is crucial to develop a unique value proposition that clearly communicates the benefits and advantages your office takeover services offer. Your value proposition should address the specific pain points and challenges faced by your target audience, and highlight how your services can solve them.

Here are some important points to consider when developing your unique value proposition:

Tips for Developing a Unique Value Proposition:

• Identify the key features and benefits of your office takeover services that set you apart from competitors.
• Consider the needs and preferences of your target audience and tailor your value proposition to address them.
• Focus on the unique advantages your services offer, such as cost savings, flexibility, convenience, or additional amenities.
• Clearly communicate the value your services bring to clients, emphasizing how they can improve productivity, efficiency, and overall work environment.
• Ensure your value proposition is easy to understand and compelling, using concise and persuasive language.

By developing a unique value proposition, you can effectively differentiate your office takeover services from competitors and attract potential clients who are seeking a workspace solution that meets their specific needs and requirements. It is important to regularly review and refine your value proposition to stay relevant and continue meeting the evolving demands of the market.

Formulate A Solid Business Concept And Strategy

When it comes to starting an office takeover service, a solid business concept and strategy are essential for success. This step involves developing a clear vision for your business and outlining the actions you need to take to achieve your goals.

First, identify your target market and understand their specific needs and preferences. This will allow you to tailor your services to meet those requirements effectively. Consider factors such as location, industry, company size, and budget.

Next, differentiate your business from your competitors by offering unique value propositions. Focus on what sets you apart and why potential customers should choose your office takeover service over others. This could include providing additional amenities, exceptional customer service, or specialized expertise.

Once you have defined your target market and unique value propositions, it's time to outline your business strategy . This includes how you plan to acquire and onboard new clients, how you will manage the takeover process, and how you will retain customer satisfaction and loyalty.

Consider creating a detailed business plan that outlines your goals, objectives, and strategies. This will serve as a roadmap for building and growing your office takeover service. It should also include an analysis of your competition, potential challenges, and opportunities.

Some tips to keep in mind when formulating your business concept and strategy:

• Focus on a specific niche or industry to stand out from general office takeover services.
• Offer customizable packages or options to cater to different client needs.
• Invest in marketing and branding to build a strong reputation and attract potential customers.
• Stay updated with industry trends and adapt your strategy accordingly to stay competitive.
• Continuously seek feedback from clients to improve your services and enhance customer satisfaction.

By formulating a solid business concept and strategy, you will be well-equipped to navigate the office takeover industry with a clear direction and competitive edge.

Determine The Required Resources And Budget

When starting an office takeover service, it is crucial to determine the required resources and budget to ensure smooth operations and financial sustainability. By carefully assessing your needs and allocating resources efficiently, you can avoid unnecessary expenses and minimize financial risks. Here are some key steps to help you in this process:

• Identify the core resources needed: Begin by identifying the essential resources required for your office takeover service, such as office space, furniture, equipment, and IT infrastructure. Determine the quantity and quality of these resources based on your target audience's needs and preferences.
• Conduct resource cost analysis: Research the market to identify the average costs associated with acquiring and maintaining the necessary resources. This analysis will help you estimate your initial investment expenses as well as ongoing operational costs.
• Estimate operational costs: Consider all the operational expenses you will incur, including rent, utilities, maintenance, cleaning services, insurance, and employee salaries. Create a comprehensive budget that covers both fixed and variable costs, ensuring you have a clear understanding of your financial requirements.
• Evaluate financing options: Determine how you will finance your office takeover service. Explore different financing options such as personal savings, bank loans, investor funding, or partnerships. Consider the benefits and risks associated with each option before making a decision.
• Consider leasing or renting office space and equipment instead of purchasing them outright. This can help reduce immediate financial burdens.
• Include a contingency fund in your budget to account for unforeseen expenses or emergencies.
• Seek advice from financial experts or consultants to ensure accuracy and feasibility of your budget and financial projections.

By determining the required resources and budget early on, you can effectively plan for the financial aspects of your office takeover service. This will enable you to allocate resources wisely and make informed decisions that contribute to the long-term success of your business.

Create A Detailed Financial Plan And Projections

Creating a detailed financial plan and projections is essential for the success of your office takeover business. It provides a clear understanding of your current and future financial situation and helps you make informed decisions. Here are the key steps to creating a comprehensive financial plan:

• Identify your startup costs: Determine the initial investment required to set up your office takeover service. This includes expenses such as acquiring office space, purchasing equipment and furniture, hiring staff, and marketing costs.
• Estimate your operating expenses: Calculate your monthly expenses, which may include rent, utilities, maintenance, cleaning services, and office supplies. Be thorough and consider all ongoing costs required to operate your business efficiently.
• Forecast your revenue: Analyze your market research and competitive landscape to estimate your potential revenue streams. Consider factors such as the number of clients you can acquire, the fees you charge for takeover services, and any additional amenities you offer. Make realistic projections based on these factors.
• Prepare a profit and loss statement: Create a projection of your monthly expenses and revenue to determine your net profit or loss each month. This statement will help you gauge the financial viability of your business and whether adjustments are necessary.
• Develop a cash flow statement: Analyze the timing and amount of money flowing in and out of your business. This will help you identify any potential cash flow issues and determine the amount of working capital you need to keep your operations running smoothly.
• Be conservative with your revenue projections and factor in potential fluctuations or unforeseen circumstances.
• Periodically review and update your financial plan and projections as your business grows and market conditions change.
• Consider seeking professional advice from an accountant or financial advisor to ensure accuracy and validity of your financial plan.

By creating a detailed financial plan and projections, you can effectively manage your finances, make informed decisions, and demonstrate the financial feasibility of your office takeover business to potential investors or lenders. It is an essential step towards long-term success and growth.

Establish Strategic Partnerships And Supplier Agreements

Establishing strategic partnerships and supplier agreements is crucial for ensuring the smooth operation of your office takeover business. These partnerships and agreements will help you acquire the necessary resources and services to meet the needs of your clients, while also providing a competitive edge in the market.

• Identify potential partners: Conduct market research to identify potential partners who can offer complementary services or products to enhance your office takeover service. Look for suppliers who can provide office equipment, furniture, cleaning services, IT support, and other essential resources.
• Evaluate potential partners: Once you have identified potential partners, evaluate their reputation, reliability, and track record in the industry. Consider their pricing, quality of products or services, and customer reviews. Select partners who align with your business values and can meet your clients' expectations.
• Negotiate supplier agreements: Reach out to the selected suppliers and negotiate supplier agreements that outline the terms and conditions of the partnership. These agreements should clearly define the scope of products or services to be provided, pricing and payment terms, delivery schedules, and any other relevant details. Ensure that the agreements are fair, mutually beneficial, and legally binding.
• Consider establishing long-term partnerships with suppliers to secure better pricing and reliable service.
• Regularly review and assess the performance of your partners to ensure they continue to meet your expectations and maintain a high level of service quality.
• Explore opportunities for cost savings and value-added benefits by leveraging your partnerships, such as discounts on bulk purchases or exclusive access to new products or services.
• Stay flexible and open to exploring new partnerships that can contribute to enhancing your office takeover service and staying ahead of the competition.

By establishing strategic partnerships and supplier agreements, you can leverage the expertise and resources of your partners to deliver a comprehensive and high-quality office takeover service. These partnerships can also contribute to your business growth by providing you with a competitive advantage in the market.

Outline A Marketing And Branding Plan

Developing a strong marketing and branding plan is crucial for the success of your office takeover business. It is important to effectively communicate your unique value proposition, attract your target audience, and differentiate your business from competitors. Here are key steps to outline your marketing and branding plan:

• Identify your target audience: Clearly define the specific industries, businesses, or professionals you want to target with your office takeover services. Understand their needs, pain points, and preferences to tailor your marketing efforts accordingly.
• Create a strong brand identity: Develop a distinctive brand identity that reflects the values, mission, and vision of your business. Choose a memorable name, design a compelling logo, and establish a consistent visual identity across all your marketing materials.
• Build an online presence: In the digital age, having a robust online presence is essential. Create a professional website that showcases your services, testimonials, and contact information. Optimize your website for search engines and consider utilizing social media platforms to reach a wider audience.
• Utilize content marketing: Develop valuable content, such as blog posts, articles, and infographics, that educates and engages your target audience. Position yourself as an expert in the industry and provide helpful insights to build trust and credibility.
• Implement targeted advertising: Consider utilizing online advertising platforms like Google Ads or social media advertising to reach your target audience effectively. Craft compelling ad copies and monitor the performance of your campaigns to optimize their effectiveness.
• Network and establish partnerships: Attend industry events, conferences, and networking sessions to connect with potential clients and partners. Collaborate with complementary businesses, such as real estate agents or business consultants, to expand your reach and gain referrals.
• Collect and showcase client testimonials: Positive reviews and testimonials from satisfied clients can significantly influence the decision-making process of potential customers. Regularly collect feedback from your clients and showcase them on your website, social media platforms, and marketing materials.
• Stay updated with the latest marketing trends and tactics to stay ahead of the competition.
• Monitor and analyze the performance of your marketing efforts regularly to identify areas of improvement.
• Consider offering referral programs or incentives for existing clients to refer new customers to your office takeover services.

In conclusion, writing a business plan for an office takeover requires careful consideration and thorough research. By following these 9 steps, you can develop a solid plan that outlines your market demand, target audience, value proposition, and financial projections. Additionally, establishing strategic partnerships and creating a detailed marketing and branding plan will help ensure the success of your office takeover business. With the increasing demand for flexible workspace solutions, now is the perfect time to embark on this entrepreneurial venture.

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A Complete Guide on How to Seamlessly Take Over an Existing Project

As project managers, we are sometimes tasked with taking over a project in progress. In this guide, we will outline how to plan a project takeover and execute it flawlessly. Use the included project manager checklist for your upcoming projects.

By Luciano Castro

Luciano is a business-driven manager with over 15 years of experience as a CTO and CEO in multinational companies and startups.

PREVIOUSLY AT

Introduction

As project managers (PMs), we rarely have the luxury of starting a project from scratch. Most of the time, when we manage a project, it has already been started by someone else before us. To successfully take over and execute projects, a project manager has to apply a certain discipline to make sure everything is taken into consideration.

In this guide, we will outline the most important steps that we think are necessary to pay attention to by dissecting our problem into five different levels:

This takeover process is totally independent of the methodology used to run the project ( Waterfall , Agile , etc.) and indicates the scope of information to gather and actions to take.

As a project manager, you should aim to gather all relevant information in each of these categories as soon as you start the project. Some of this will happen organically as you meet your new colleagues and team members. However, other things will require you to be more proactive in setting up meetings, retrieving information, and documenting from internal sources. Whichever situation you find yourself in, we hope this guide will be a useful reference point for you in making sure you have a smooth project transition.

Company Level

Company mission and vision.

Too many PMs jump into the daily tasks without getting a good grasp of the company’s mission and vision. These terms might seem cliché or detached from the everyday reality of the employees, yet cannot be understated, especially for PMs taking projects with existing history.

In some cases—typically in smaller companies—they might not be explicitly stated altogether. Other other cases, we find the mission and vision combined into one statement—a sort of raison d’etre . However, here are two reasons why you should spend at least some time understanding both the company mission and vision when taking over a project:

• It provides a mental foundation for your high-level overview. If you don't instantly grasp the meaning, ask your direct manager to break it down for you and let them explain how they understand it. It will make internalizing the goals of the business, product, and project much easier for you.
• It provides purpose to you and your team. Which of these is more exciting?

If you internalize the company mission and vision, you will find more purpose in your daily tasks, especially when things get difficult. Moreover, you will be better equipped to inspire your team to execute a project when you can foster and cite a shared sense of purpose.

Company Culture

Company culture is an important aspect to look at when taking over a project, especially in a new company. Companies can have very different types of culture, which impact how people communicate and work together. This meta information about the social fabric and the relationships between different parts of the company can be very useful when trying to negotiate budgets, influence stakeholders, or simply communicate with other departments.

For example, traditional financial institutions, such as banks, tend to have a very rigid company culture that has a lot of unwritten rules about everything, from the dress code to which department has specific responsibilities or who to ask for help. This needs to be taken into account when taking over so that you can better fit in and work with your team within the cultural norms they are used to.

On the other hand, some startups have a remote culture, where people rarely meet in person. Instead, most of the social interactions happen over tools, such as Slack and JIRA. Such a “remote first” culture might be unfamiliar to the project managers coming from a more traditional project management environment. In this scenario, make sure that you have a good microphone and webcam to make the communication as seamless as possible. Also, reach out to people regularly to foster relationships.

When taking over a project, become aware of the cultural norms that exist in the new company and try to adjust your actions and management style accordingly.

Local vs. Global Decision-making

Within any company, there are decisions that a project manager can make on their own as opposed to rules and procedures that they have to follow. The procedures tend to change as a company grows. More decisions are taken globally to reduce chaos and standardize how the company operates.

This is important to understand because it will influence how you can make decisions in your project later in the project lifecycle . For example, the responsibilities of a project manager can be very different across a startup compared to an enterprise . Of course, there will always be a distribution—for example, when a PM can formulate a course of action but would need an approval from senior management.

Here are a few situations and how they would differ if decisions are made locally or globally:

Knowing which case your company falls in to will help you to prepare for the decision-making in your project.

Company Summary Checklist:

• Company Mission and Vision – Figure out what the company does and why
• Company Culture – Understand your company's cultural norms
• Local vs. Global Decision-making – Understand the decision-making process

Business and Product Level

The business model.

On the first days of a project takeover, you need to spend the time to create a mental high-level picture of the whole company, business, and product, and how your project fits into those. In one way or another, your company is making money to be able to carry out the mission and the vision.

You don’t need to spend a lot of time memorizing all the revenue streams and growth metrics in the initial stages of a project takeover. However, try to grasp how money moves in and out of the company as well as what the main revenue drivers and cost centers are. Also, ask around if there are any big company-wide short to mid-term goals (like entering a new market). Having knowledge about this will help you to better understand the choices that are being made and how they will impact your project in the future.

The Product

Your company will have one or multiple products that are generating revenue, and your project will be part of one of them. Understanding the product will help you better place your project within the right context. A good place to start is testing out the product yourself. Below is a list of questions you should address to get a better initial grasp of the product:

• Is the product internal or external?
• Who are the main users of the product? Are the same people buying the product?
• What stage is this product in (MVP, growing, declining)?
• How is the product marketed?
• Who are the main competitors?

