Buying a business in the Netherlands as a foreigner: a quick guide
We deal a lot with foreign entrepreneurs who want to start an entirely new business in the Netherlands, in order to expand their expertise and company’s reach. But did you know; that you can also choose to buy an already existing (successful) Dutch company? In many cases, this can prove to be a good investment, as it saves you a lot of time and effort related to establishing a new company. For example, you won’t have to:
- Market your new company
- Look for employees
- Establish a name for yourself
- Compete with already existing companies
- Grow a network of business partners
- Think about a name and logo
These are just a few advantages of buying a company that already exists. Nonetheless, buying a company also includes necessary research and work. You also need to take into account that you will need capital to be able to acquire a company. In this article, we have already explained the basics of mergers and acquisitions. We will now further outline the steps you need to take, when you want to buy a Dutch company.
Some interesting background facts
Did you know; that around 15% of all company owners in the Netherlands foresee that they will sell their business within the next 5 years? When you calculate this figure to a yearly number, this means that roughly 20,000 Dutch companies are sold every year. This means, that there’s a good chance that a company within your specific niche will be sold in the near future. So in essence, entrepreneurs are often just as interested in companies, as they are in goods and services. Even though you will have to invest a substantial amount of money, buying an existing company assures you of instant profits from day one. Research by the Dutch bank ING shows, that this form of entrepreneurship has the highest chance of success, since the basic building blocks are already in place.
The basics of the purchasing and financing process
In general, a very structured and systematic approach works best when acquiring someone else’s company, as this prevents you to unnecessarily lose time on something that might not be worthwhile in the end. This is also where due diligence becomes important, so you know what you are buying. Also, when you plan things from the start, this will inevitably provide you with a clear and concise overview and timeline. Growth acquisitions, as well as management buy-ins, currently offer plenty of financial opportunities. You always need to take into account, that a successful purchase transaction does take time. A structured and systematic approach prevents unnecessary loss of time and provides an overview.
When you want to acquire a company, Intercompany Solutions can help you with several important steps during the process. For example: we can investigate proper financing solutions for you. We have many contacts within banks and other financial institutions, making it possible for you to buy a business that might be outside your current financial scope. This way, we can also introduce you to suitable investors. Next to banks and investors, there are other lucrative opportunities to finance your new business, such as factoring and crowdfunding. If you already have a rough idea about the type of business you are looking for, we can help you with searching for something that matches your expectations. We can also assist you throughout the entire process, by taking care of the negotiations and contractual settlement. We will now further outline the complete acquisition process, making it possible for you to become acquainted with the necessary steps to buy a Dutch company.
The process of buying a Dutch business
As we already discussed above, if you plan to buy a company in the Netherlands, it is essential that you prepare well for this endeavor. Buying a company is a careful process that involves a lot of actions and information. For example, how can you find a suitable company to buy? What are specific factors you are looking for? Do you want to operate in a certain niche? Or is the geographical location of the company more important to you? Once you have decided on what you want, you also need to figure out what the right value is for a certain company you have your eyes on. This involves a lot of planning and organizing, which is why we have assembled a list of general steps you need to take when you wish to acquire a Dutch company. All in all: when buying a company, first make sure you are well-prepared. Please read on to find out what is expected of you as an entrepreneur, when you want to expand overseas.
Create a buying profile
The first thing you need to do when you have the intention to buy a company, is choose the way in which you will execute this. In general, there are two ways of acquiring a company:
- Via a strategic acquisition
- Via a Management Buy In (MBI)
- Via a Management Buy Out (MBO)
- Via business succession
When you buy through a strategic acquisition, you essentially acquire another company to further your own current company. This will also enable you to grow and expand your share in the market. If you want to realize this, it is advisable to buy a customer or supplier, since you already benefit from being each other’s contacts. Next to that, with partners there is already a foundation of trust, which will make doing business together in the future a lot easier. As an alternative, you can also opt for buying a company that allows you to tap into new or larger markets. In any case; the acquired company will exist further under your current company’s name.
Alternatively, you can choose a Management Buy In. With this option, you buy a controlling ownership stake in another company, with the intention to replace the current management team. With this option, you can choose to buy an entire company, or just a part of the total sum of the shares. Often, this type of acquisition is chosen when the current management team provides below-par results, or when a company is visibly failing. If you have the expertise within your own company to take another company back to success, an MBI might be the best choice for you. Another option is the Management Buy Out (MBO). If you want to purchase a company where you are currently working, then this sometimes falls under the scope of business succession. If you are simply an employee, the MBO can be a good method. If you are taking over a family business, then the method of choice is business succession. Internal acquisitions involve other matters than external acquisitions, such as emotions, but also tax arrangements, such as the business succession scheme. It is a smart idea to look up information about all these methods, to see which one is best for your situation.
