Grooming a company or business for sale
If you are considering selling your company or business, then good planning and preparation from the outset can help to ensure that the sale process runs as smoothly and efficiently as possible, and may help you to avoid any issues which could otherwise have a detrimental effect on either the sale, your company or business.
Key steps in the “grooming for sale” process include:
Appoint your team of professional advisers
One of your first steps will be to assemble your team of professional advisers who will be working on the sale.
You will need to instruct a law firm to advise on legal aspects of the sale process or support your in-house counsel if you have one. The corporate team at Moorcrofts LLP are very experienced in working alongside other professional advisors and we take a collaborative approach to this in order to help facilitate a smooth sale process.
If you have overseas subsidiaries or businesses, then you may also need to instruct local law firms in each other country in which you have a corporate presence, to advise on local legal aspects of the sale process. We can assist with finding local counsel if required.
You will also need to instruct an accountancy firm to advise you on the tax and accounting aspects of the sale, including preparing any financial statements for the company or business which may be required as part of the sale process; applying to HMRC for any tax clearances required; and preparing a response to the buyer’s financial due diligence enquiries.
In addition to a law firm and accountancy firm, you may need to instruct a corporate finance firm (possibly the corporate finance team of your accountants) to actively market your company or business for sale. Our experience includes advising sellers on the terms of corporate finance engagement letters, if this is needed.
Carry out a pre-sale internal due diligence review
This would involve carrying out a review of your company, its business and operations, from a potential buyer’s perspective, with a view to enabling you to identify and resolve any potential issues or problems, and then seek to address or resolve them, rather than waiting for them to be identified by a buyer as part of its due diligence into your company or business.
Such an internal review process will also give you the opportunity to establish any corporate, third party or regulatory consents, approvals or permissions which will need to be obtained before the sale can proceed.
It is likely that an internal due diligence review process would cover much the same ground as would later be covered by the buyer’s due diligence review process. Therefore, the internal review would give you and your professional advisers a head-start on assembling and collating the information and documentation that will be needed when the buyer conducts its due diligence, and identifying any issues at early stage. Most legal issues can be rectified one way or another, so if there is something that might cause a problem for a potential buyer, best to discover this now and tidy it up in advance, rather than allowing it to become the subject of negotiation or a potential price chip later!
Consider carrying out a pre-sale restructuring
If the proposed sale will involve selling part of a larger corporate group or business, then you will need to consider and identify any separation issues that will need to be addressed either before or at completion of the transaction.
If part of the corporate group or business is to be retained, consideration will also need to be given as to what effect the sale will have on any assets which are currently used or shared by both the company or business which is being sold and the wider corporate group or retained business. Common examples of assets that may be shared in this way include land and buildings, intellectual property rights and IT infrastructure.
Depending on the circumstances, it may be necessary to carry out a pre-sale re-organisation to transfer title to certain assets from or to the sale group, and/or grant formal licences regulating the relevant company’s use of the shared assets following completion.
Some sellers are reluctant to go to the cost of implementing a pre-sale restructuring, until they know that there is a buyer for their company or business. However, carrying out such a tidying up exercise prior to commencement of the sale process can make a company or business more attractive to prospective buyers, and it can also help to speed up the sale process, as it will save the parties having to deal with the relevant issues later in the process (possibly between signing and completion).
Learn what the sales process will involve from a legal perspective
After you have found a potential buyer for your company or business, then the first steps are likely to involve you entering into a heads of terms and non-disclosure agreement with the buyer. Where we are instructed to advise on a sale, we prefer to be involved in the process of drafting and reviewing these documents, so that we can ensure that the they contain the necessary protections for our client. If we are only instructed after the heads of terms have been signed, this may mean that we face more of a challenge when it comes to the task of negotiating a share purchase agreement or an asset purchase agreement with a buyer’s lawyers.
After the heads of terms have been agreed and signed, the buyer’s solicitors will send us a legal due diligence questionnaire, and (with your assistance and support), we would commence the task of preparing a response to this questionnaire, including providing the buyer’s solicitors with copies of any supporting documents. On larger or more complicated transactions, we would usually expect our role to involve setting up a virtual or online data room, to enable the relevant information to be shared with the buyer and its professional advisers.
The key legal document will be either the share purchase agreement or asset purchase agreement. In addition to setting out details of the shares or assets being sold and the purchase price and payment mechanics, the agreement is likely to include various warranties, covenants and indemnities for the buyer’s protection. When advising a seller, a key part of our role will involve reviewing such buyer protection provisions as part of our wider review of the sale or asset purchase agreement, with a view to ensuring that they are not unreasonable, and also building up the scope of the seller’s limitation provisions in the agreement.
The asset purchase agreement or sale purchase agreement will also usually be accompanied by a disclosure letter, under which the seller will seek to make various statements or disclosures against the warranties. When acting on a sale, our role would also include preparing a disclosure letter, and negotiating this document with the buyer’s solicitors.
Please contact Teri Hunter, Peter Woolley or any of the Moorcrofts’ Corporate Team, if you would like to discuss how we can assist you with the sale of your company or business. Our substantial experience in this area includes advising on sales to employee ownership trusts.