Knowing answers to these questions will help you to better understand the reasons for your project and where it fits in the overall product business value chain.

Stakeholders

One of the most important jobs of a PM is stakeholder management. Even if you are delivering on time and within budget, your team might be working on outdated stakeholder needs. Alternatively, if the stakeholders do not have enough information, they might not be invested in your project. Stakeholder management is an ongoing, daily task but there are a few important things to consider at the very beginning when taking over a project.

The Project Manager Book of Knowledge (PMBOK) has a whole chapter on identifying stakeholders with the necessary tools and methodologies. This work is very important and will take some time, but here are the most important stakeholder groups that you should be looking at on the first day:

• Project Team. This includes team members like developers, designers, QA experts, and others. Your team can provide you with a deep insight into the history of the product and business decisions and how it impacted their work previously. This can help you identify the challenges that might repeat in the future.
• Project Sponsor. This can be one person (your direct manager or a startup co-founder) or a group of people within an enterprise, who have conceived the project and secured funding for it. A project sponsor is a champion of the project and should be one of the first stakeholders you contact to get an overview of the existing project and its history.
• Portfolio Manager or Program Manager. These roles might not be present in all companies; however, these they are usually managing multiple functions and business-wise related projects at once. They will help you put your project into a wider context and figure out if there are any related projects and other PMs that you should engage.
• Customers or Users. Whether you are working on a B2C, B2B, or internal product, your project will still have some sort of a user group. If your team includes a product manager, then they should be able to provide an overview of this stakeholder group and their expectations. Otherwise, contact them to understand what’s their current feedback and what they expect of your project in the future.

Once you identified these stakeholders, you can make a RACI matrix to better understand where they fit in the overall project structure, and if and how they will impact your project.

Business Summary Checklist:

• Business Model – Understand the business model and revenue streams
• Product – Get a good grasp of the product. Try to use it yourself
• Stakeholders – Reach out to key stakeholders

Project Level

Why are you taking over.

The very first question you should ask before even looking at the budget, schedule, team, or anything else is, “Why are you taking over?” Three scenarios are most plausible:

• There was no project manager before and things started slipping through the cracks. This typically happens when a small and short project becomes bigger and longer. There might be no particular problems, just that more structure and progress visibility is needed. Implement the suggestions from this article relevant to your project.
• The project manager was removed or fired. If this is the case, then you should ask the key stakeholders where the biggest problems were and make sure you focus on those areas in the beginning. Try to find some quick wins to gain the confidence and trust of the stakeholders.
• The previous project manager left. Did the PM leave because they got a better offer somewhere but the stakeholders were happy with their work? If so, try to maintain the status quo while looking for opportunities for improvement. If the PM left because they weren’t getting along with some stakeholders then if possible, contact the previous PM and discuss this. Building rapport with the stakeholders in question will be of key importance for you.

Scope, Schedule, and Budget

Figuring out the scope of an existing project is different compared to when you are starting a new project. In the latter case, you gather requirements from stakeholders and define the scope based on the budget you have. When you are taking over, someone has presumably done this work and now your job is to understand if the defined scope is realistic and achievable.

The first natural step is to look through the existing project assets. It could be a Gantt chart, work breakdown structure (WBS), or an Agile backlog and release plan. Sometimes, you will be constrained by hours dedicated by internal company teams instead of the direct budget. In this case, try to figure out if they have any other deadlines and if your project can be delayed because of their other commitments.

Whatever you find, you have to realign the project scope and schedule with your key stakeholders. Remember the question “Why are you taking over?” Unmanaged stakeholder expectations might be the reason why the previous PM was removed. Thus, in this case, you were selected to make sure this doesn’t happen again. It might turn out that the scope, schedule, or budget are unrealistic. Come to this conclusion as early on as possible and discuss it with the project sponsor. The initial stages of project takeover are a good time to correct the mistakes made before you, but the longer you wait to resolve these problems, the more your stakeholders might question your ability to complete the project.

Finding Project Champions

While exploring the project and its stakeholders, it is important to find out more about people who are invested in your project’s success. Some of these stakeholders will be what it is sometimes called project champions .

These are the people who agree with the cause of your projects even if they are not directly responsible for it. They will go out of their way to help your project succeed. For example, if you are building a new time tracking application, project champions would be people who are interested in seeing your project completed and deployed in the company.

It’s important to identify them early because they can provide valuable insight into what is needed for your project to be successful. Sometimes they can also indirectly help you by testing out early versions of the product and providing feedback or by advocating the importance of the product to their peers.

Try and find these champions by talking to your project teammates and people who originally developed a concept for the initiative. Once found, be sure to keep them informed and updated about your project lifecycle.

Project Summary Checklist:

• Why Are You Taking Over? – Did the previous PM leave? Was he or she fired? Or was there no PM to begin with?
• Key Assets – Understand the scope, schedule, and budget
• Project Champions – Find your key supporters

Team Relationships and Structure

If you are taking over a project, the team will already be in place. You first need to treat it as a constant and figure out how the team is structured, how it operates, and who the main influencers within the team are. Was the team gathered just for this project or has it worked together in the past? Which stage the team is at— forming, storming, norming, or performing ? Is the team co-located or remote? Is everyone an employee or are there contractors or freelancers who also work in the team.

All of these questions will impact on your ability to successfully manage the project and will require for you to adjust your approach along the way. For example, if your team is still in the storming phase, you will have to step in and manage the relationships of the team members to push them into normalizing them before they can reach their maximum level of performance. The team might also be at the separate stages within itself. If you have few separate offices, different parts of the team can have a very different dynamic, and you might need to put in the extra effort to normalize the team dynamic across the team but also across different locations.

Also if you have team members that are operating remotely, you will have to make sure that they are included in the conversations and day to day decision making. Otherwise, they can start feeling like they are just being assigned tasks and they are not a real part of the team. This can be mitigated by everyone using the same tools for submitting new ideas and working on them. If, for example, new ideas are submitted on Slack or another remote collaboration tool by everyone, it gives a chance for remote team members to join the discussions at the equal access level.

Team Dynamics and History

If the previous PM was removed, one reason could have been that they were not able to manage the team effectively. If that turns out to be the case, try to figure out the root causes of the problems and use the project takeover as an opportunity to restart the team relationships.

Also, gather all the informal information about the team member statuses, and their history of working with each other. This tacit information can provide some key insights into the reasons for your team’s performance or lack of it. For example, if there is a dominating member within your project that others are afraid to challenge it could be that they are a root cause of a lot of friction within the team .

Staffing and Growth Status

Having analyzed the project scope, schedule, and budget, does the project team seem adequately staffed to complete the project? If not, try to find out the reasons behind the situation. Maybe there is a blocker in the hiring process; maybe HR has not been able to find the in-demand specialists.

If that is the case, you can try to look for remote professionals or reach out to staffing agencies to fill the roles needed. Since staffing can be one of the major bottlenecks for many projects, it is important that you do it early on, therefore it’s a key thing to check when taking over the project.

Team Summary Checklist:

• Project Team Status – Figure out your team's relationships and structure
• Project Team History – Understand team dynamics and history
• Staffing and Growth Status – Understand if your team is adequately staffed

Project Manager Level

Expectations for the pm.

Different companies and projects have very different expectations about what project managers should do and why . To avoid confusion and disagreements later on, it is important to figure out what is expected of a PM both from the client perspective and from the perspective of all the other members of the team.

For example, some companies expect that a project manager should also be a Scrum master. Even if this is a separate role, some projects and companies have expectations that go beyond the original job description of a PM . This might not be totally clear before you start a project, so remember to probe this matter once you do.

It’s important to also figure out how project manager performance is measured and valued. Are you going to have a clear set of KPIs you are going to judge at? Or is your team’s success the only performance indicator your stakeholders will use? How often will you have performance reviews, and will you have someone who will be your mentor or a company “buddy”?

Since this impacts the project manager directly, it’s good to do this as early as possible to be able to perform according to the expectations.

Procurement Process

Depending on what backlog your new team has in front of you, you can be hit by a procurement-related task on the first day or after three months. Even if it is the latter case, it is very important to have at least a rough idea of how procurement and vendor selection works in your company. This knowledge will let you make better decisions about backlog items and project schedule and can help you avoid unexpected delays.

Whatever the size of your company, there will be some process for procurement even if it is not written down anywhere. Ask your direct manager or other PMs how vendors are selected and confirmed. You might be required you to to create a request for proposal (RFP), rank all the submissions based on specified criteria, and choose the winner.

Alternatively, the process could be less stringent and you could be able to choose vendors independently. In this case, make sure to ask around about already existing vendors. Even though your team members have been working here for longer, they might not be aware of all the parts of the platform and the different vendors used by other teams. Also, ask your direct manager if you need to sign off with them about new vendors and how you should provide this information.

One more thing to note is the service-level agreement (SLA) expectations within your company. If your project is business critical, then you should be looking at vendors with 24-hour supports and quick problem resolution timeframes. If the expectations are not that high, then you could be looking at cheaper options with longer response times.

Create a Vendor List

If there wasn’t one in place already, start an existing vendor list for your project. You don’t have to fill it out to 100% right away. Just start a new document with the following fields:

Name – You can hyperlink to their website. Category – Don’t think about this too much in the beginning, just write down what makes the most sense at the time and change it later if clearer categories emerge. Short description – Be brief, just enough to let you or others understand how the vendor helps you out (e-shop payments, infographics freelancer). Vendor contact – A good idea to keep those handy as they can get lost in emails. Internal contact – If there is someone in your team or the company who is keeping in contact with the vendor or a developer who has integrated a third-party solution. This would be the person who knows the most about the vendor and your company’s engagement with it.

Having this list will help you to track and manage project performance related to each vendor. Also, it will help you to have a much better grasp of the current situation in the project and where the main bottlenecks might be.

Project Manager Summary Checklist:

• Expectations for the PM – Figure out the expectations and KPIs for a PM in your project
• Procurement Process – Find out about the procurement processes
• Create a Vendor List – List all the potential vendors for your project

This guide and checklist is no way exhaustive; however, it tries to provide the best possible overview of the things you should check first when taking over a project, especially in the absence of a clear project handoff or a project manager transition plan. Some of these items might be familiar and others might be less so, but going through all of them will ensure you have a solid foundation to take over a project.

Below is a summarized checklist you can use for your future reference.

Key Takeaways – Project Takeover Checklist

• Why Are You Taking Over? – Did the previous PM left, was fired or there was none

Further Reading on the Toptal Blog:

• 3 Essential Project Manager Skills and How to Hone Them
• Implementing a Project Management Office: 4 Steps to Success

Understanding the basics

What are the four stages of team development within a project.

Forming, storming, norming, and performing. This is according to Bruce Tuckman’s stages of group development, first proposed in 1965.

Why do project managers get assigned to existing projects?

A project manager might be assigned to an existing project because there was no PM before in the team and the project required more structured management. If there was a PM, they might have been removed because they were not competent enough for the project. Lastly, the PM might have left the company.

Which stakeholders you should engage first when taking over a project?

There are many different stakeholders in any project, all of which should be managed during a project. However, when taking over a project, you should most importantly reach out and build relationships with the project team, project sponsor, program manager, and customers or users.

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FAC Number: 2024-05 Effective Date: 05/22/2024

Part 7 - Acquisition Planning

7.000 scope of part., subpart 7.1 - acquisition plans, 7.101 definitions., 7.102 policy., 7.103 agency-head responsibilities., 7.104 general procedures., 7.105 contents of written acquisition plans., 7.106 additional requirements for major systems., 7.107 additional requirements for acquisitions involving consolidation, bundling, or substantial bundling., 7.107-1 general., 7.107-2 consolidation., 7.107-3 bundling., 7.107-4 substantial bundling., 7.107-5 notifications., 7.107-6 solicitation provision., 7.108 additional requirements for telecommuting., subpart 7.2 - planning for the purchase of supplies in economic quantities, 7.200 scope of subpart., 7.201 [reserved], 7.202 policy., 7.203 solicitation provision., 7.204 responsibilities of contracting officers., subpart 7.3 - contractor versus government performance, 7.300 [reserved], 7.301 definitions., 7.302 policy., 7.303 [reserved], 7.304 [reserved], 7.305 solicitation provisions and contract clause., subpart 7.4 - equipment acquisition, 7.400 scope of subpart., 7.401 acquisition considerations., 7.402 acquisition methods., 7.403 general services administration assistance and omb guidance., 7.404 contract clause., subpart 7.5 - inherently governmental functions, 7.500 scope of subpart., 7.501 [reserved], 7.502 applicability., 7.503 policy..

This part prescribes policies and procedures for-

(a) Developing acquisition plans;

(b) Determining whether to use commercial or Government resources for acquisition of supplies or services;

(c) Deciding whether it is more economical to lease equipment rather than purchase it; and

(d) Determining whether functions are inherently governmental.

As used in this subpart-

Acquisition streamlining means any effort that results in more efficient and effective use of resources to design and develop, or produce quality systems. This includes ensuring that only necessary and cost-effective requirements are included, at the most appropriate time in the acquisition cycle, in solicitations and resulting contracts for the design, development, and production of new systems, or for modifications to existing systems that involve redesign of systems or subsystems.

Life-cycle cost means the total cost to the Government of acquiring, operating, supporting, and (if applicable) disposing of the items being acquired.

Order means an order placed under a-

(1) Federal Supply Schedule contract; or

(2) Task- order contract or delivery- order contract awarded by another agency, ( i.e., Governmentwide acquisition contract or multi-agency contract ).

Planner means the designated person or office responsible for developing and maintaining a written plan, or for the planning function in those acquisitions not requiring a written plan.

(a) Agencies shall perform acquisition planning and conduct market research (see part  10 ) for all acquisitions in order to promote and provide for—

(1) Acquisition of commercial products or commercial services , or to the extent that commercial products suitable to meet the agency’s needs are not available, nondevelopmental items , to the maximum extent practicable ( 10 U.S.C. 3453 and 41 U.S.C. 3307 ); and

(2) Full and open competition (see part  6 ) or, when full and open competition is not required in accordance with part  6 , to obtain competition to the maximum extent practicable, with due regard to the nature of the supplies or services to be acquired ( 10 U.S.C. 3206(a)(1) and 41 U.S.C. 3306a)(1) ).