Once you have chosen your preferred method of acquisition, you need to create a good buying profile. This profile will help you to target your search, by making a list of things you want, and don’t want. There are several factors that you need to research when you make a buying profile:
- The specific type of business you are looking for
- The preferable size of the company you wish to buy
- The region where the company should be situated
- The sector(s) you would like this company to operate in
- The price you are willing to pay for this company
- The turnover of the preferred company
Once you have created a buying profile, your search will be a lot faster and easier, since you narrow your query to fit your exact preferences. It will also allow you to pinpoint multiple companies, that might be of interest to you.
Create a business plan with an analysis
Once your buying profile is complete, it’s also very important to create a solid business plan. A business plan will make it possible for you to determine, whether the acquisition will benefit your current situation. You map out your strategy and expertise, whilst also focusing on the goals you have for the (near) future. If you want to create a complete business plan, there are certain things you should include:
- Market research, to find out how this specific market is currently doing, and, if it fits your ambitions
- A strength-weakness analysis of your company, as well as the company you wish to acquire
- The strategy and vision you have in mind for the future
- Your future expectations regarding this acquisition
- The organizational structure you see for the future
- A financial plan, explaining how you will finance the acquisition
You can find many templates online to create a good business plan, which will help you on your way. You can look at Dutch governmental organizations, such as the Dutch Tax Authorities and Chamber of Commerce, for plenty of in-depth information. It is also wise to request the seller of a company for a so-called ‘sales memorandum’. This will provide you with an ample assortment of figures, statistics and information about this company. Alternatively, you can also choose to outsource the process of creating a business plan to a specialized third party, such as Intercompany Solutions. With years of expertise and experience, we can create an attractive business plan for any imaginable company. This will also aid you tremendously, when you are looking for financing and/or investors.
Consider hiring an advisor
As we mentioned above, some steps of the process can be too complicated for some entrepreneurs to carry out themselves. This is due to the fact, that there are many financial, legal and tax aspects involved with buying a company. It may, therefore, be wise to hire a third party with experience in business acquisitions at an early stage. When looking for corporate advice, make sure you choose a team of qualified professionals who are legally allowed to provide services and advice. For example; not everyone can carry the title ‘accountant’ in the Netherlands, so make sure you research a potential partner well. Make sure the third party has legal, fiscal and financial knowledge, and knows all current Dutch tax laws and regulations. With many years of experience within the fields of business acquisition, Intercompany Solutions can provide you with all relevant services regarding this specific field of expertise.
View the acquisition offer and express your interest to the seller
Once you have finished all the research and created a buying profile and business plan, it’s time to look at actual companies for sale and contact potentially relevant sellers. With the buying profile you created, can orientate yourself on offers. You can look on special acquisition platforms to find a vast array of companies for sale, such as Brookz or The Company Transfer Register. Also note, that a lot of company acquisitions take place within certain networks. For example; business partners might decide to merge, or one partner buys the other. For this reason, it’s considered wise to share your plans within your own business network. You can also use social media to express your interest in a certain niche or market, and see what comes up. Next to that, you can also attend special events that invite entrepreneurs for special occasions.
Once you have actually found a suitable company (or multiple), you can contact the seller to let them know you express an interest in their company. It’s important that you research the company beforehand, to show that you have done your proverbial homework. Make sure you know enough about the company, in order for the seller to seriously accept your interest and offer. This will also provide you with the necessary confidence. Always keep in mind, that selling a company might be an emotional undertaking for the seller, since he or she has put a lot of work and time into the business. This means, that you will have to show them why you would be the best bet to lead the company into further success. This also enables you to show your expertise and ideas in your buying pitch.
Start the negotiations and record the agreements
Once you have found a potential company to buy and the seller is also interested in your offer, it’s time to start negotiations and creating the necessary paperwork. This means you will officially enter a purchase agreement, which also includes a lot of administrative tasks. For example, you will need to draw up a so-called “Letter of Intent’ (LOI). In this document, you basically record all the results of the negotiations between you and the seller. Keep in mind, that you are still able to change the LOI in this stadium, if anything changes. When negotiating, you will discuss a wide variety of things, such as (but not necessarily limited to):
- A description of the selling price
- The conditions that apply to the sale
- A summary of what you are buying exactly, including all assets and liabilities
- The sum of shares you will buy
- A rough timeframe and meeting schedule
- Factors such as confidentiality
- What the legal business structure and entity will be after you buy the company
- If the seller will still be involved in the company after the sale
As you can see, there is a lot that needs to be taken care of and agreed upon. We therefore highly advise every entrepreneur involved in an acquisition, to hire a third party that is specialized in such activities. You can then also take your partner or advisor to the negotiations, which can make a huge positive impact on the outcome of the negotiations and sale.
