This is the first in a series of 4 providing key information for business owners thinking of selling. In this episode, we give an overview of the entire legal process.
You’ve worked hard bringing your business baby into the world and growing it into something sustainable and profitable. Often the only way to fully realise the investments you’ve made over the years is to sell either the whole or a majority share of the business. Large investors in particular may often have an extensive list of requirements before they will even consider entering negotiations properly. And the length of the process can sometimes be confusing and demoralising. In order to better manage your expectations – and your time – here is an overview of the usual stages of a business sale, most of which apply to both asset and share sales:
-
Pre-Sale Preparations
Is your business ready for sale? It may well be profitable, but to make it saleable there may be some work to do from a legal perspective. Having all of your legal obligations in apple pie order will not only mean buyers are clear on what is for sale, it will also mean less negotiation, or worse still, an aborted sale, if any surprises crop up during due diligence. The due diligence process will also be much easier if you already have everything you should in place.
-
Valuing your business
This will be carried out in conjunction with your company accountant and potentially also a professional valuer with knowledge of your specific sector.
-
Finding a buyer
Engaging a business sale agent is becoming increasingly common. They will market your business and hopefully introduce you to one – or more – potential buyers. To avoid getting caught out, ensure that you read – and negotiate – on their Ts and Cs, particularly on things like exclusivity, aborted transactions, and changes to initial negotiated terms with the buyer.
-
Heads of Terms
When you’ve found that buyer, here is the first opportunity to agree the backbone of the deal and record it in writing.
-
Contract Negotiations
Whilst the bare bones of the deal such as price, timescales, etc. will have been agreed in principle, in reality, negotiations will run concurrently with due diligence (see below). What is (or is not) disclosed during that process will directly impact upon the drafting of the sale and purchase agreement, including warranties, claims periods, and what the buyer is or is not willing to accept in terms of price, liabilities, etc.
-
Due Diligence
This is often where the bulk of the work takes place. The buyer will ask certain questions, requiring the seller to disclose information about key areas of the business such as contracts, equipment, employees, pensions, disputes, health and safety, accounts, financial liabilities, property, IP, etc. The seller will respond to these questions compiling a pack of information including copies of all relevant information. This will then be formally disclosed in a Disclosure Letter, helping to limit the seller’s liability following the sale.
There is likely to be some negotiation and re-drafting of the sale agreement following this process.
-
Completing the Sale
There will be a lot of activity with your legal team drafting a whole suite of documents: the SPA (the sale contract), the Disclosure Letter, resignations, board minutes, obtaining shareholder approvals, Companies House forms. There will also likely be some continued negotiation to finalise draft documentation.
-
Post-completion matters
Following completion there will be certain administrative tasks to carry out, including Companies House filings. Sellers who are key personnel may also stay on for a defined period post-completion to ensure a smooth handover of the business. Even if none of the sellers are staying on, they will need to be mindful of any restrictions they have agreed to, such as non-compete provisions to protect the business of the company being sold.
Hopefully, this has given you an overview of the various stages that you will need to consider. In my next article I will be delving deeper into preparing your business for sale.
If you are looking to sell your business now or in the future and would like to discuss in further details please do not hesitate to contact me on karen.blakesley@cognitivelaw.co.uk.