(3) Selection of appropriate contract type in accordance with part  16 ; and

(4) Appropriate consideration of the use of pre-existing contracts, including interagency and intra-agency contracts, to fulfill the requirement, before awarding new contracts. (See 8.002 through 8.004 and subpart  17.5 ).

(b) This planning shall integrate the efforts of all personnel responsible for significant aspects of the acquisition . The purpose of this planning is to ensure that the Government meets its needs in the most effective, economical, and timely manner. Agencies that have a detailed acquisition planning system in place that generally meets the requirements of 7.104 and 7.105 need not revise their system to specifically meet all of these requirements.

The agency head or a designee shall prescribe procedures f or the following:

(a) Promoting and providing for full and open competition (see part  6 ) or, when full and open competition is not required in accordance with part  6 , for obtaining competition to the maximum extent practicable, with due regard to the nature of the supplies and services to be acquired ( 10 U.S.C. 3206(a)(1) and 41 U.S.C. 3306(a)(1) ).

(b) Encouraging offerors to supply commercial products or commercial services , or to the extent that commercial products suitable, to meet the agency needs are not available, nondevelopmental items in response to agency solicitations ( 10 U.S.C. 3453 and 41 U.S.C. 3307 ).

(c) Ensuring that acquisition planners address the requirement to specify needs, develop specifications, and to solicit offers in such a manner to promote and provide for full and open competition with due regard to the nature of the supplies and services to be acquired ( 10 U.S.C. 3206(a)(1) and 41 U.S.C. 3306(a)(1) ). (See part  6 and 10.002 .)

(d) Ensuring that acquisition planners document the file to support the selection of the contract type in accordance with subpart 16.1 .

(e) Establishing criteria and thresholds at which increasingly greater detail and formality in the planning process is required as the acquisition becomes more complex and costly, including for cost-reimbursement and other high-risk contracts ( e.g. , other than firm-fixed-price contracts) requiring a written acquisition plan. A written plan shall be prepared for cost reimbursement and other high-risk contracts other than firm-fixed-price contracts, although written plans may be required for firm-fixed-price contracts as appropriate.

(f) Ensuring that the statement of work is closely aligned with performance outcomes and cost estimates.

(g) Writing plans either on a systems basis, on an individual contract basis, or on an individual order basis, depending upon the acquisition .

(h) Ensuring that the principles of this subpart are used, as appropriate, for those acquisitions that do not require a written plan as well as for those that do.

(i) Designating planners for acquisitions .

(j) Reviewing and approving acquisition plans and revisions to these plans to ensure compliance with FAR requirements including 7.104 and part 16 . For other than firm-fixed-price contracts, ensuring that the plan is approved and signed at least one level above the contracting officer .

(k) Establishing criteria and thresholds at which design-to-cost and life-cycle-cost techniques will be used.

(l) Establishing standard acquisition plan formats, if desired, suitable to agency needs.

(m) Waiving requirements of detail and formality, as necessary, in planning for acquisitions having compressed delivery or performance schedules because of the urgency of the need.

(n) Assuring that the contracting officer , prior to contracting , reviews:

(1) The acquisition history of the supplies and services; and

(2) A description of the supplies , including, when necessary for adequate description, a picture, drawing, diagram, or other graphic representation.

(o) Ensuring that agency planners include use of the metric system of measurement in proposed acquisitions in accordance with 15 U.S.C.205b (see 11.002 (b)) and agency metric plans and guidelines.

(p) Ensuring that agency planners -

(1) Comply with the policy in 11.002 (d) regarding procurement of sustainable products and services (as defined in 2.101 ) in accordance with subpart 23.1 ;

(2) Comply with the Guiding Principles for Sustainable Federal Buildings and Associated Instructions (Guiding Principles), for the design, construction , renovation, repair, or deconstruction of Federal buildings (see 36.104). The Guiding Principles can be accessed at https://www.sustainability.gov/​pdfs/​guiding_​principles_​for_​sustainable_​federal_​buildings.pdf ; and

(3) Require contractor compliance with Federal environmental requirements, when the contractor is operating Government-owned facilities or vehicles, to the same extent as the agency would be required to comply if the agency operated the facilities or vehicles.

(q) Ensuring that acquisition planners specify needs and develop plans, drawings, work statements, specifications, or other product or service requirements ( e.g. , help desks, call centers, training services, and automated self-service technical support) descriptions that address information and communication technology (ICT ) accessibility standards (see 36 CFR 1194.1 ) in proposed acquisitions and that these standards are included in requirements planning (see subpart  39.2 ).

(r) Making a determination, prior to issuance of a solicitation for advisory and assistance services involving the analysis and evaluation of proposals submitted in response to a solicitation , that a sufficient number of covered personnel with the training and capability to perform an evaluation and analysis of proposals submitted in response to a solicitation are not readily available within the agency or from another Federal agency in accordance with the guidelines at 37.204 .

(s) Ensuring that no purchase request is initiated or contract entered into that would result in the performance of an inherently governmental function by a contractor and that all contracts or orders are adequately managed so as to ensure effective official control over contract or order performance.

(t) Ensuring that knowledge gained from prior acquisitions is used to further refine requirements and acquisition strategies. For services, greater use of performance-based acquisition methods should occur for follow-on acquisitions .

(u) Ensuring that acquisition planners , to the maximum extent practicable-

(1) Structure contract requirements to facilitate competition by and among small business concerns; and

(2) Avoid unnecessary and unjustified bundling that precludes small business participation as contractors (see 7.107 ) ( 15 U.S.C. 631(j) ).

(v) Ensuring that agency planners on information technology acquisitions comply with the capital planning and investment control requirements in 40 U.S.C. 11312 and OMB Circular A-130.

(w) Ensuring that agency planners on information technology acquisitions comply with the information technology security requirements in the Federal Information Security Management Act ( 44 U.S.C. 3544 ), OMB’s implementing policies including Appendix III of OMB Circular A-130, and guidance and standards from the Department of Commerce’s National Institute of Standards and Technology.

(x) Ensuring that agency planners use project labor agreements when required (see subpart 22.5 and 36.104 Policy. ).

(y) Ensuring that contracting officers consult the Disaster Response Registry via https://www.sam.gov , Search Records, Advanced Search, Disaster Response Registry Search as a part of acquisition planning for debris removal, distribution of supplies , reconstruction, and other disaster or emergency relief activities inside the United States and outlying areas . (See 26.205 ).

(a) Acquisition planning should begin as soon as the agency need is identified, preferably well in advance of the fiscal year in which contract award or order placement is necessary. In developing the plan, the planner shall form a team consisting of all those who will be responsible for significant aspects of the acquisition , such as contracting , small business, fiscal, legal, and technical personnel. If contract performance is to be in a designated operational area or supporting a diplomatic or consular mission, the planner shall also consider inclusion of the combatant commander or chief of mission , as appropriate. The planner should review previous plans for similar acquisitions and discuss them with the key personnel involved in those acquisitions . At key dates specified in the plan or whenever significant changes occur, and no less often than annually, the planner shall review the plan and, if appropriate, revise it.

(b) Requirements and logistics personnel should avoid issuing requirements on an urgent basis or with unrealistic delivery or performance schedules, since it generally restricts competition and increases prices. Early in the planning process, the planner should consult with requirements and logistics personnel who determine type, quality, quantity, and delivery requirements.

(c) The planner shall coordinate with and secure the concurrence of the contracting officer in all acquisition planning . If the plan proposes using other than full and open competition when awarding a contract, the plan shall also be coordinated with the cognizant advocate for competition.

(d) The planner shall coordinate the acquisition plan or strategy with the cognizant small business specialist when the strategy contemplates an acquisition meeting the thresholds in 7.107-4 for substantial bundling unless the contract or task order or delivery order is totally set-aside for small business under part  19 . The small business specialist shall notify the agency Office of Small and Disadvantaged Business Utilization or the Office of Small Business Programs if the strategy involves-

(1) Bundling that is unnecessary or unjustified; or

(2) Bundled or consolidated requirements not identified as such by the agency (see 7.107 ).

(e) The planner shall ensure that a COR is nominated as early as practicable in the acquisition process by the requirements official or in accordance with agency procedures. The contracting officer shall designate and authorize a COR as early as practicable after the nomination. See 1.602-2 (d).

In order to facilitate attainment of the acquisition objectives, the plan must identify those milestones at which decisions should be made (see paragraph (b)(21) of this section). The plan must address all the technical, business, management, and other significant considerations that will control the acquisition . The specific content of plans will vary, depending on the nature, circumstances, and stage of the acquisition . In preparing the plan, the planner must follow the applicable instructions in paragraphs (a) and (b) of this section, together with the agency’s implementing procedures. Acquisition plans for service contracts or orders must describe the strategies for implementing performance-based acquisition methods or must provide rationale for not using those methods (see subpart  37.6 ).

(a) Acquisition background and objectives -

(1) Statement of need . Introduce the plan by a brief statement of need. Summarize the technical and contractual history of the acquisition . Discuss feasible acquisition alternatives, the impact of prior acquisitions on those alternatives, and any related in-house effort.

(2) Applicable conditions . State all significant conditions affecting the acquisition , such as-

(i) Requirements for compatibility with existing or future systems or programs; and

(ii) Any known cost, schedule, and capability or performance constraints.

(3) Cost. Set forth the established cost goals for the acquisition and the rationale supporting them, and discuss related cost concepts to be employed, including, as appropriate, the following items:

(i) Life-cycle cost . Discuss how life-cycle cost will be considered. If it is not used, explain why. If appropriate, discuss the cost model used to develop life-cycle-cost estimates.

(ii) Design-to-cost . Describe the design-to-cost objective(s) and underlying assumptions, including the rationale for quantity, learning-curve, and economic adjustment factors. Describe how objectives are to be applied, tracked, and enforced. Indicate specific related solicitation and contractual requirements to be imposed.

(iii) Application of should -cost . Describe the application of should -cost analysis to the acquisition (see 15.407-4 ).

(4) Capability or performance . Specify the required capabilities or performance characteristics of the supplies or the performance standards of the services being acquired and state how they are related to the need.

(5) Delivery or performance-period requirements . Describe the basis for establishing delivery or performance-period requirements (see subpart  11.4 ). Explain and provide reasons for any urgency if it results in concurrency of development and production or constitutes justification for not providing for full and open competition .

(6) Trade-offs . Discuss the expected consequences of trade-offs among the various cost, capability or performance, and schedule goals.

(7) Risks . Discuss technical, cost, and schedule risks and describe what efforts are planned or underway to reduce risk and the consequences of failure to achieve goals. If concurrency of development and production is planned, discuss its effects on cost and schedule risks.

(8) Acquisition streamlining . If specifically designated by the requiring agency as a program subject to acquisition streamlining , discuss plans and procedures to-

(i) Encourage industry participation by using draft solicitations , presolicitation conferences, and other means of stimulating industry involvement during design and development in recommending the most appropriate application and tailoring of contract requirements;

(ii) Select and tailor only the necessary and cost-effective requirements; and

(iii) State the timeframe for identifying which of those specifications and standards, originally provided for guidance only, shall become mandatory.

(b) Plan of action—

(1) Sources .

(i) Indicate the prospective sources of supplies or services that can meet the need.

(ii) Consider required sources of supplies or services (see part  8 ) and sources identifiable through databases including the Governmentwide database of contracts and other procurement instruments intended for use by multiple agencies available at https://www.contractdirectory.gov/contractdirectory/ .

(iii) Include consideration of small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, and women-owned small business concerns (see part  19 ).

(iv) Consider the impact of any consolidation or bundling that might affect participation of small businesses in the acquisition (see 7.107 ) ( 15 U.S.C. 644(e) and 15 U.S.C. 657q ). When the proposed acquisition strategy involves bundling , identify the incumbent contractors and contracts affected by the bundling .

(v) Address the extent and results of the market research and indicate their impact on the various elements of the plan (see part  10 ).

(2) Competition.

(i) Describe how competition will be sought, promoted, and sustained throughout the course of the acquisition . If full and open competition is not contemplated, cite the authority in 6.302 , discuss the basis for the application of that authority, identify the source(s), and discuss why full and open competition cannot be obtained.

(ii) Identify the major components or subsystems. Discuss component breakout plans relative to these major components or subsystems. Describe how competition will be sought, promoted, and sustained for these components or subsystems.

(iii) Describe how competition will be sought, promoted, and sustained for spares and repair parts. Identify the key logistic milestones, such as technical data delivery schedules and acquisition method coding conferences, that affect competition.

(iv) When effective subcontract competition is both feasible and desirable, describe how such subcontract competition will be sought, promoted, and sustained throughout the course of the acquisition . Identify any known barriers to increasing subcontract competition and address how to overcome them.

(3) Contract type selection . Discuss the rationale for the selection of contract type. For other than firm-fixed-price contracts, see 16.103 (d) for additional documentation guidance. Acquisition personnel shall document the acquisition plan with findings that detail the particular facts and circumstances, ( e.g. , complexity of the requirements, uncertain duration of the work, contractor’s technical capability and financial responsibility, or adequacy of the contractor’s accounting system), and associated reasoning essential to support the contract type selection. The contracting officer shall ensure that requirements and technical personnel provide the necessary documentation to support the contract type selection.

(4) Source-selection procedures. Discuss the source selection procedures for the acquisition , including the timing for submission and evaluation of proposals, and the relationship of evaluation factors to the attainment of the acquisition objectives (see subpart  15.3 ). When an EVMS is required (see FAR 34.202 (a)) and a pre-award IBR is contemplated, the acquisition plan must discuss-

(i) How the pre-award IBR will be considered in the source selection decision;

(ii) How it will be conducted in the source selection process (see FAR 15.306 ); and

(iii) Whether offerors will be directly compensated for the costs of participating in a pre-award IBR.

(5) Acquisition considerations.

(i) For each contract contemplated, discuss use of multiyear contracting , options , or other special contracting methods (see part  17 ); any special clauses, special solicitation provisions, or FAR deviations required (see subpart  1.4 ); whether sealed bidding or negotiation will be used and why; whether equipment will be acquired by lease or purchase (see subpart  7.4 ) and why; and any other contracting considerations. Provide rationale if a performance-based acquisition will not be used or if a performance-based acquisition for services is contemplated on other than a firm-fixed-price basis (see 37.102 (a), 16.103 (d), and 16.505 (a)(3)).