Have a valuation and due diligence carried out
One of the most important factors of any sale, is, of course, the price you have to pay. Keep in mind that you should never overpay, which is actually one of the biggest pitfalls when (starting) entrepreneurs want to buy a business. When you buy a house, you also look at houses in the neighborhood, to see if the valuation of the house is correct. Now, in business, this works similarly. The best thing to do is to let your financial partner or hired third-party draw up a valuation. This valuation will not automatically be the exact price you will pay, but it rather serves as a basis for the future negotiations about the final selling price.
There are several methods for valuation, each with its own benefits and characteristics. The Discounted cash flow (DSF) method is the most commonly used method for a valuation, due to the pure image of a company. With the DSF method, you look at the current and the future value of the company to acquire a clear picture. Another method is by calculating Goodwill, which means you look at the assets and liabilities of the company you wish to buy, but also at its capital gain. This can be its customer base, reputation and profit potential. A third method is calculating the intrinsic value of a company, which is basically its equity. This means, that you subtract the debts of the business from its Goodwill and market value. A fourth method implies you calculate the profitability of the company, which implies that you determine the enterprise value based on average past profits and the desired return.
All these methods work well, but it’s important that you choose the right one for your endeavor. Intercompany Solutions can help you find out, which valuation method suits your needs best. Next to the valuation, a due diligence research is also very important. With a due diligence, you look at factors such as financial and legal records. Is everything correct and justified by law? Are there any criminal activities connected to the company? Are there any persons working for the company, who might pose a future threat? Are there any current lawsuits or claims against the company? During the due diligence, all these potential risks are researched to find out, whether the information the seller has provided is indeed correct. You can look up more about due diligence on this page. When information turns out to be incorrect and, therefore, risks are involved, you can take countermeasures such as lowering the selling price. Alternatively, you can also choose to refrain from buying the company, if its misconducts might put you at risk in the future.
If necessary: arrange financing
In some cases, business owners already possess sufficient capital to buy another company. If this is not the case for you, know that there are plenty of options nowadays to attract funding. The most conservative option is a bank loan. If you have a good business plan, chances are a bank will provide you with a loan if they expect you to succeed with the acquisition. You can also opt for crowdfunding, which is especially worthwhile if you have an original or sustainable idea. Next to that, you can choose an informal investment, or accept capital from someone in your network. Out of experience, we know, that financing for buying a company often involves a combination of financing methods. Also note, that the seller sometimes leaves part of the sales price in the company you buy. You can then pay off any residual debt with interest. Feel free to contact us for more information about proper financing for your acquisition.
Complete the sale
Have you followed all the steps mentioned above, and also obtained enough capital to finance the company acquisition? Then it’s time to draw up an official purchase agreement, which is done by a notary. In the purchase agreement, all agreements from the previously drawn up LOI are incorporated. You will need to go to the notary and sign the purchase agreement, for the sale to become official. You should also take into account some additional costs for the transfer, that come on top of the agreed sale price. These are costs such as notary costs and the fee your advisor asks, but also costs for any due diligence investigations and, possibly, financing costs.
What happens after the sale?
When the business transfer is complete, you need to take care of extra arrangements and steps, such as registering with the Dutch Chamber of Commerce. When you become the new owner of a company, this means that you generally will receive a new Chamber of Commerce registration number. This is only unnecessary if the company continues to exist in exactly the same way as before. You will also acquire a Dutch VAT number, and you will have to open a bank account if you don’t already have one. Next to that, you will also have to inform all related parties about the sale, such as partners, customers and suppliers. We strongly advise introducing yourself to the company employees too, so they know who they will be dealing with from now on.
You also need to think about the future of the company, and all organizational aspects of the takeover. You should think about how you will fit both companies together in the best way possible. This raises questions, such as a possible change of the current corporate climate and the way you will involve employees in your new strategic vision. In essence, you can prevent a lot of issues and unrest within the company if you communicate your plans well and often. You should inform all involved employees about your future plans, and how you see them participating in those. In many cases, the seller will be happy to help you along the way. Just make sure that you have clear boundaries about your own responsibilities and that of the other employees, in order to prevent any unwanted interference.
Intercompany Solutions can advise you about company takeovers
If you are looking for a solid partner during the entire acquisition process, then Intercompany Solutions will gladly assist you every step of the way. We can inform you about all relevant aspects regarding the sale, such as the best acquisition method for your plan. We can also perform a due diligence investigation, perform a valuation of the company you need to buy and handle all administrative matters. We assist foreigners with starting and acquiring businesses in the Netherlands, which means we can also handle the entire registration process at the Dutch Chamber of Commerce. If you need financing, we can also point you in the right direction. With many years of professional experience within the field of business establishment, we can provide you with all the extra services you need to make a success out of the sale. Feel free to contact us anytime for personal advice, or a clear quote.