For the best chance of a good deal when selling your business, you need to do your homework, says Chris Wills, partner and head of the Legal 500-rated corporate & commercial team at Willans LLP solicitors.
To complete any successful deal (and by successful, I mean a deal where both parties come away satisfied that they have achieved their objectives) requires careful planning and organisation.
Successful deals are very rarely completed overnight, no matter how motivated the parties are. Failure to plan and be organised from the outset can result in the negotiations becoming fraught and protracted. Following these basic principles can make a significant difference to the whole process:
- Speak to professional advisors as soon as you can: This can help to guide the parties down the correct path, helping to avoid wasting time and resource on negotiations that are unlikely to achieve a satisfactory outcome.
- Take the time to prepare your business for sale:Whether exiting through a trade sale or a management buyout, the buyer is going to want to undertake some form of due diligence process (which usually involves investigating legal, financial, tax and commercial issues) to understand as much as possible about the business that they are buying (and to ensure that they get exactly what they are paying for). Any action that can be taken by a prospective seller to ensure that their records and systems are organised, or to identify and address any potential issues that could hamper negotiations or result in a reduction to the purchase price, will help to ease this process.
- Take care when negotiating the heads of terms:Carefully negotiated heads of terms that have been reviewed by professional advisors (both legal and financial) can help the parties to identify and/or address any significant issues at an early stage, which generally results in strong first drafts of the key transaction documents to be prepared. Although heads of terms are not usually legally binding, parties tend to feel morally bound to adhere to them (unless, in the buyer’s case, the due diligence process uncovers something that justifies a revision of those terms). As a consequence, a failure to pay close attention to the heads of terms can result in delays, or even an attempted renegotiation of the price, where the renegotiation of key points is required because they have not been considered fully in the heads of terms.
- Do not rush the due diligence process: This tends to be the most resource-intensive part of any deal process, but running a well-organised due diligence process will benefit everyone involved. Ensuring that questions are answered fully, and providing complete copies of any documents that are requested in a methodical manner (ideally through an online data room), will speed up the buyer’s review process, reduce the likelihood of a significant number of follow-up questions being asked and allow the parties to focus on negotiating the transaction documents themselves. From the seller’s perspective, a well-organised due diligence process makes the disclosure process (which is designed to protect the seller from potential breach of warranty claims under the main transaction documents) far easier to manage.
Willans’ corporate & commercial team provides practical, specialist advice to a range of clients, from national and international businesses to owner-managed private companies and LLPs. Contact Chris on 01242 542905 or email email@example.com for advice on business sales, acquisitions, shareholder agreements, strategic planning and more.