(ii) For each order contemplated, discuss-

(A) For information technology acquisitions , how the capital planning and investment control requirements of 40 U.S.C. 11312 and OMB Circular A-130 will be met (see 7.103 (v) and part  39 ); and

(B) Why this action benefits the Government, such as when-

(1) The agency can accomplish its mission more efficiently and effectively ( e.g., take advantage of the servicing agency ’s specialized expertise; or gain access to contractors with needed expertise); or

(2) Ordering through an indefinite delivery contract facilitates access to small business concerns, including small disadvantaged business concerns , 8(a) contractors, women-owned small business concerns , HUBZone small business concerns, veteran-owned small business concerns, or service-disabled veteran-owned small business concerns.

(iii) For information technology acquisitions using Internet Protocol, discuss whether the requirements documents include the Internet Protocol compliance requirements specified in 11.002 (g) or a waiver of these requirements has been granted by the agency’s Chief Information Officer.

(iv) For information technology acquisitions , identify the applicable ICT accessibility standard(s). When an exception or an exemption to the standard(s) applies, the plan must list the exception and/or exemption, and the item(s) to which it applies. For those items listing 39.204 or 39.205 (a)(1) or (2), the corresponding accessibility standard does not need to be identified. See subpart  39.2 and 36 CFR 1194.1 .

(v) For each contract (and order ) contemplated, discuss the strategy to transition to firm-fixed-price contracts to the maximum extent practicable. During the requirements development stage, consider structuring the contract requirements, i.e. , line items , in a manner that will permit some, if not all, of the requirements to be awarded on a firm-fixed-price basis, either in the current contract, future option years, or follow-on contracts. This will facilitate an easier transition to a firm-fixed-price contract, because a cost history will be developed for a recurring definitive requirement.

(6) Budgeting and funding. Include budget estimates, explain how they were derived, and discuss the schedule for obtaining adequate funds at the time they are required (see subpart  32.7 ).

(7) Product or service descriptions. Explain the choice of product or service description types (including performance-based acquisition descriptions) to be used in the acquisition .

(8) Priorities, allocations, and allotments . When urgency of the requirement dictates a particularly short delivery or performance schedule, certain priorities may apply. If so, specify the method for obtaining and using priorities, allocations, and allotments, and the reasons for them (see subpart  11.6 ).

(9) Contractor versus Government performance . Address the consideration given to OMB CircularNo.A-76 (see subpart  7.3 ).

(10) Inherently governmental functions . Address the consideration given to subpart  7.5 .

(11) Management information requirements . Discuss, as appropriate, what management system will be used by the Government to monitor the contractor’s effort. If an Earned Value Management System is to be used, discuss the methodology the Government will employ to analyze and use the earned value data to assess and monitor contract performance. In addition, discuss how the offeror ’s/contractor’s EVMS will be verified for compliance with the Electronic Industries Alliance Standard 748 (EIA-748), Earned Value Management Systems , and the timing and conduct of integrated baseline reviews (whether prior to or post award). (See 34.202 .)

(12) Make or buy. Discuss any consideration given to make-or-buy programs (see 15.407-2 ).

(13) Test and evaluation. To the extent applicable, describe the test program of the contractor and the Government. Describe the test program for each major phase of a major system acquisition . If concurrency is planned, discuss the extent of testing to be accomplished before production release.

(14) Logistics considerations . Describe-

(i) The assumptions determining contractor or agency support, both initially and over the life of the acquisition , including consideration of contractor or agency maintenance and servicing (see subpart  7.3 ), support for contracts to be performed in a designated operational area or supporting a diplomatic or consular mission (see 25.301-3 ); and distribution of commercial products or commercial services ;

(ii) The reliability, maintainability, and quality assurance requirements, including any planned use of warranties (see part  46 );

(iii) The requirements for contractor data (including repurchase data) and data rights, their estimated cost, and the use to be made of the data (see part  27 ); and

(iv) Standardization concepts, including the necessity to designate, in accordance with agency procedures, technical equipment as "standard" so that future purchases of the equipment can be made from the same manufacturing source.

(15) Government-furnished property . Indicate any Government property to be furnished to contractors, and discuss any associated considerations, such as its availability or the schedule for its acquisition (see 45.102 ).

(16) Government-furnished information. Discuss any Government information, such as manuals, drawings, and test data, to be provided to prospective offerors and contractors. Indicate which information that requires additional controls to monitor access and distribution ( e.g. , technical specifications, maps, building designs, schedules, etc.), as determined by the agency, is to be posted via the enhanced controls of the Governmentwide point of entry (GPE ) at https://www.sam.gov (see 5.102 (a)).

(17) Environmental and energy conservation objectives . Discuss—

(i) All applicable environmental and energy conservation objectives associated with the acquisition (see part 23 );

(ii) The applicability of an environmental assessment or environmental impact statement (see 40 CFR part 1502 );

(iii) The proposed resolution of environmental issues; and

(iv) Any sustainable acquisition requirements to be included in the solicitation and contract (see 11.002 and part 23 ).

(18) Security considerations .

(i) For acquisitions dealing with classified matters, discuss how adequate security will be established, maintained, and monitored (see subpart  4.4 ).

(ii) For information technology acquisitions , discuss how agency information security requirements will be met.

(iii) For acquisitions requiring routine contractor physical access to a Federally-controlled facility and/or routine access to a Federally-controlled information system , discuss how agency requirements for personal identity verification of contractors will be met (see subpart  4.13 ).

(iv) For acquisitions that may require Federal contract information to reside in or transit through contractor information systems, discuss compliance with subpart  4.19 .

(19) Contract administration . Describe how the contract will be administered. In contracts for services, include how inspection and acceptance corresponding to the work statement’s performance criteria will be enforced. In contracts for supplies or service contracts that include supplies , address whether higher-level quality standards are necessary ( 46.202 ) and whether the supplies to be acquired are critical items ( 46.101 ).

(20) Other considerations. Discuss, as applicable:

(i) Standardization concepts;

(ii) The industrial readiness program;

(iii) The Defense Production Act;

(iv) The Occupational Safety and Health Act;

(v) Support Anti-terrorism by Fostering Effective Technologies Act of 2002 (SAFETY Act) (see subpart  50.2 );

(vi) Foreign sales implications;

(vii) Special requirements for contracts to be performed in a designated operational area or supporting a diplomatic or consular mission ; and

(viii) Any other matters germane to the plan not covered elsewhere.

(21) Milestones for the acquisition cycle . Address the following steps and any others appropriate:

Acquisition plan approval.

Statement of work.

Specifications.

Data requirements.

Completion of acquisition -package preparation.

Purchase request.

Justification and approval for other than full and open competition where applicable and/or any required D&F approval.

Issuance of synopsis.

Issuance of solicitation .

Evaluation of proposals, audits, and field reports.

Beginning and completion of negotiations.

Contract preparation, review, and clearance.

Contract award.

(22) Identification of participants in acquisition plan preparation. List the individuals who participated in preparing the acquisition plan, giving contact information for each.

(a) In planning for the solicitation of a major system (see part  34 ) development contract, planners shall consider requiring offerors to include, in their offers , proposals to incorporate in the design of a major system -

(1) Items which are currently available within the supply system of the agency responsible for the major system , available elsewhere in the national supply system, or commercially available from more than one source; and

(2) Items which the Government will be able to acquire competitively in the future if they are likely to be needed in substantial quantities during the system’s service life.

(b) In planning for the solicitation of a major system (see part  34 ) production contract, planners shall consider requiring offerors to include, in their offers , proposals identifying opportunities to assure that the Government will be able to obtain, on a competitive basis, items acquired in connection with the system that are likely to be acquired in substantial quantities during the service life of the system. Proposals submitted in response to such requirements may include the following:

(1) Proposals to provide the Government the right to use technical data to be provided under the contract for competitive future acquisitions , together with the cost to the Government, if any, of acquiring such technical data and the right to use such data.

(2) Proposals for the qualification or development of multiple sources of supply for competitive future acquisitions .

(c) In determining whether to apply paragraphs (a) and (b) of this section, planners shall consider the purposes for which the system is being acquired and the technology necessary to meet the system’s required capabilities. If such proposals are required, the contracting officer shall consider them in evaluating competing offers . In noncompetitive awards, the factors in paragraphs (a) and (b) of this section, may be considered by the contracting officer as objectives in negotiating the contract.

(a) If the requirement is considered both consolidated and bundled, the agency shall follow the guidance regarding bundling in 7.107-3 , 7.107-4 , and 7.107-5 .

(b) The requirements of this section 7.107 do not apply-

(1) If a cost comparison analysis will be performed in accordance with OMB Circular A-76 (except 7.107-4 still applies);

(2) To orders placed under single-agency task- order contracts or delivery- order contracts, when the requirement was considered in determining that the consolidation or bundling of the underlying contract was necessary and justified; or

(3) To requirements for which there is a mandatory source (see 8.002 or 8.003 ), including supplies and services that are on the Procurement List maintained by the Committee for Purchase From People Who Are Blind or Severely Disabled or the Schedule of Products issued by Federal Prison Industries, Inc. This exception does not apply–

(i) When the requiring agency obtains a waiver in accordance with 8.604 or an exception in accordance with 8.605 or 8.706 ; or

(ii) When optional acquisitions of supplies and services permitted under 8.713 are included.

(a) Consolidation may provide substantial benefits to the Government. However, because of the potential impact on small business participation, before conducting an acquisition that is a consolidation of requirements with an estimated total dollar value exceeding $2 million, the senior procurement executive (SPE) or chief acquisition officer (CAO) shall make a written determination that the consolidation is necessary and justified in accordance with 15 U.S.C. 657q , after ensuring that-

(1) Market research has been conducted;

(2) Any alternative contracting approaches that would involve a lesser degree of consolidation have been identified;

(3) The determination is coordinated with the agency's Office of Small Disadvantaged Business Utilization or the Office of Small Business Programs;

(4) Any negative impact by the acquisition strategy on contracting with small business concerns has been identified; and

(5) Steps are taken to include small business concerns in the acquisition strategy.

(b) The SPE or CAO may determine that the consolidation is necessary and justified if the benefits of the acquisition would substantially exceed the benefits that would be derived from each of the alternative contracting approaches identified under paragraph (a)(2) of this section, including benefits that are quantifiable in dollar amounts as well as any other specifically identified benefits.

(c) Such benefits may include cost savings or price reduction and, regardless of whether quantifiable in dollar amounts-

(1) Quality improvements that will save time or improve or enhance performance or efficiency;

(2) Reduction in acquisition cycle times;

(3) Better terms and conditions; or

(4) Any other benefit.

(d) Benefits.

(1) Benefits that are quantifiable in dollar amounts are substantial if individually, in combination, or in the aggregate the anticipated financial benefits are equivalent to-

(i) Ten percent of the estimated contract or order value (including options ) if the value is $94 million or less; or

(ii) Five percent of the estimated contract or order value (including options ) or $9.4 million, whichever is greater, if the value exceeds $94 million.

(2) Benefits that are not quantifiable in dollar amounts shall be specifically identified and otherwise quantified to the extent feasible.

(3) Reduction of administrative or personnel costs alone is not sufficient justification for consolidation unless the cost savings are expected to be at least 10 percent of the estimated contract or order value (including options ) of the consolidated requirements, as determined by the SPE or CAO ( 15 U.S.C. 657q(c)(2)(B) ).

(1) Notwithstanding paragraphs (a) through (d) of this section, the approving authority identified in paragraph (e)(2) of this section may determine that consolidation is necessary and justified when-

(i) The expected benefits do not meet the thresholds for a substantial benefit at paragraph (d)(1) of this section but are critical to the agency's mission success; and

(ii) The procurement strategy provides for maximum practicable participation by small business.

(2) The approving authority is–

(i) For the Department of Defense, the SPE: or

(ii) For the civilian agencies, the Deputy Secretary or equivalent.

(f) If a determination is made that consolidation is necessary and justified, the contracting officer shall include it in the acquisition strategy documentation and provide it to the Small Business Administration (SBA) upon request.

(a) Bundling may provide substantial benefits to the Government. However, because of the potential impact on small business participation, before conducting an acquisition strategy that involves bundling , the agency shall make a written determination that the bundling is necessary and justified in accordance with 15 U.S.C. 644(e) . A bundled requirement is considered necessary and justified if the agency would obtain measurably substantial benefits as compared to meeting its agency's requirements through separate smaller contracts or orders .

(b) The agency shall quantify the specific benefits identified through the use of market research and other techniques to explain how their impact would be measurably substantial (see 10.001 (a)(2)(iv) and (a)(3)(vii)).

(c) Such benefits may include, but are not limited to-

(1) Cost savings;

(2) Price reduction;

(3) Quality improvements that will save time or improve or enhance performance or efficiency;

(4) Reduction in acquisition cycle times, or

(5) Better terms and conditions.

(d) Benefits are measurably substantial if individually, in combination, or in the aggregate the anticipated financial benefits are equivalent to-

(1) Ten percent of the estimated contract or order value (including options ) if the value is $94 million or less; or

(2) Five percent of the estimated contract or order value (including options ) or $9.4 million, whichever is greater, if the value exceeds $94 million.

(e) Reduction of administrative or personnel costs alone is not sufficient justification for bundling unless the cost savings are expected to be at least ten percent of the estimated contract or order value (including options ) of the bundled requirements.

(1) Notwithstanding paragraphs (a) through (e) of this subsection, the approving authority identified in paragraph (f)(2) of this subsection may determine that bundling is necessary and justified when

(i) The expected benefits do not meet the thresholds for a substantial benefit but are critical to the agency's mission success; and

(ii) The acquisition strategy provides for maximum practicable participation by small business concerns.

(2) The approving authority, without power of delegation, is–

(i) For the Department of Defense, the senior procurement executive ; or

(ii) For the civilian agencies is the Deputy Secretary or equivalent.

(g) In assessing whether cost savings and/or price reduction would be achieved through bundling , the agency and SBA shall -

(1) Compare the price that has been charged by small businesses for the work that they have performed; or

(2) Where previous prices are not available, compare the price, based on market research , that could have been or could be charged by small businesses for the work previously performed by other than a small business.

(h) If a determination is made that bundling is necessary and justified, the contracting officer shall include it in the acquisition strategy documentation and provide it to SBA upon request.

(1) Substantial bundling is any bundling that results in a contract or task or delivery order with an estimated value of—

(i) $8 million or more for the Department of Defense;

(ii) $6 million or more for the National Aeronautics and Space Administration, the General Services Administration, and the Department of Energy; or

(iii) $2.5 million or more for all other agencies.

