Looking To Buy A Company?

The global financial crisis has resulted in companies and businesses re-evaluating their
corporate strategies as they try to guide themselves through the current turbulent economic period. Recent trends have seen companies downsizing or ‘selling on’ unprofitable areas of business and even taking the bold step of expanding into new business areas.

What follows is a brief overview of the main considerations which shareholders and
business owners should take into account when acquiring a business.

Share or asset sale?

The first distinction to make is whether the shares in the company are to be purchased or simply certain assets.

When purchasing the assets of a company, you can pick and choose which assets to buy, specifically excluding any liabilities. Conversely, buying all the shares in a company will result in any liabilities and obligations remaining with the company, whether you know about them or not. You may however, be able to negotiate the exclusion of certain company liabilities in the share purchase agreement.

Due Diligence

As a buyer, it is important, whether on a share or an asset sale, to know as much as possible about the business you are purchasing. This means instructing lawyers, accountants and any other relevant experts to review any documentation relating to the
business or company you are proposing to purchase.

The due diligence review is instigated by the prospective buyer sending a due diligence
questionnaire to the seller or his solicitors with numerous questions around the business’ performance, its contracts, its relationship with its employees, its intellectual property and any litigation it is involved in. The seller will provide replies and requested documentation to the buyer and his team who will then look through and review each document in turn, looking out for any points of concern.

In certain circumstances, depending on the results of the due diligence process, it may be appropriate to request some form of indemnity to cover a specific liability uncovered during the due diligence process.

Negotiations and process

Negotiations often start with the buyer and seller entering into “Heads of Terms” which outline the agreed terms between the parties which will then be transposed into a
formal agreement for the purchase of the business or company.  They are usually non-binding, save for certain exceptions and often include “lock-out” provisions which prevent a party from negotiating a better deal with a third party for a certain period,
and restrictive covenants to ensure that if the deal does not proceed, each party cannot poach any of the other party’s employees.

The next stage is for the lawyers to draft an agreement incorporating the terms which the parties have agreed, including how the purchase price is to be paid (whether all up
front or deferred).

This agreement will be legally binding and will usually include certain warranties and indemnities which the seller will give the buyer about the business. The warranties are
essentially legally enforceable promises which will give the buyer a right to sue the seller for breach of contract if they are untrue. For example, the seller may warrant that there is no litigation affecting the business or that any intellectual property is owned by the company.

The agreement will also likely include certain limits on the seller’s liability and the seller will have a chance to inform the buyer of any matter which may conflict with or contradict any of the warranties in what is called a disclosure letter.

Employees

Regardless of whether a transaction is a share sale or the sale of a business involving a relevant transfer for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”), one area which must not be overlooked is that of the employees.  Failure to consider the employees affected by a transaction could result in tribunal appearances and significant compensatory awards.

There are many issues to consider when buying a business or company or if you are thinking of moving your business onto the next level and the team at Mackrell Turner Garrett strongly recommends seeking legal advice at the earliest possible stage in your
decision making process.

We have years of experience in dealing with sales, acquisitions, mergers and restructuring of companies and many transactions we have been involved with have an international dimension. We are a founding member of Mackrell International, an independent network with over 4,000 lawyers worldwide and which enables us to deal with companies with interests both in the UK and throughout the world.

For more information please contact us on rebecca.howlett@mackrell.com

Rebecca Howlett
Associate
Mackrell Turner Garrett

 

Leave a Reply

© 2019 Evolution Complete Business Sales Ltd.

  Keep me updated
KEEP UPDATED

Dear visitor. Please subscribe if you'd like to receive updates and events on selling or buying a business

* we hate spam and never share your details.
×