Process to acquire a construction company

The acquisition or buying of construction firms is common in construction industry. This transaction involves a buyer and seller. In terms of business it is also called as acquirer and the prospective acquiree possessing the target company. The buyer may be motivated to buy a target company due to future growth plans, diversification in market, geographic expansion, market penetration, organizational development and to increase the assets.

Construction is a risky business, hence these transactions should not be done in haste. The buyer or acquirer needs to be diligent and should have a strategic plan. The buyer must create database of the interested target companies and collect each company’s information in terms of factors such as revenue, profitability, growth rate, number of employees, and products, so forth. For the transaction to take place it follows an order as


1.Initial contact:

The first step in the acquisition process is the initial contact with a prospective acquiree. It can be made by different ways as

Direct call and meeting: The buyer makes a contact with owner of the target company either through a direct phone call or an email to initiate one to one discussion. The initial discussion may be followed by many more discussion before a final deal is struck.

Joint venture: Instead of direct acquisition to enter a joint venture agreements which gives the acquirer the overview of the company’s management and operation.

Third party: Instead of making a direct contact, the acquirer delegates the work of contacting target companies to the third party to make inquiry about the willingness of the owners to sell.


2.Non-disclosure agreement:

If the prospective seller is interested in selling his company to the acquirer then both parties sign a non-disclosure agreement (NDA). This stamped document is highly confidential and information is not be given to any other party.


3.Letter of intent

Post NDA, the target company should send its financial statements, summary level documents to the acquirer. Based on this information, the acquirer may proceed with the further transactions and is documented in a letter of intent (LOI)


4.Due Diligence

It is the process of investigating and estimating a company before buying it, a comprehensive analysis of legal, financial and management documentation. The acquirer then sends a list of information and documents as due diligence requests to the target company. As a rule, for Due Diligence is necessary requires at least the following information:

1) corporate documents; 2) entitled documents (e.g., copies of powers of attorney); 3) licenses; 4) accounting and financial documents; 5) documents relating related to the assets of the company; 6) information on the rights to intellectual property;  7) all commercial contracts and agreements;  8) information on labour relations;  insurance; about disputes and litigation, administrative proceedings;  9) other documents relating directly related to the company. Since due diligence involves a lot of research it is conducted by both legal consultant and technical specialist in construction.


5.Final negotiations

The results of Due diligence if not found satisfactory then the buyer may either decide to proceed by decrease in cost or may not go ahead. If everything is favourable then buyer may proceed with the transaction and present the seller with a purchase agreement. If the terms and conditions and price are agreeable to the seller than the transaction would be complete.


The process of acquiring a construction firm is not an easy task. One needs to be experienced and understand the market trends to be successful at it.