(2) These thresholds apply to the cumulative estimated dollar value (including options ) of–

(i) Multiple-award contracts ;

(ii) Task orders or delivery orders issued against a GSA Schedule contract; or

(iii) Task orders or delivery orders issued against a task- order or delivery- order contract awarded by another agency.

(b) In addition to addressing the requirements for bundling (see 7.107-3 ), when the proposed acquisition strategy involves substantial bundling , the agency shall document in its strategy—

(1) The specific benefits anticipated to be derived from substantial bundling ;

(2) An assessment of the specific impediments to participation by small business concerns as contractors that result from substantial bundling ;

(3) Actions designed to maximize small business participation as contractors, including provisions that encourage small business teaming;

(4) Actions designed to maximize small business participation as subcontractors (including suppliers) at any tier under the contract, or order , that may be awarded to meet the requirements;

(5) The determination that the anticipated benefits of the proposed bundled contract or order justify its use; and

(6) Alternative strategies that would reduce or minimize the scope of the bundling , and the rationale for not choosing those alternatives.

(a) Notifications to current small business contractors of agency's intent to bundle .

(1) The contracting officer shall notify each small business performing a contract that it intends to bundle the requirement at least 30 days prior to the issuance of the solicitation for the bundled requirement.

(2) The notification shall provide the name, phone number and address of the applicable SBA procurement center representative (PCR), or if an SBA PCR is not assigned to the procuring activity , the SBA Office of Government Contracting Area Office serving the area in which the buying activity is located.

(3) This notification shall be documented in the contract file.

(b) Notification to public of rationale for bundled requirement . The agency is encouraged to provide notification of the rationale for any bundled requirement to the GPE, before issuance of the solicitation (see 5.201 ).

(c) Notification to the public of consolidation of contract requirements . The SPE or CAO shall publish in the GPE—

(1) A notice that the agency has determined a consolidation of contract requirements is necessary and justified (see 7.107-2 ) no later than 7 days after making the determination; the solicitation may not be publicized prior to 7 days after publication of the notice of the agency determination; and

(2) The determination that consolidation is necessary and justified with the publication of the solicitation . See 7.107-2 for the required content of the determination.

(d) Notification to the public of substantial bundling of contract requirements . The head of the agency shall publish in the GPE—

(1) A notice that the agency has determined that a procurement involves substantial bundling (see 7.107-4 ) no later than 7 days after such determination has been made; the solicitation may not be publicized prior to 7 days after the publication of the notice of the determination; and

(2) The rationale for substantial bundling with the publication of the solicitation . The rationale is the information required for inclusion in the acquisition strategy at 7.107-4 (b).

(e) Notification to SBA of follow-on bundled or consolidated requirements . For each follow-on bundled or consolidated requirement, the contracting officer shall obtain the following from the requiring activity and notify the SBA PCR no later than 30 days prior to issuance of the solicitation :

(1) The amount of savings and benefits achieved under the prior consolidation or bundling .

(2) Whether such savings and benefits will continue to be realized if the contract remains consolidated or bundled.

(3) Whether such savings and benefits would be greater if the procurement requirements were divided into separate solicitations suitable for award to small business concerns.

(4) List of requirements that have been added or deleted for the follow-on.

(f) Annual notification to the public of the rationale for bundled requirements. The agency shall publish on its website a list and rationale for any bundled requirement for which the agency solicited offers or issued an award. The notification shall be made annually within 30 days of the agency's data certification regarding the validity and verification of data entered in the Federal Procurement Data System to the Office of Federal Procurement Policy (see 4.604 ).

(g) Notification to public of bundling policy . In accordance with 15 U.S.C. 644(q)(2)(A)(ii) , agencies shall publish the Governmentwide policy regarding contract bundling , including regarding the solicitation of teaming and joint ventures, on their agency website.

The contracting officer shall insert the provision at 52.207-6 , Solicitation of Offers from Small Business Concerns and Small Business Teaming Arrangements or Joint Ventures ( Multiple-Award Contracts ), in solicitations for multiple-award contracts above the substantial bundling threshold of the agency (see 7.107-4 (a)).

In accordance with 41 U.S.C. 3306(f) , an agency shall generally not discourage a contractor from allowing its employees to telecommute in the performance of Government contracts. Therefore, agencies shall not-

(a) Include in a solicitation a requirement that prohibits an offeror from permitting its employees to telecommute unless the contracting officer first determines that the requirements of the agency, including security requirements, cannot be met if telecommuting is permitted. The contracting officer shall document the basis for the determination in writing and specify the prohibition in the solicitation ; or

(b) When telecommuting is not prohibited, unfavorably evaluate an offer because it includes telecommuting, unless the contracting officer first determines that the requirements of the agency, including security requirements, would be adversely impacted if telecommuting is permitted. The contracting officer shall document the basis for the determination in writing and address the evaluation procedures in the solicitation .

This subpart prescribes policies and procedures for gathering information from offerors to assist the Government in planning the most advantageous quantities in which supplies should be purchased.

(a) Agencies are required by 10 U.S.C. 3242 and 41 U.S.C.3310 to procure supplies in such quantity as-

(1) Will result in the total cost and unit cost most advantageous to the Government, where practicable; and

(2) Does not exceed the quantity reasonably expected to be required by the agency.

(b) Each solicitation for a contract for supplies is required, if practicable, to include a provision inviting each offeror responding to the solicitation -

(1) To state an opinion on whether the quantity of the supplies proposed to be acquired is economically advantageous to the Government; and

(2) If applicable, to recommend a quantity or quantities which would be more economically advantageous to the Government. Each such recommendation is required to include a quotation of the total price and the unit price for supplies procured in each recommended quantity.

Contracting officers shall insert the provision at 52.207-4 , Economic Purchase Quantity- Supplies , in solicitations for supplies . The provision need not be inserted if the solicitation is for a contract under the General Services Administration’s multiple award schedule contract program, or if the contracting officer determines that-

(a) The Government already has the data;

(b) The data is otherwise readily available; or

(c) It is impracticable for the Government to vary its future requirements.

(a) Contracting officers are responsible for transmitting offeror responses to the solicitation provision at 52.207-4 to appropriate inventory management/requirements development activities in accordance with agency procedures. The economic purchase quantity data so obtained are intended to assist inventory managers in establishing and evaluating economic order quantities for supplies under their cognizance.

(b) In recognition of the fact that economic purchase quantity data furnished by offerors are only one of many data inputs required for determining the most economical order quantities, contracting officers should generally take no action to revise quantities to be acquired in connection with the instant procurement . However, if a significant price variation is evident from offeror responses, and the potential for significant savings is apparent, the contracting officer shall consult with the cognizant inventory manager or requirements development activity before proceeding with an award or negotiations. If this consultation discloses that the Government should be ordering an item of supply in different quantities and the inventory manager/requirements development activity concurs, the solicitation for the item should be amended or canceled and a new requisition should be obtained.

Definitions of "inherently governmental activity" and other terms applicable to this subpart are set forth at Attachment D of the Office of Management and Budget Circular No. A-76 (Revised), Performance of Commercial Activities, dated May 29, 2003 (the Circular).

(a) The Circular provides that it is the policy of the Government to-

(1) Perform inherently governmental activities with Government personnel; and

(2) Subject commercial activities to the forces of competition.

(b) As provided in the Circular, agencies shall -

(1) Not use contractors to perform inherently governmental activities;

(2) Conduct public-private competitions in accordance with the provisions of the Circular and, as applicable, these regulations;

(3) Give appropriate consideration relative to cost when making performance decisions between agency and contractor performance in public-private competitions;

(4) Consider the Agency Tender Official an interested party in accordance with 31 U.S.C. 3551 to 3553 for purposes of filing a protest at the Government Accountability Office; and

(5) Hear contests in accordance with OMB Circular A-76, Attachment B, Paragraph F.

(c) When using sealed bidding in public-private competitions under OMB Circular A-76, contracting officers shall not hold discussions to correct deficiencies.

(a) The contracting officer shall , when soliciting offers and tenders, insert in solicitations issued for standard competitions the provision at 52.207-1 , Notice of Standard Competition.

(b) The contracting officer shall , when soliciting offers , insert in solicitations issued for streamlined competitions the provision at 52.207-2 , Notice of Streamlined Competition.

(c) The contracting officer shall insert the clause at 52.207-3 , Right of First Refusal of Employment, in all solicitations which may result in a conversion from in-house performance to contract performance of work currently being performed by the Government and in contracts that result from the solicitations , whether or not a public-private competition is conducted. The 10- day period in the clause may be varied by the contracting officer up to a period of 90 days.

This subpart—

(a) Implements section 555 of the FAA (Federal Aviation Administration) Reauthorization Act of 2018 ( Pub. L. 115-254 );

(b) Provides guidance when acquiring equipment and more than one method of acquisition is available for use; and

(c) Applies to both the initial acquisition of equipment and the renewal or extension of existing equipment leases or rental agreements.

(1) Agencies shall acquire equipment using the method of acquisition most advantageous to the Government based on a case-by-case analysis of comparative costs and other factors in accordance with this subpart and agency procedures.

(2) The methods of acquisition to be compared in the analysis shall include, at a minimum—

(i) Purchase;

(ii) Short-term rental or lease;

(iii) Long-term rental or lease;

(iv) Interagency acquisition (see 2.101 ); and

(v) Agency acquisition agreements, if applicable, with a State or local government.

(1) The factors to be compared in the analysis shall include, at a minimum:

(i) Estimated length of the period the equipment is to be used and the extent of use within that period;

(ii) Financial and operating advantages of alternative types and makes of equipment;

(iii) Cumulative rent, lease, or other periodic payments, however described, for the estimated period of use;

(iv) Net purchase price;

(v) Transportation, installation, and storage costs;

(vi) Maintenance, repair, and other service costs; and

(vii) Potential obsolescence of the equipment because of imminent technological improvements.

(2) The following additional factors should be considered, as appropriate, depending on the type, cost, complexity, and estimated period of use of the equipment:

(i) Availability of purchase options .

(ii) Cancellation, extension, and early return conditions and fees.

(iii) Ability to swap out or exchange equipment.

(iv) Available warranties .

(v) Insurance , environmental, or licensing requirements.

(vi) Potential for use of the equipment by other agencies after its use by the acquiring agency is ended.

(vii) Trade-in or salvage value.

(viii) Imputed interest.

(ix) Availability of a servicing capability, especially for highly complex equipment; e.g. , can the equipment be serviced by the Government or other sources if it is purchased?

(c) The analysis in paragraph (a) is not required—

(1) When the President has issued an emergency declaration or a major disaster declaration pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act ( 42 U.S.C. 5121 et seq. );

(2) In other emergency situations if the agency head makes a determination that obtaining such equipment is necessary in order to protect human life or property; or

(3) When otherwise authorized by law.

(a) Purchase method.

(1) Generally, the purchase method is appropriate if the equipment will be used beyond the point in time when cumulative rental or leasing costs exceed the purchase costs.

(2) Agencies should not rule out the purchase method of equipment acquisition in favor of renting or leasing merely because of the possibility that future technological advances might make the selected equipment less desirable.

(b) Rent or lease method.

(1) The rent or lease method is appropriate if it is to the Government's advantage under the circumstances. The rent or lease method may also serve as a short-term measure when the circumstances—

(i) Require immediate use of equipment to meet program or system goals; but

(ii) Do not currently support acquisition by purchase.

(2) If a rent or lease method is justified, a rental or lease agreement with option to purchase is preferable.

(3) Generally, a long term rental or lease agreement should be avoided, but may be appropriate if an option to purchase or other favorable terms are included.

(4) If a rental or lease agreement with option to purchase is used, the contract shall state the purchase price or provide a formula which shows how the purchase price will be established at the time of purchase.

(a) When requested by an agency, the General Services Administration (GSA) will assist in rent, lease, or purchase decisions by providing information such as-

(1) Pending price adjustments to Federal Supply Schedule contracts;

(2) Recent or imminent technological developments;

(3) New techniques; and

(4) Industry or market trends.

(b) For additional GSA assistance and guidance, agencies may —

(1) Request information from the GSA FAS National Customer Service Center by phone at 1-800-488-3111 or by email at [email protected] ; and

(2) See GSA website, Schedule 51 V Hardware Superstore-Equipment Rental, ( https://www.gsa.gov/buying-selling/products-services/industrial-products-services/rental-of-industrial-equipment ).

(c) For additional OMB guidance, see—

(1) Section 13, Special Guidance for Lease-Purchase Analysis, and paragraph 8.c.(2), Lease-Purchase Analysis, of OMB Circular A-94, Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs, ( https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A94/a094.pdf ); and

(2) Appendix B, Budgetary Treatment of Lease-Purchases and Leases of Capital Assets, of OMB Circular A-11, Preparation, Submission, and Execution of the Budget, ( https://www.whitehouse.gov/wp-content/uploads/2018/06/app_b.pdf ).

The contracting officer shall insert a clause substantially the same as the clause in 52.207-5 , Option to Purchase Equipment, in solicitations and contracts involving a rental or lease agreement with option to purchase.

The purpose of this subpart is to prescribe policies and procedures to ensure that inherently governmental functions are not performed by contractors.

The requirements of this subpart apply to all contracts for services. This subpart does not apply to services obtained through either personnel appointments, advisory committees, or personal services contracts issued under statutory authority.

(a) Contracts shall not be used for the performance of inherently governmental functions.

(b) Agency decisions which determine whether a function is or is not an inherently governmental function may be reviewed and modified by appropriate Office of Management and Budget officials.

(c) The following is a list of examples of functions considered to be inherently governmental functions or which shall be treated as such. This list is not all inclusive:

(1) The direct conduct of criminal investigations.

(2) The control of prosecutions and performance of adjudicatory functions other than those relating to arbitration or other methods of alternative dispute resolution.

(3) The command of military forces, especially the leadership of military personnel who are members of the combat, combat support, or combat service support role.

(4) The conduct of foreign relations and the determination of foreign policy.

(5) The determination of agency policy, such as determining the content and application of regulations, among other things.

(6) The determination of Federal program priorities for budget requests.

(7) The direction and control of Federal employees.

(8) The direction and control of intelligence and counter-intelligence operations.

(9) The selection or non-selection of individuals for Federal Government employment, including the interviewing of individuals for employment.

(10) The approval of position descriptions and performance standards for Federal employees.

