A hostile takeover involves a business being purchased via unfriendly terms and often in an unwanted fashion. This might also mean that shareholders and owners don’t necessarily want to sell the business, especially if the terms are not exactly agreeable.
One way in which this can occur is through a proxy contest. This is where the company planning on a takeover tries to replace the board with their own members who are in favor of the deal.
Companies on the stock exchange can also be at risk of a tender offering. This is where a company approaches shareholders of a business with a very high offer to buy their shares. In this instance, such an offer is difficult to refuse and could result in an unwanted takeover for the owners.
The UK government has a bill to enable them to intervene in foreign acquisition if a takeover threatens any aspect of national security. But there are other instances where a hostile takeover could take place.
Why would a company take over a business?
There are a few reasons why a company might want to acquire another business in today’s world. We’ll take a look at the top four:
- You’re a successful business – sometimes it really is that simple. An outside company might see your potential and decide they should takeover to reap the benefits themselves, particularly if you’re making hefty profits.
- Competition – there are many competitive markets out there and if a competitor sees how well your business is doing, they could attempt a takeover. This is likely to boost their reputation and leave them with a larger market share.
- You have a niche skill that’s in demand – perhaps you have the right staff, skillset, and equipment to dominate a niche market that another company is looking for. This is especially true in technology sectors.
- You’re a smaller business – a larger company might look to acquire a small business that has the potential to grow but limited resources.
How to protect your business
There are a number of ways you can protect your business from becoming a target for a hostile takeover:
- Remain listed as a private company to remove the ease of another company buying a majority share.
- Discourage acquisition by setting up a clause that means potential buyers need to purchase the whole number of shares or a certain percentage across the board.
- Include shareholder consent on any sale of shares and when issuing new shares to reduce the risk of dilution.
- Get professional advice from an insolvency specialist who will be able to guide you towards an agreeable outcome.
Whatever the nature of your business, it’s worth being aware of the risks and complexities surrounding hostile takeovers to make sure you’re well prepared should the worst happen.
Also, read What Are Sustainable Business Practices?
