If you’re considering selling up in the near future, Rebecca Stopford from Bhayani Law has been helping sellers to make sense of the process for many years. She provides some advice on how to ensure that you are best prepared…
No sale is the same…
… and nor are the people involved. The business might be your life’s work and sale a once in a lifetime step, or you have been through it all before. This means you have different questions and needs, and I like to work in a way that suits you and your experience.
What’s the deal and how did you get there?
Understanding the deal is key to giving the best advice. Many factors can shape this – is it a management buyout, employee ownership trust set-up or a third-party sale? Are you and other key staff staying on? Are you waiting on some of the payments over time and/or based on future performance?
To attract a buyer, you might have used a broker. This usually happens long before you think about appointing a lawyer – so a word of warning here is to read the terms and conditions and be sure about the commission you’ll pay and when it will be payable. Don’t get caught out having to pay a hefty sum even if the broker didn’t find the buyer.
Fail to prepare, prepare to fail
Sounds harsh but as deals don’t usually come out of the blue, aside from making sure your financials are sound, you can boost the commercials on offer by giving the buyer confidence that everything is tickety-boo.
The due diligence process hits sellers just as they are also trying to keep up with business as usual and keep the potential deal quiet in the business. Getting to grips with the scope of the due diligence will help you here. I recommend using a standard list to gather the key information and contracts together so that you just need to update and add a bit more when the real request comes through. This will highlight some useful points: for example, knowing if a key contract could be terminated on sale if you don’t get consent of the customer or grant funder, as this could affect the numbers and give the buyer a key to reduce the price… or walk away.
Let the heads of terms do some heavy lifting
Buyers like to keep heads of terms simple – to capture the price and perhaps exclusivity and then do the rest of the negotiation after due diligence; just when you’ll have already invested time and money in the process and may be easier to bend. So, in some deals I find that it’s rewarding to spend time drilling down on more detail in the heads of terms to document what security will be in place for any deferred payment, precise detail about earnouts metrics and variables, warranty caps and, if you can, payment of costs if the buyer can’t get funding. Also, if you are staying on, you can pin down what the employment package will be.
The sale process can feel like hard work, but it is harder if you don’t have the right team around you. Call a few solicitors, see if you like them on price, but also see how responsive and interested in your deal they are and find out who will actually be doing the work. Will they answer your calls promptly? Are they recommended? Also key is your accountant. It’s not a good time to start with a new firm just before sale, so make sure you have the right one in place now.
Click here to hear from Highlander, sharing their experiences of going through a buyout.