(11) The determination of what Government property is to be disposed of and on what terms (although an agency may give contractors authority to dispose of property at prices within specified ranges and subject to other reasonable conditions deemed appropriate by the agency).

(12) In Federal procurement activities with respect to prime contracts-

(i) Determining what supplies or services are to be acquired by the Government (although an agency may give contractors authority to acquire supplies at prices within specified ranges and subject to other reasonable conditions deemed appropriate by the agency);

(ii) Participating as a voting member on any source selection boards;

(iii) Approving any contractual documents, to include documents defining requirements, incentive plans, and evaluation criteria;

(iv) Awarding contracts;

(v) Administering contracts (including ordering changes in contract performance or contract quantities, taking action based on evaluations of contractor performance, and accepting or rejecting contractor products or services);

(vi) Terminating contracts;

(vii) Determining whether contract costs are reasonable, allocable, and allowable; and

(viii) Participating as a voting member on performance evaluation boards.

(13) The approval of agency responses to Freedom of Information Act requests (other than routine responses that, because of statute, regulation, or agency policy, do not require the exercise of judgment in determining whether documents are to be released or withheld), and the approval of agency responses to the administrative appeals of denials of Freedom of Information Act requests.

(14) The conduct of administrative hearings to determine the eligibility of any person for a security clearance, or involving actions that affect matters of personal reputation or eligibility to participate in Government programs.

(15) The approval of Federal licensing actions and inspections .

(16) The determination of budget policy, guidance, and strategy.

(17) The collection, control, and disbursement of fees, royalties, duties, fines, taxes, and other public funds, unless authorized by statute, such as 31 U.S.C. 3718 (relating to private attorney collection services), but not including-

(i) Collection of fees, fines, penalties, costs, or other charges from visitors to or patrons of mess halls, post or base exchange concessions, national parks, and similar entities or activities, or from other persons, where the amount to be collected is easily calculated or predetermined and the funds collected can be easily controlled using standard case management techniques; and

(ii) Routine voucher and invoice examination.

(18) The control of the treasury accounts.

(19) The administration of public trusts.

(20) The drafting of Congressional testimony, responses to Congressional correspondence, or agency responses to audit reports from the Inspector General, the Government Accountability Office, or other Federal audit entity.

(d) The following is a list of examples of functions generally not considered to be inherently governmental functions. However, certain services and actions that are not considered to be inherently governmental functions may approach being in that category because of the nature of the function, the manner in which the contractor performs the contract, or the manner in which the Government administers contractor performance. This list is not all inclusive:

(1) Services that involve or relate to budget preparation, including workload modeling, fact finding, efficiency studies, and should -cost analyses, etc.

(2) Services that involve or relate to reorganization and planning activities.

(3) Services that involve or relate to analyses, feasibility studies, and strategy options to be used by agency personnel in developing policy.

(4) Services that involve or relate to the development of regulations.

(5) Services that involve or relate to the evaluation of another contractor’s performance.

(6) Services in support of acquisition planning .

(7) Contractors providing assistance in contract management (such as where the contractor might influence official evaluations of other contractors).

(8) Contractors providing technical evaluation of contract proposals.

(9) Contractors providing assistance in the development of statements of work.

(10) Contractors providing support in preparing responses to Freedom of Information Act requests.

(11) Contractors working in any situation that permits or might permit them to gain access to confidential business information and/or any other sensitive information (other than situations covered by the National Industrial Security Program described in 4.402 (b)).

(12) Contractors providing information regarding agency policies or regulations, such as attending conferences on behalf of an agency, conducting community relations campaigns, or conducting agency training courses.

(13) Contractors participating in any situation where it might be assumed that they are agency employees or representatives.

(14) Contractors participating as technical advisors to a source selection board or participating as voting or nonvoting members of a source evaluation board.

(15) Contractors serving as arbitrators or providing alternative methods of dispute resolution.

(16) Contractors constructing buildings or structures intended to be secure from electronic eavesdropping or other penetration by foreign governments.

(17) Contractors providing inspection services.

(18) Contractors providing legal advice and interpretations of regulations and statutes to Government officials.

(19) Contractors providing special non-law enforcement, security activities that do not directly involve criminal investigations, such as prisoner detention or transport and non-military national security details.

(e) Agency implementation shall include procedures requiring the agency head or designated requirements official to provide the contracting officer , concurrent with transmittal of the statement of work (or any modification thereof), a written determination that none of the functions to be performed are inherently governmental. This assessment should place emphasis on the degree to which conditions and facts restrict the discretionary authority, decision-making responsibility, or accountability of Government officials using contractor services or work products . Disagreements regarding the determination will be resolved in accordance with agency procedures before issuance of a solicitation .

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• Disaster recovery planning and management

Example disaster recovery plan for small businesses

Small businesses make significant investments in it infrastructure. they must protect those investments from unplanned and potentially destructive events with a dr plan..

• Paul Kirvan

Technology disaster recovery plans are necessary for businesses of every size. A small business disaster recovery plan protects and recovers critical IT infrastructure assets after a disruptive event.

DR plans provide step-by-step procedures for recovering disrupted systems and networks, helping them return to normal operations. The goal of these processes is to minimize any negative impacts to company operations. DR plans are essential for ensuring that a business can continue to deliver its products and services in the aftermath of a crisis.

The scale and details of a small-to-medium business ( SMB ) DR plan are typically less complex than those for a large enterprise but no less necessary. The key is to have the resources and procedures for recovering critical systems, networks and data the organization needs to function.

Included in this article is an example disaster recovery plan for small business. This template is a solid first step that can facilitate the initiation and completion of an IT DR plan. The structure of this article and the template is consistent with established national and international standards for IT disaster recovery .

Why create a DR plan specifically for small business?

Regardless of the type and size of the business, a DR plan provides a structured approach for responding to unplanned incidents that threaten an IT infrastructure. These can include threats to software, networks, processes and people.

Protecting an organization's investment in its technology infrastructure and its ability to conduct business are the key reasons for implementing an IT DR plan. Considering that businesses of any size depend on technology, DR plans should be on every CIO's short list. Support from senior management is the primary starting point for a small business DR plan, especially with funding and a project budget .

Get started with goals and analyses

Once management approval has been received to develop a DR plan, IT and DR teams should begin by completing a risk assessment to identify potential threats to the IT infrastructure. A risk assessment can also be used to identify potential vulnerabilities and single points of failure that could cause a disruption or outage.

The goal of a risk assessment is to determine which infrastructure elements are most at risk to the organization's business. For a small business with less than 100 employees, this could be any hardware in the data center, key applications the business uses, and networking resources. If the organization uses external cloud resources, the assessment should consider risks that might affect their ability to recover from an incident.

When an incident -- internal or external -- negatively affects the IT infrastructure, the business could be compromised, resulting in loss of business and reputational damage. Identifying risks and threats to the infrastructure is a key activity. For smaller organizations with fewer resources, attention to detail is critical.

It might be advisable to conduct a business impact analysis (BIA), which identifies the most important activities the organization performs. BIAs also correlate the key functions with the technologies needed to support them. This information, coupled with data from the risk assessment, results in a DR plan design that focuses on protecting the most essential systems and functions.

What do you need for a DR plan?

It is essential to have the right players during the planning process as well as a team ready to respond to system disruptions. Coordination with business unit leaders, particularly those who are responsible for the mission-critical functions, helps zero in on the technology requirements needed to sustain business operations. Senior leaders define recovery time objectives and recovery prioritization.

The DR planning process identifies critical IT systems and networks; links them to mission-critical business functions; prioritizes recovery times; and delineates the steps needed to restart, reconfigure, and recover operations.

A comprehensive IT DR plan also includes relevant supplier contacts and sources of expertise for recovering disrupted systems.

In today's business environment, both large and small businesses use cloud-based services to supplement existing IT resources. Data storage is a key use for cloud services, and many cloud vendors offer DR services of their own. The flexibility and relatively low cost of cloud DR make it a good option for small businesses.

In addition to securely protecting data, databases and applications, hardware devices must also be protected in a DR plan. Having one or two spare servers ready to use if an existing server fails is one way to minimize the consequences of a device failure. Backup power, such as uninterruptible power systems , is also essential.

Considering how much small business technology can be deployed today from hosted sources, one could make the argument that in-house DR is unnecessary for SMBs. Such a decision should be carefully made and in consultation with third-party resources to make sure they can support the technology needs of a business.

Limitations and benefits of a DR plan

Among the less tangible benefits of a DR plan is peace of mind. Aside from that, it is good to know how to manage disruptions to IT systems and return them to normal. In situations where the technology is on site, a DR plan -- even if it is only a few pages of who to call and what systems to fix first -- is far better than having no plan at all.

By contrast, SMBs using hosted systems for most of their infrastructure will still need to know who to call, what to say, and how to work on an interim basis while the third party fixes operations.

One of the key activities to perform with a DR plan is a periodic test . This will determine if the right systems are being addressed and the recovery steps have been validated. Periodic testing ensures that backup systems and data are accessible, and the organization has contact information for all necessary parties, within and outside the organization.

Regrettably, testing is perhaps the one activity most SMBs fail to perform, and it increases the risk of damage from a disruptive event.

Another challenge with DR plans is keeping them up to date. Changes in technology, installation of new patches, changes to storage devices, updates to key applications and other events should be added to DR plans but often are not.

Additional resources to develop an IT DR plan

In addition to the plan template attached to this article, the National Institute for Standards and Technology Special Publication 800-34, Contingency Planning for Information Technology Systems , is a helpful resource for building a DR plan.

This standard covers several areas of DR organizations can include in a plan. Helpful additions from this standard might include the following:

• Add a vulnerability assessment component to the risk assessment to identify and address any potential weak points.
• Identify preventive controls that reduce the effects of system disruptions and can increase system availability and reduce life cycle costs.
• Conduct plan testing, training and exercising to improve plan effectiveness and overall company preparedness.
• Consider the plan as a living document to be reviewed and updated regularly to remain current with system changes and business requirements.

SMB considerations

While this article addresses disaster recovery from a general perspective, the SMB template is designed to be flexible yet comprehensive enough to address the key business and technology issues an organization might face in a disaster. An SMB might decide that the focus is recovering critical system and network resources. As such, other sections of the template can be omitted.

Staffing can be a challenge in an SMB. In some organizations, there might be only one or two employees who can lead a recovery effort. Organizations with a one- or two-person IT department might be challenged to respond in an incident.

It might be necessary to consolidate DR plan data and procedures into a one- or two-page document. As long as emergency contacts are up to date for crisis communications , procedures are current, and backup resources are in place, SMBs can likely make it through all but the most devastating events.

How to use the template

The included template is designed to be flexible for most SMBs, and users can delete sections that don't apply to their business. Key sections to review include emergency contacts, recovery and restoration procedures, and any other activities needed to return the IT infrastructure to normal.

Following is a summary of the plan template and its sections:

• Information Technology Statement of Intent . This sets the stage and direction for the plan.
• Policy Statement. It is important to include an approved statement of the organization's policy regarding the provision of disaster recovery services.
• Objectives. These describe the main goals of the plan.
• Key Personnel Contact Information. Key contact data should be included early in the plan. It is the information most likely to be used right away and must be easy to locate.
• Plan Overview. This describes basic aspects of the plan.
• Emergency Response . This describes what needs to be done immediately following the onset of an incident.
• Disaster Recovery Team . This lists members and contact information of the DR team.
• Emergency Alert, Escalation and DR Plan Activation. These list steps to take through the early phase of the incident, leading to activation of the DR plan.
• Media. This includes tips for dealing with the media during and after a crisis.
• Insurance. This summarizes the insurance coverage associated with the IT environment and any other relevant policies.
• Financial and Legal Issues. This lists actions to take for dealing with financial and legal issues.
• DR Plan Exercising. This underscores the importance of DR plan exercising.
• Appendix A – Technology Disaster Recovery Plan Templates. This includes sample templates for a variety of technology recoveries. For some organizations, these templates might be sufficient by themselves as DR plans.
• Appendix B – Suggested Forms. These are ready-to-use forms that will facilitate the plan completion.

Paul Kirvan is an independent consultant, IT auditor, technical writer, editor and educator. He has more than 25 years of experience in business continuity, disaster recovery, security, enterprise risk management, telecom and IT auditing.

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Roll-Up Strategy: A High-Growth Approach for 2024

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

A study conducted by McKinsey over the course of two decades into successful M&A set out will disappoint followers of megadeals.

Pursuing a series of smaller deals, the total value of which is relatively close to the acquiring company’s market capitalization, rather than focusing on eye-catching ‘big bang’ transactions, tends to generate far more value.

In short, the research advocated a roll-up strategy for companies considering M&A.

In this article, DealRoom takes an in-depth look at the roll-up strategy, how to execute them, and the pitfalls to avoid.

Above all, we show how, in some industries, the leaders have gained their winning position through successfully executing roll-up strategies rather than being so-called disruptors.

So while McKinsey’s research refers to an M&A roll-up strategy as ‘programmatic M&A’, a far more accurate term may be ‘pragmatic M&A’.

What is a roll-up strategy?

A roll-up strategy is a focused acquisition strategy that involves the acquisition of multiple smaller companies (sometimes referred to as ‘ bolt-on acquisitions ’).

The roll-up strategy tends to be more common in industries that are fragmented but can happen anywhere that these bolt-on acquisition opportunities present themselves.

The end goal of a roll-up strategy is a company of much larger value that is more than the sum of its parts.

Why do investors love roll-ups?

The roll-up concept is attractive to investors for its value-generating potential. This value is achieved in a number of ways:

• Economies of scale: The entity created from the roll-up strategy should enjoy economies of scale (e.g. increased buying power) well beyond any of the smaller companies that it is composed of.
• Benefits of synergies: A well-executed roll-up strategy should benefit from a range of synergies that generate value at the margins. For example, shared administration and marketing costs.
• Increased exposure: By virtue of being a bigger company, the entity created from the roll-up strategy will have increased exposure, giving it access to a larger audience and making it the focus of increased media attention.
• Access to better opportunities (including capital): Bigger companies, as a rule, tend to enjoy a liquidity premium that lowers their cost of capital and allows them to access opportunities (e.g. more acquisitions) than smaller companies can.

Importance of having a disciplined roll-up strategy

A roll-up strategy doesn’t generate value on its own.

As DealRoom is constantly at pains to emphasize, acquisitions are complex projects that require diligent project management.

This means excellent planning, ensuring cultural and operational fit, thorough due diligence , and sound deal structure for each one of the acquisitions.

