How to buy a business in Nigeria – Processes, Checklist, Valuation etc.

Nairametrics| The business of selling businesses has been with us for quite some time now. From buying a barber’s shop to selling a fashion boutique, or selling a taxi chain to buying a cyber cafe etc. On a larger scale, we have also seen large companies buy out another or the government selling off large corporations (just like the Bureau of Public Enterprise BPE does).

For a small business, the process isn’t that onerous and can be consummated within days if not hours. Still, it can be quite challenging to decide on how and where to start from once a business has been made available to you to buy. In this discourse, we shall attempt to identify and discuss steps that may be taken for a successful acquisition.

There are two major ways one can buy a business in Nigeria and they are;

  1. Buy shares in the business if it is registered as a Limited Liability Company
  2. Buy parts or all the assets that the business owns (with or without its debt)

Whichever one you decide to adopt the following steps should guide you on your way to a successful acquisition;

Research about the business– When an offer is giving to you to buy a business, it is important that you take your time to research properly about the business. You may also want to make an offer to an owner of a business who probably had no intention to sell as well, that too needs research. However, before doing that these are some of the questions you should ask;

  • Why the owner wants (or may want to sell)?
  • What are the Strengths Weaknesses, Opportunities and Threats inherent in the business?
  • Do you have a clear vision of how you want to company to progress once you buy it?
  • Do you just want to buy the business because of certain characteristics that it has, such as location, brand name, staff, loyalty, assets etc.? If yes, assess them to ensure that they truly exist as much as they do in perception.
  • What kind of offer do you give the owner if the offer to buy is being made by you and
  •  What is the maximum amount you can pay for the business?

Hire Professional Advisers– It’s quite understandable that certain business does not require professional advice solely because the cost often outweighs its benefits. However, it is generally important to seek professional advice especially if you do not know. Some businesses require that you seek the advice of a lawyer, accountant and even an asset valuer whilst some just require that you seek advice of people who have requisite experience about the business. However, for most registered business (Ltd Liability Companies) it is advisable that you at least engage the services of a lawyer and an accountant.

Lawyers help you draw up share or asset purchase agreements, help you check the legal standing of the company, help you with the documentation of the forms and documents that leads to the legal transfer of the business among others. Accountants help you with, independent opinion of the financial state of the business, expose debts owed to/by the company tax status of the business, likely statutory cost that you may incur and ultimately estimating the possible price of the businesses etc. For a business that is a Sole Proprietorship (often called a one-man business) you may not need so much professional advice. However, you do need to have a means of knowing the characteristics of the business that you are buying.

Valuation of the business – If you have been made an offer to buy a business by the owner you may want to be a little more patient on deciding if the price is right. This is different from you making an offer as you may have already decided on the price before approaching the owner of the business. Whatever the case maybe it is important that you figure out ways of valuing the business. The two major ways of valuing a business is either via  Discounted Cash flow valuation (DCF) of the company or just a Market valuation of the Asset of the company.  This takes us to the two major ways of buying company mentioned above.

Usually, buying businesses from Sole Traders is done by paying for the underlying assets of the business as they don’t have shares to sell. But for a registered business you could be faced with two options. For example, if you wish to buy a Cyber Cafe from a willing seller, you could be presented with the option of buying the shares of the company, which gives you rights to all the assets and possibly liabilities of the company. Or better still you could just buy off the operating assets of the company. In the case of small businesses its often better to just buy the Assets of the company. This is because most small businesses do not keep proper book of accounts and do not file up to date returns with the government authorities. So, if you are to buy a cyber cafe, I’d suggest you buy the asset and not shares. Assets will involve computers, vast equipment’s, photocopying machines, telephones etc. Surely there are advantages and disadvantages in doing either. However, I will be taking up this subject in future as a blog post of its own.


Source Finance– Once you have done your research and determined the price of a business, the next step will be for you to source for money. Small businesses often require full cash payments as purchase consideration. So, if you have decided to buy the business you should be ready with your cash. Some would rather make an offer before getting the money but remember sellers of businesses are usually willing to take a lower offer once the cash is dangled in front of them. Money shows seriousness and helps close deals faster. For the buyer who probably doesn’t have the full payment price, you can put forward a percentage of the purchase price as a sign of commitment. This gives you time to source for the balance of the money. By paying a commitment fee, you also have (limited) access to the business early enough which helps you with planning ultimately saving time and cost.


Make an Offer–  Once you have raised a sizable amount of money that matches your valuation of the business the next step is to make a formal offer. For small businesses, formal offers can range from verbal interactions to paper offers. Whatever the case maybe, the offer should show seriousness and intent to buy the business once it is accepted. Making an offer is the most important part of the business and can be a very tricky part of it too. Usually, sellers can in a twist of fate decide to hike their price or lower it depending on how the transaction dynamics turns out. So, it is important that you handle this aspect carefully, professionally and with all the skill it requires. When negotiating for the price of the business, it is also important to also negotiate for other factors that affect the take over the business. This is typically the Post Offer Negotiation


Post Offer Negotiations– Post Offer Negotiations involve negotiations like payment terms, sale/purchase agreements, when the business will be handed over to you, if you wish to retain the existing staff or not, list of customers and suppliers to the business etc. It is also a crucial part of the process and can be a torn in the flesh if not handled properly. One of the major reasons why newly acquired businesses fail is because this part of the process of acquiring a business wasn’t well articulated before the sale is consummated. There should always be a transition period of at least 6 months where the former owner still needs to be contacted on a regular basis. If this is not in the Sale/Purchase Agreement you will not have any recourse to the seller once money has changed hands. It is therefore important you engage the services of a professional at this stage once you can afford it.

Handover of the Business –  This involves taking full possession of the business. During handover, it is essential that all necessary documentation and signed sealed and delivered. You should draw up a list of all the things that need to be done for you to take full and legal possession of the business. At this stage, the services of a professional are very critical especially if it involves a share sale. Even if it’s an asset sale, you still want to be sure you that what you are paying represents a fair value of the asset. Most importantly though are documentation that you must ensure is in place and take possession of. Example are (note this is not an exhaustive list)

  1. Sale/Purchase Agreements
  2. All receipts or evidence of payments for Fixed Assets acquired during the purchase
  3. Financial Statements of the company since inception if the sale involves purchase of shares
  4. Make sure the seller signs a share transfer certificate if sale involves purchase of shares. You should also register same with the corporate affairs commission and pay stamp duties to formalize. Get a document from the shareholders of the business consenting to the sale of the company
  5. Obtain the Tax Identification Number of the company. Collect Income Tax Clearance certificates belonging to the company if any as well as the VAT details.
  6. If it’s a share sale, also obtain the bank accounts of the company and execute change of mandate and signatories before the sellers vacates.
  7. Obtain copies of all contracts, leases etc. belonging to the company.
  8. For a sale involving purchase of an asset, ensure that all change of ownership documentation have been completed. Also get a Sworn Affidavit that none of the assets of the company is encumbered and is not mortgaged to any individual, bank, government and corporate body.

By now you must have completely taken over the business and now face the daunting but exciting task of putting your plans into action. Off course there are several other things that one needs to consider when acquiring a business. For example, if it is a business that has branches you may want to consider buying part of the business or the entire business including all the branches. This example requires a more detailed approach to deciding whether to buy. Another example is deciding whether to retain the staff of an acquired business. This also involves a more detailed analysis.


This article first appeared on Ugometrics December 18, 2011. It has been updated for Nairametrics.





What others say about : How to buy a business in Nigeria – Processes, Checklist, Valuation etc...

What's your say?
%d bloggers like this: