Emma Borrington, partner at Berry Smith, highlights some initial thoughts when considering the sale of your business.
When it comes to the time for you to sell your business, whether that be through retirement or moving onto new ventures the thought of your exit can be a daunting prospect.
A recent report by the Welsh Government revealed that 3 out of 4 Welsh SME business owners have not planned for their eventual exit. Planning is key and whether you are looking to sell in 6 months or 6 years it’s never too early for you to start thinking ahead. Preparation will significantly increase the chances of you maximising value and ensuring a smooth ride to completion.
Here are some initial thoughts for you to consider….
Who is the buyer?
Trade buyer – this is mostly like to be one of your competitors or another company in the same sector. Think about how you will approach them if they have not approached you and be mindful of confidentiality and how this could impact your business, customers and employees.
Management and/or employees – we are seeing a trend in an increase of management buyouts and this is often coupled with employees being brought into the fold by incentivising through employee share option schemes. It may well be that you need to recruit new team members with a view to your exit plans or your current team could be ready to take on the challenge.
Private equity investor – while this is a less common route to exit, it can happen and depending on your business and its potential for future profits a private equity investor may well see your business as an investment opportunity. Usually you would expect key individuals to remain in place for a period of time, but often investors will have their own board ready to come in and take on the key roles.
What are you selling?
Assets – allowing a buyer to cherry pick the assets they want and leave behind the liabilities. Perhaps you may want to keep the company name or use the company for your next venture?
Shares - selling all the shares to a buyer will mean a clean break for the owners, and the buyer will take on all assets and liabilities. From a sellers perspective this is usually the best option.
What are the timescales?
Typically a business sale whether by way of share or asset sale can take up to 6-8 weeks, sometimes shorter, sometimes longer depending on the business, how well prepared the buyers and sellers are, the level of due diligence undertaken and the resources available on both sides.
The legal process
Knowing what to expect as part of the process can help alleviate some of the stress and assist with the planning. From a legal perspective you will need to think about the following stages:
Confidentiality/Heads of Agreement – depending on who your buyer is will depend on whether a separate confidentiality agreement (Non Disclosure Agreement) is required. It may well be incorporated as part of the Heads of Agreement/Terms.
Due diligence – This can be a lengthy part of the process, which involves answering detailed questionnaires about the business and providing supporting documentation, often through a virtual data room.
Share/Business Purchase Agreement – The core legal document, setting out what you are selling, the consideration and terms of the sale, including relevant warranties and indemnities that the buyers is seeking to rely on.
Tax Deed – this is the tax indemnity setting out what tax liabilities you and the buyer will be responsible for.
Disclosure Letter – a key document from the sellers perspective in which the sellers are able to make statements which qualify the warranties and provides both general and specific disclosures against the warranties.
Ancillary documents – this will include board minutes, Companies House forms and banking document (such as mandates and resolutions to update the new signatories)
Completion – Depending on the terms of the transaction there may be a split between exchange (the date you sign and commit to the deal) and completion (when the legal transfer takes place and consideration is paid). If there is a split this will usually be attributable to the requirement of certain conditions being met.
Post Completion – there may be a requirement for the sellers, if involved in the day to management of the business, to remain post completion either on a full-time or part-time basis. This could be by way of employment or consultancy.
These are just some initial thoughts and hopefully an insight to a transactional process from a legal perspective. There is a lot to consider and having the right advisers (legal, financial and advisory) who have the relevant experience will help. If you have any queries or want a no obligation discussion on any matter raised in this blog please do not hesitate to contact me or any member of the Corporate Finance team at Berry Smith.
029 2034 5511