By extension, when there are many acquisitions, this workload should increase. Just because the companies are smaller, it doesn’t mean that you can take shortcuts in the process.

Best practices in Roll-Up strategies

The nature of an acquisition roll-up strategy is that most strategies are implemented over a period of three to four years.

Here is what can be found amongst best practices:

In general, the more diligent about roll-up and its strategies your business is, the higher your chance of achieving a successful outcome.

That said...

Here is a detailed overview of key steps to start with when you're considering roll-up as a strategy for acquisition:

• Planning: Lots of it. Nobody should consider a roll-up strategy without planning five years ahead. At this stage, the team should be considering the maximum multiple of EBITDA that will be paid for the acquisitions, the geographies that the company is interested in, and the level of equity that it is willing to hand over to each of the acquired companies owners.
• Develop systems: This should be part of the planning process but deserves a mention of its own. It should go without saying that a mid-sized corporation needs more systems to operate successfully than would a small, local company. For example, if the manager of a recently acquired company were to abruptly up sticks and leave, how easily would the business be run in his absence? Systemization is required to ensure zero disruption in cases like this.
• Understanding the industry: Some industries benefit from scale more than others. Likewise, certain industries aren’t fragmented enough to warrant implementing an acquisition roll-up strategy. Sluggish industry growth or less-than-optimistic future prospects are also important to understand. It’s crucially important to understand the industry, its dynamics, and its future prospects.
• Due diligence : More acquisitions mean more due diligence. As a result, for any company implementing an acquisition roll-up strategy, due diligence effectively becomes a core part of the company’s operations - not unlike its finance or HR department. And as due diligence becomes bigger, the acquiring company will need to hire a bigger team to ensure that it’s being conducted with the same rigor for every single transaction.
• Careful Hiring: Closely related to due diligence is the need for the team behind the roll-out strategy to ensure management competency. The bigger the company becomes, the more difficult it becomes to manage. Does the new entity require a level of middle management or regional managers? Who is responsible for overseeing the day-to-day management of its new branches? 
• Integration : All the businesses need to be well integrated to ensure that the new entity is more than the sum of its parts. Without post-merger integration and change management, the acquirer risks being left with nothing but a group of disparate companies (and disgruntled managers and staff) on their hands. 
• Timing: There is no standard ideal time to move with a roll-up strategy. As with any acquisition strategy, if the strategy can be implemented faster, then it’s better to do it faster. But speed itself is not the issue - rather one of a range of issues. It shouldn’t come at the expense of careful consideration, thorough due diligence, the right valuations, etc. One benefit of being faster directly related to the roll-out strategy itself is that there will be less chance that target companies are aware of the strategy, and as a result, will be less likely to demand higher multiples of EBITDA to sell.

Measures to look out for

It’s easy to lose focus in a roll-out investment strategy and to allow the acquisitions to become the goal in themselves rather than just the means to a much bigger end goal.

Putting in place a range of measures (or KPIs) enables acquirers to keep their eyes on the prize.

The following are just some of those KPIs (with operational KPIs varying by industry):

• Ownership distribution
• Pre- and post- merger performance levels at each company
• Debt/equity levels at the holding company (and blended cost of debt)
• The average acquisition EBITDA multiple
• Time to close each acquisition
• Employee turnover levels
• Operational costs at holding company (should be less than that of combined firms)

Why folding companies under one umbrella isn’t simple

In a word - integration.

To use a crude example, all things being equal, integrating five companies, each with $5 million in average revenue, isn't any easier than integrating one company with $25 million in revenue.

To fold companies under one umbrella effectively demands that the acquirer become a merger integration specialist.

And of course, there are external market issues that the acquirer has no control over, which can wreck any roll-up investment strategy, even if the integration processes have gone smoothly.

How to find the best industry for roll-ups?

In short, the best industry to implement a roll-up strategy is one where there is:

• No clear industry leader.
• Little industry consolidation.
• Returns to scale.
• Positive growth forecasts.
• Owners willing to sell.

Aspects of finding the right industry for roll-ups (and how-to)

As mentioned in the sections above, before implementing a roll-out investment strategy, it is important to understand an industry’s dynamics (nationally, if the roll-out strategy is national, and internationally, if it is international or global).

The most common proponents of roll-out strategies are private equity firms. These firms can spend up to two years at a time establishing which industries are suitable for roll-outs.

An example here is useful. Consider the dairy industry. Although most countries tend to have at least one dominant player, there will also be a number of smaller regional players making milk and selected dairy products for their local market.

Perhaps some will even have a limited export component. As a steady but usually not fast-growing industry, 

Now, if someone were to begin acquiring these companies, they would be able to offer an extended range of products (milk, powdered milk, cheese, artisan cheeses, etc.) across a much wider geographic area.

There would also be benefits of scale - for example, better bargaining power with farmers and supermarkets. The fact that the brand was now nationwide, means that it would gain stronger marketing power.

But also think of the value-adding potential of the deal. Perhaps some of the smaller dairy companies were only producing liquid milk.

What if the extra milk output could now be turned into higher-value products such as gorgonzola, camembert, or brie cheese by the new company?

Suddenly, the same inputs are generating 2x to 3x the value as before.

And you begin to see where a roll-up strategy can become so powerful when executed properly.

Why Roll-Ups fail

Silver bullets do exist in M&A , but they’re remarkably rare.

So much positive material has been written about roll-ups that it’s easy to be convinced that this is a strategy where it is impossible to fail.

That just isn’t the case.

A 2008 Harvard Business Review article states that more than two-thirds of roll-up strategies fail to create any value for investors.

The reasons for these failures usually fall under one of the following categories:

• Integration difficulties: As this article states, all things being equal, five smaller integrations usually means approximately five times the integration challenges as a company five times the size. This needs to be accounted for at the outset.
• Lack of benefits to scale: Not all industries have benefits to scale. The HBR article in the paragraph above mentions the funeral industry, where benefits to scale can only be enjoyed at a local level, and even then, they’re questionable.
• Failure to account for economic downturns: Most roll-up strategies are based on conservative economic projections, but what happens when there’s an economic collapse, such as one wrought by a global pandemic?
• Overpaying for acquisitions: In an effort to close deals faster as part of a larger strategy, acquirers may be forced to overpay. This is also an issue as target companies become aware of the roll-up strategy. Overpaying destroys value in the overall strategy, just as it does in a standard acquisition.

To paraphrase Warren Buffett, when answering a University of Florida audience about what steps they needed to take to be successful investors: ‘you don’t need to do anything really earth-shattering.

You just need to consistently do lots of small things right.

This is the logic that underpins a roll-up strategy:

Consistently make smaller value-adding acquisitions, and your company will almost certainly outperform the market over the long-term.

However, on balance, closing more deals means more pitfalls for acquirers. Anyone undertaking a roll-up strategy needs to conduct significant resources for planning, due diligence, and post-merger integrations.

DealRoom has already helped dozens of companies with their roll-out strategies. Talk to us today about how we can add value for you when looking at implementing your planned roll-out strategy.

Get your M&A process in order. Use DealRoom as a single source of truth and align your team.

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Foreign investors are unloading their holdings of expensive Indian stocks and turning instead to new listings in primary markets as they seek cheaper exposure to the market and better returns.

Retail | Kroger and Albertsons head to court to defend…

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Retail | Kroger and Albertsons head to court to defend merger plan

The grocers say they need to combine to compete against bigger rivals amazon.com and walmart.

Kroger Co. and Albertsons Cos. are finally getting their day in court.

Nearly two years after the merger was announced, the grocery giants on Monday start a federal court hearing in Portland, Oregon, on the US Federal Trade Commission’s bid to block the $24.6 billion deal . The FTC alleges the tie-up would lead to higher grocery prices for consumers and lower wages for the supermarkets’ unionized workforces.

Also see:   Albertsons unveils list of 63 California stores to be sold ahead of trial

The grocers say they need to combine to compete against bigger rivals Amazon.com Inc. and Walmart Inc., in what would be the biggest ever US grocery deal if it comes to fruition. They have pledged to spend $1 billion to cut prices if the merger goes through, another $1 billion on improving worker pay and benefits and $1.3 billion on store conditions. Meanwhile, the companies have already spent more than $850 million to pay lawyers, investment bankers and other advisers.

“It’s a swing for the fences,” said Bob Goldin, partner at food consultancy Pentallect Inc, adding that the grocers have put in significant amounts of resources to combine forces.

The grocery deal is latest FTC case to head to trial under the Biden administration, which has stepped up antitrust enforcement, particularly on the merger front. The results in court have been mixed with some high-profile losses, such as the challenge to Microsoft Corp.’s acquisition of Activision Blizzard Inc. That was followed by wins in the agency’s suit against Illumina Inc. over its purchase of the startup Grail and block of IQVIA Holdings Inc.’s deal to buy rival Propel Media Inc.

Related:  Kroger-Albertsons merger could upend 164,000 workers in Southern California

Jennifer Rie, a Bloomberg Intelligence analyst who focuses on antitrust, said the FTC’s odds of winning are good leading into the trial.

“We lean toward the FTC for now, given the sensitivity of the industry, a history of failed divestiture remedies in the grocery sector and weaknesses in the companies’ offered remedy,” she said.

Political spotlight

The merger has come under a political spotlight during a period of historic inflation. Grocery inflation hit a four-decade high in 2022, driven by higher costs of labor, transportation and ingredients. Everything from beef and flour has become more expensive, though price increases have moderated in recent months. Retailers have said this year that prices of packaged foods remain high, with some manufacturers still weighing more increases.

See also:   Kroger and Albertsons CEOs give details on controversial $25 billion merger

Vice President Kamala Harris has called for a federal ban on food and grocery price gouging, part of proposals intended to reduce consumer costs. In a fact sheet on her economic proposals, Harris’s campaign specifically called for greater antitrust enforcement on food mergers, citing the FTC lawsuit against Kroger and Albertsons.

Eight states, plus Washington D.C., have joined the FTC in the case, which is one of several legal proceedings aimed at blocking the deal. Colorado and Washington state have filed separate suits in state court, with trials scheduled to begin in September after the federal hearing ends. A complaint is also pending in the FTC’s in-house court, though on Aug. 19, Kroger filed a suit in federal court seeking to block that trial on constitutional grounds.

Kroger CEO Rodney McMullen and Albertsons CEO Vivek Sankaran are both expected to testify during the proceeding, which is expected to last three weeks. The executives already defended the deal nearly two years ago before a Senate subcommittee, arguing that the combined company would be the number-four grocery retailer behind Walmart, Amazon and Costco Wholesale Corp.

Proposed divestments

In a bid to resolve the antitrust concerns, the companies have agreed to sell a group of nearly 600 stores to C&S Wholesale Grocers Inc. But the FTC alleges that even with those proposed divestments, the merger would harm competition in at least 550 cities and towns across the country.

The FTC also criticized the selection of C&S as a buyer, noting that while the company is the largest US food wholesaler, it has limited experience with retail and today operates only 23 stores.

The proposed deal has also sparked debates about the definition of a grocery store as the food-retail industry undergoes massive changes and competition intensifies.

Amazon jumped into the grocery sector with its purchase of Whole Foods Market and launch of Amazon Fresh. European retailers like Aldi Inc. and Lidl have expanded their footprint in the US, pitching their no-frills operations with low prices. Dollar stores have been selling more groceries, too, while regional operators ranging from Publix Super Markets to Wegmans Food Markets Inc. are adding stores. Walmart remains the nation’s biggest food seller and is attracting shoppers with its focus on value.

Related: Employees speak out against proposed Kroger/Albertsons merger

The grocery business has become much more complicated. Retail giants have diversified their operations, selling everything from advertising to prepared foods. They are also investing in technologies to fulfill online orders more efficiently.

Joining forces with Albertsons would help Kroger become a bigger national player. If the merger goes through, the combined entity would operate more than 4,000 stores across 48 states and DC. The combined entity would also become more efficient with managing inventory, stores and distribution centers, according to industry analysts.

“They can’t price as effectively as those bigger stores like Walmart,” Noah Rohr, a Morningstar analyst, said of Kroger. “Closing the merger would help.”

Boldest deal

Both supermarkets have a lot at stake. The merger is Kroger’s boldest deal in history and one that would define the legacy of its CEO McMullen, who started as a part-time bagger at the grocer in the late 1970s. If the deal falls apart, Kroger will likely turn its focus on improving and investing in its existing stores.

Albertsons could emerge again as a deal target if the merger doesn’t go through. In the near term, the grocer will need to focus on operations, technology and other areas it lags its rivals to compete more effectively. Sankaran, who was previously at PepsiCo Inc., joined Albertsons in 2019 to help take the company public the following year.

–With assistance from Max Zimmerman at Bloomberg.

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Everton suitor Textor to file plan for $2.3bn Eagle Football float

The owner - for now - of a 45% stake in Crystal Palace Football Club has lined up bankers from Stifel and TD Cowen to float its holding company on the New York Stock Exchange, Sky News learns.

City editor @MarkKleinmanSky

Monday 26 August 2024 19:25, UK

The leading contender to buy Everton Football Club is preparing to launch within days a plan to take his sports and technology holding company public at a valuation of over $2bn.

Sky News has learnt that John Textor, an American businessman, is to file documents with US regulators that will see Eagle Football Holdings become a US-listed company.

Banking sources said on Monday that Eagle Football had lined up Stifel and TD Cowen, the investment banks, to work on the initial public offering (IPO).

At least one other bank is likely to be appointed alongside them, the sources added.

Eagle Football, which owns a 45% stake in Everton's fellow Premier League club Crystal Palace, is likely to seek around $500m (£379m) of new funding from investors as part of its IPO plan, according to bankers.

That would help Mr Textor achieve a valuation of around $2.3bn (£1.74bn), they said.

Eagle Football owns controlling stakes in clubs including France's Olympique Lyonnais, Botafogo in Brazil, RW Molenbeek in Belgium and FC Florida.

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Its ownership of a minority stake in Crystal Palace means that despite Eagle Football being its largest individual shareholder, the club's earnings are not consolidated within the company's results.

Mr Textor is in exclusive negotiations to acquire Everton, which has endured a torrid start to the Premier League season with 3-0 and 4-0 defeats to Brighton and Hove Albion and Tottenham Hotspur respectively.

He had held earlier discussions about buying the Toffees, but the club's complicated capital structure led to a breakdown in discussion with its majority shareholder, Farhad Moshiri.

