Preparing for a Share Sale: Company Health Check

The sale of a company can be a long and complex process and one of the most time consuming aspects for a seller is the due diligence process.  It is becoming more common that, before actively engaging with a buyer, the seller wants to undertake an internal due diligence review.

The seller’s legal advisers can play an important part in this process and their role will include:

• Providing the seller with a legal due diligence information request, containing the type of questions that a buyer is likely to ask about the company, so the seller can prepare responses and start collating all the related documents
• Collecting all the due diligence responses and documents and uploading these to a virtual data room
• Reviewing the responses and documents provided to identify any material issues
• Advising the seller about possible methods to rectify or limit the extent of any issues
• If required by the seller, preparing a legal due diligence report

The type of information that a buyer will usually request about the target company and which the seller should prepare for includes:

• The corporate structure and shareholdings
• Constitutional documents and any shareholders’ agreements
• Financial reports and accounts
• Employee details and terms
• Material contracts/commercial arrangements
• Finance/borrowing/banking arrangements
• Assets
• Property
• IT and Intellectual Property
• Litigation/disputes
• Insurance
• Health & Safety/Regulatory
• Compliance and Consents
• Environmental
• Pensions
• Any industry specific enquiries

The benefits of a seller undertaking a pre-sale company health check or due diligence review include:

• Limiting the time required on due diligence during the sale process, so the seller still has time to get on with running their business
• Identifying in advance any potential issues, areas of risk and/or areas to improve
• Dealing with any issues identified before the sale
• Clarify whether any consents or approvals are required for the sale
• Assist in the preparation of any sale materials to be provided to potential buyers
• The information is all properly collated in a virtual data room to which the buyer and its legal team can have access once a Confidentiality Agreement has been signed and terms agreed
• Assist in the preparation of the seller’s disclosure letter

For a more in depth look at this subject please see our previous blog: To Sell or Not to Sell: Considerations for Business Owners.

For help and advice, please speak to our Corporate and Commercial team by emailing commercial@mlplaw.co.uk or calling 0161 926 9969.