To sell or not to sell: Considerations for Business Owners

Embarking on a company sale can be a lengthy, complex and expensive exercise so good planning and preparation by business owners can help the process and, together with the appointment of an experienced transaction team, can ensure the transaction runs smoothly and efficiently, with minimum disruption to the target company business.

Planning for a Sale

• Appoint the right advisors

It is important at the outset to appoint a team of people to deal with the sale.  The key people will usually include the following:

• the legal advisers, with a corporate lawyer project managing the transaction, to deal with the legal due diligence exercise, drafting and negotiating the transaction documents and transferring the legal ownership of the shares/business
• corporate finance accountants and tax advisers to advice on the best deal structure for sellers, deal with the tax and accounting treatment of the sale, prepare financial statements, deal with the financial due diligence and assist with the accounting and tax warranties

• Consider available tax reliefs

The availability of tax reliefs may be a key factor in determining the best structure for the sale and your tax advisors can advise you in this regard.

• Determining the value of the company

You will need to work with your accountants to determine a fair price for your business.  Consideration must be given to what value you are looking to realise on a sale, whilst being realistic about the price.

• Pre-sale health check / due diligence review

It can be a useful process for sellers to undertake a company health check or pre-sale due diligence exercise, where the affairs of the company are investigated (as a buyer would) and any potential issues identified and dealt with prior to a sale. Look out for our further blog on Preparing for a Share Sale.

• Structure of the Sale: Shares or Assets?

It is generally more attractive to business owners to sell the shares of the Company, rather than just certain assets, although this depends upon various considerations.  Please refer to our blog Buying or Selling a Business: Shares or Assets.  https://www.mlplaw.co.uk/buying-or-selling-a-business-shares-or-assets/

The Sale Process

• Initial agreements

Confidentiality Agreements or Non-Disclosure Agreements (NDA) – the sellers should get a potential buyer to sign a Confidentiality Agreement or NDA before providing the buyer with information on the target company.

Heads of Terms / Letter of Intent – these should set out the principal terms of the deal agreed between the sellers and the buyer.  Although large section of the Heads are not legally binding, they do form the basis of the Sale & Purchase Agreement.

• Due Diligence

This is the buyer’s investigations into the target company and will involve legal, financial and commercial due diligence.  The buyer’s legal advisers will forward a legal due diligence questionnaire to the sellers’ advisors and the sellers will need to undertake a long and detailed process to respond to all the questions raised and provide all the relevant supporting documents.

• Sale & Purchase Agreement

The main contract setting out the terms of the sale and purchase of the business will be the Share Purchase Agreement on a sale of shares or the Asset Purchase Agreement on a sale of business and assets.

• Disclosure Letter

The Disclosure Letter is where the sellers to make disclosures against the warranties they give in the Sale & Purchase Agreement and such disclosures will, where appropriate, qualify these warranties

• Signing / Completion

Once all the key documents have been prepared, negotiated and agreed and the buyer has the relevant funds to make the purchase, the documents can be signed and exchanged.  Often in corporate transactions, exchange and completion will be simultaneous.

For a more in depth look at this subject please see our Guide to Selling a Business, which is available upon request. For help and advice on ‘To sell or not to sell: Considerations for Business Owners’, please speak to our Corporate and Commercial team by emailing commercial@mlplaw.co.uk or calling 0161 926 9969.