Keep up with all the latest news from the UK and around the world by following Sky News

However, after talks with rival bidders including Daniel Friedkin, the owner of AS Roma in Italy, fell apart, Mr Textor reopened negotiations.

Sources said that he intended to buy Everton personally rather than through Eagle Football, although they added that it was conceivable that the English club could be absorbed into the broader holding company in future.

Mr Textor, a successful former media executive, is understood to have kicked off talks with prospective investors in Everton as part of his efforts to strengthen the club's balance sheet.

He is said to have received interest from investors about injecting more than £150m into the club, according to banking sources.

One obstacle in the way of Mr Textor completing a takeover of Everton is the Premier League rules requiring the prior disposal of his stake in Crystal Palace.

Football insiders said he had received firm offers from two parties capable of executing a deal rapidly.

Their identities were unclear on Monday.

Raine Group, which handled the sale of Chelsea in 2022 and a minority stake in Manchester United to Sir Jim Ratcliffe late last year, is overseeing the disposal of Eagle Football's Crystal Palace stake.

In the past, Mr Textor has spoken about his belief that public ownership of football teams provides fans with greater transparency about the running of their clubs.

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He has described this as the democratisation of ownership - an issue likely to be at the heart of a bill on football regulation when it is reintroduced to parliament by the new Labour government.

Some clubs with listed shares, including Manchester United, have, however, endured a torrid relationship with supporters, partly as a result of their voting rights being controlled by a single dominant shareholder.

If Eagle Football's filing with the US Securities and Exchange Commission proceeds in the coming days, its stock is expected to begin trading in November.

Mr Textor could not be reached for comment.

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What Is a Poison Pill?

• How It Works

Special Considerations

• Pros and Cons

The Bottom Line

• Corporate Finance

Poison Pill: A Defense Strategy and Shareholder Rights Plan

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

• Mergers and Acquisitions (M&A): Types, Structures, Valuations
• Acquisition
• Why Do Companies Merge With or Acquire Other Companies?
• How M&A Can Affect a Company
• What's the Difference Between Mergers and Acquisitions?
• What You Should Know About Corporate Mergers
• Inorganic Growth
• Merger vs. Takeover
• Takeover Bid
• Hostile Takeover
• Hostile Takeovers vs. Friendly Takeovers
• What Are Some of the Top Hostile Takeovers of All Time?
• How Can a Company Resist a Hostile Takeover?
• Poison Pill CURRENT ARTICLE
• Reverse Takeover
• Reverse Mergers: Advantages and Disadvantages
• Reverse Triangular Merger
• A Guide to Spotting a Reverse Merger
• How Does a Merger Affect Shareholders?
• How Company Stocks Move During an Acquisition
• What Happens to Call Options If a Company Is Bought?
• Stock-for-Stock Merger
• All Cash, All Stock Offer
• Acquisition Premium
• Exchange Ratio
• SEC Form S-4
• Special Purpose Acquisition Company (SPAC)
• Understanding Leveraged Buyout Scenarios
• Vertical Merger
• Horizontal Merger
• Conglomerate Merger
• Roll-Up Merger
• The Five Biggest Mergers in History
• The 5 Biggest Acquisitions in History
• 4 Cases When M&A Strategy Failed for the Acquirer

Poison pills are a defense strategy used by the directors of a public company to prevent activist investors, competitors, or other would-be acquirers from taking control of the company. There are several types of poison pills—the most common type is the flip-in, executed by issuing more shares to all shareholders except the offending acquirer, thus lowering the amount of control they have or could obtain.

Another goal is to force the entity trying to acquire the company to negotiate with the company's board for a buyout price. Courts have upheld poison pills as a legitimate defense by corporate boards, which are not obligated to accept any offer they do not deem to be in the company's long-term interest.

Key Takeaways

• A poison pill is a defense tactic used to deter activist investors or acquirers from amassing enough shares to take control or staging a takeover without a board's consent.
• Poison pills like the flip-in specify the maximum stake a shareholder may amass and increase the holdings of all other shareholders in an attempt to discourage acquirers from gaining a controlling interest.
• Because poison pills can entrench company managers and boards, companies must show they are a proportional response to a credible threat.
• Investors who can't convince a company to drop its poison pill can attempt to persuade shareholders to replace the board.

Theresa Chiechi / Investopedia 

How Poison Pills Work

The poison pill is a tactic companies use to deter takeovers by unwanted companies. Often called a shareholder rights plan, it is meant to frustrate creeping acquisitions of control, in which the acquirer seeks to accumulate a controlling or dominant stake without negotiating with the board or offering the same deal to every shareholder.

Because many shares come with ownership and voting rights , it is possible to own enough to purchase a controlling amount of shares with voting rights. So, if one entity owns the right amount of shares, their votes weigh more than those with fewer shares.

To prevent this, the potential target creates a provision that prevents hostile takeovers by establishing a share ownership limit. This provision may specify that if a single entity or person acquires a stake of 15% or more, the company implements a share issuance or other measure that makes the hostile action ineffective or undesirable.

In a flip-in, all other shareholders become eligible to acquire additional shares for a large discount or free. The party with the 15% stake is excluded from the stock issuance . This increases the number of outstanding shares and dilutes that party's stake, thus averting the takeover.

While takeovers are still commonplace, hostile takeovers are not as common as they used to be because of tools like poison pills.

Proxy advisory firms Glass Lewis and International Shareholder Services traditionally opposed poison pills because of their potential to entrench managers unresponsive to shareholders.

As of 2022, ISS guidelines called for poison pills to have a term of no more than three years and a trigger of no lower than 20% of shares outstanding. Glass Lewis generally opposes poison pills, with case-by-case exceptions for those limited in scope and motivated by a particular threat or objective.

Advantages and Disadvantages of a Poison Pill

A company's board has a fiduciary duty to protect the interests of all shareholders, while an outsider seeking control may only wish or need to satisfy a minority to gain effective control through a tender offer. A poison pill helps prevent majority control takeovers that disregard the interests of minority shareholders.

It also discourages vulture bids seeking to take advantage of a temporary decline in a share price. For instance, market declines at the outset of the COVID-19 pandemic led hundreds of U.S. companies to adopt shareholder rights plans.

Companies with poison pill defenses have tended to garner higher takeover premiums than those without them. Industrial gasses supplier Airgas, which deployed a poison pill to resist a hostile takeover by rival Air Products and Chemicals ( APD ) in a landmark legal battle, sold four years later to Air Liquide for more than twice as much as Air Products offered.

Disadvantages

By discouraging a motivated buyer from buying more company stock, a poison pill will likely leave a share price lower than it would be otherwise, at least in the short run.

Poison pills can also shield underperforming board members from shareholder efforts to replace them. The good news on that score is that replacing a company board in a proxy contest can make a poison pill disappear if the new board chooses to do so.

Because poison pills discriminate against activist buyers and restrain trading in a company's stock, they typically require justification and often have sunset provisions . A sunset provision is a clause that expires automatically at a certain date.

Prevents majority control takeovers that don't consider minority shareholder interests

Discourages vulture bids that want to benefit from temporary share price declines

Come with higher takeover premiums than those without them

Leaves share price lower

Shields underperforming board members from efforts to replace them

Requires justification

Comes with sunset provisions

Types of Poison Pills

Most poison pills are triggered by the accumulation of a company stake above a preset threshold. These are known as flip-in shareholder rights plans, in contrast to the seldom-used flip-over ones. This type of poison pill is just like a reverse takeover. It occurs when a company allows itself to be acquired by another public company and then lets shareholders buy shares of the acquirer at a discount.

A dead-hand or slow-hand poison pill limits a future board's ability to remove that provision by specifying that it can only be canceled by a board majority consisting of current directors or the successors they choose. Delaware, the corporate domicile state of two-thirds of Fortune 500 companies and most recent initial public offerings, bars dead-hand poison pills, while Georgia and Pennsylvania courts have upheld them.

Poison pills often include wolf pack clauses applicable to the aggregate holdings of shareholders acting in concert without expressly agreeing to do so. For example, hedge fund managers commonly accumulate separate stakes in companies pursuing a common activist agenda without communicating the intent.

Examples of Poison Pills

The poison pill tactic has been around since the 1980s when it was devised by New York law firm Wachtell, Lipton, Rosen, and Katz amid a wave of hostile takeover and greenmail attempts by corporate raiders since rebranded as activist investors. Courts have ruled that poison pills are a legitimate defense against such attempts to circumvent a company board's prerogatives.

X (Formerly Twitter)

In early April 2022, Elon Musk threatened social media giant X with a hostile takeover by disclosing that he purchased 9% of the company's shares.

X adopted a poison pill provision to prevent the takeover in mid-April 2022. It used 15% as its ownership threshold, which prevented anyone from taking over the company without bargaining for a fair value. By the end of April, the company agreed to a buyout by Elon Musk.

Musk ended up purchasing the company in October 2022 for $44 billion.

Papa John's

In July 2018, the board of restaurant chain Papa John's ( PZZA ) voted to adopt a poison pill to prevent ousted founder John Schnatter from gaining control of the company. Schnatter, who owned 30% of the company's stock, was the company's largest shareholder.

To deter a takeover attempt by Schnatter, the board adopted a poison pill expiring after a year that would permit the company to sell its stock to shareholders for half its market price if Schnatter and his affiliates increased their stake to 31%, or if anyone else amassed a 15% stake. As with all poison pills, those triggering the provision would not be allowed to buy stock on the same discounted terms, effectively diluting their stake.

When announcing the poison pill's adoption, the company stated,

"Adoption of the Rights Plan is intended to enable all Papa John’s stockholders to realize the full potential value of their investment in the company and to protect the interests of the company and its stockholders by reducing the likelihood that any person or group gains control of Papa John’s through open market accumulation or other tactics without paying an appropriate control premium."

Schnatter filed suit over some of the poison pill's provisions, settling it the following year along with other litigation against the company. He reduced his stake to less than 4% by 2020.

In 2012, Netflix ( NFLX ) announced a poison pill days after billionaire investor Carl Icahn and affiliates disclosed a stake of nearly 10%. The poison pill promised to dilute the stake of anyone acquiring more than 10% of the video streaming service provider by allowing other shareholders to purchase two shares for the price of one.

In disclosing their stake, Icahn affiliates suggested "Netflix may hold significant strategic value for a variety of significantly larger companies," adding they were "considering ways for [Netflix] to maximize shareholder value."

The Icahn funds criticized the company's adoption of a poison pill in an updated securities filing. Any "poison pill without a shareholder vote is an example of poor corporate governance, and...the pill Netflix just adopted is particularly troubling due to its remarkably low and discriminatory 10% threshold," they said.

Icahn's stake was later reduced, and eventually, it was sold for a hefty gain.

Why Are Poison Pills Used?

Poison pills prevent an activist investor or a potential acquirer from gaining control of a publicly traded company without the consent of the company's board. Deals involving the board's consent to a change of control typically provide a significant premium over the market price for all shareholders, in contrast to the share purchases in market transactions the poison pills seek to deter.

What Are the Disadvantages of Poison Pills?

Poison pills can help self-serving incumbent managers and boards frustrate shareholder efforts to oust them to improve the company's performance. As a result, corporate governance advisors recommend companies limit their scope and duration, ensure that such plans address a specific goal or threat, and have a high triggering threshold.

What's the Legal Precedent for Poison Pills?

In Delaware, where many large, listed companies are incorporated, the courts have held that corporate boards have broad discretion in preventing the accumulation of controlling stakes, provided their response is proportional and based on a reasonable perception of a threat.

Poison pills are provisions companies include in their stock issuances that prevent anyone from gaining a controlling stake. They usually have share ownership thresholds set that trigger the issue of more shares to stockholders for a discount or for free. Thus, poison pills reduce a would-be acquirer's stake in a company, forcing them to negotiate with the board for ownership rather than forcing their way in through stock ownership.

Wachtell, Lipton, Rosen & Katz. " Takeover Law and Practice ," Pages 121-127.

ISS. " United States Proxy Voting Guidelines Benchmark Policy Recommendations ," Page 28.

Glass Lewis. " Poison Pills and Coronavirus: Understanding Glass Lewis’ Contextual Policy Approach ."

Dentons. " Shareholder Rights Plans: Recent Trends ."

Wachtell, Lipton, Rosen & Katz. " Takeover Law and Practice ," Page 121.

Wachtell, Lipton, Rosen & Katz. " Takeover Law and Practice ," Page 125.

U.S. Securities and Exchange Commission. " Preferred Shares Rights Agreement, Nov. 2, 2012: Netflix, Inc. and Computershares Trust Company, N.A., as Rights Agent ."

Carpenter Wellington. " Poison Pills as a Defensive Tactic Against Hostile Takeovers ."

Wachtell, Lipton, Rosen & Katz. " Takeover Law and Practice ," Page 127.

Delaware Division of Corporations. " Annual Report Statistics ."

DealLawyers.com. " Poison Pills: Delaware Chancery Skeptical of 'Wolf Pack' Terms ."

Harvard Law School. " A Pill of a Swan Song ," Page 2.

Wachtell, Lipton, Rosen & Katz. " Takeover Law and Practice ," Pages 123-125.

PR Newswire. " Twitter Adopts Limited Duration Shareholder Rights Plan, Enabling All Shareholders to Realize Full Value of Company ."

Bloomberg. " Twitter Has a Poison Pill Now ."

The New York Times. " Elon Musk Completes $44 Billion Deal to Own Twitter ."

Reuters. " Papa John's Adopts Rights Plan to Limit Founder's Stake ."

Papa John's. " Papa John's Adopts Limited Duration Stockholder Rights Plan ."

Law.com. " Schnatter, Papa John's Settle Del. Lawsuit Over Control of Pizza Chain ."

Louisville Business First. " John Schnatter Now Owns Just a Slice of Papa John's After Another Big Sale ."

UC Regents, UC Berkeley School of Law. " Netflix, Good Governance and Poison Pills ."

U.S. Securities and Exchange Commission. " Icahn Capital Schedule 13D for Netflix, Inc., Oct. 24, 2012 ."

U.S. Securities and Exchange Commission. " Icahn Capital Schedule 13D for Netflix, Inc., Nov. 5, 2012 ."

Forbes. " Here's How Carl Icahn Made $2 Billion On Netflix ." 

Harvard Law School Forum on Corporate Governance. " Poison Pills After Williams: Not Only for When Lightning Strikes ."

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