If you are thinking about buying or selling a business, or you are at the very early stages of such a proposed transaction, it is important that (i) you have a clear understanding of the business being acquired (from a buyer’s perspective), and (ii) the buyer’s intentions/offer (from a seller’s perspective). This blog sets out some important negotiations points to be considered prior to progressing with the proposed sale/acquisition.
You may be undertaking negotiations with the seller direct and one of the first points to be considered is likely to be price-i.e. how much the business is worth and how much you are willing to pay for it. It is likely that you will require a preliminary valuation of the business to give you an indication of the value of the business- we suggest that this is carried out by an independent accountant rather than the business’ account for the avoidance of doubt.
Points to bear in mind include, but are not limited to:
- The structure of the sale– is it an asset or a share sale? For more information regarding the difference between an asset and a share sale please refer to our previous blog available here.
- Payment method: is the buyer willing to pay everything in cash or would he/she prefer to opt to spread the cost over a period of time (by paying what we call “deferred consideration”)? What is the seller willing to accept? We suggest you discuss payment methods with an independent accountant who will be able to advise on any tax implications.
- Conditions– are there any particular conditions to be fulfilled before the sale-i.e. any consents to be obtained, licences, contracts to be fulfilled etc.
- Completion accounts: if the buyer is acquiring the shares in a business you will need to negotiate whether the proposed purchase is to be on a cash free/debt free basis. If so, accounts may need to be prepared on completion (known as “completion accounts”) to determine any adjustment in the price which is necessary- this is because the assets and liabilities of a company vary on a daily basis. An accountant will be able to offer further advice in relation to each one of these mechanisms and point you in the right direction.
- Other considerations: is the seller going to resign from the business or is he/she going to continue as an employee or a consultant for a period of time? What are the timelines for the sale- when are you looking to complete? Are there any properties- if so, are they leasehold or freehold? Are the properties owned by the company or by an individual? If there are staff you need to know exactly what their terms and conditions are, how long they have been employed, what their hours of work are and any problems there have been with staff.
Depending on the structure of the transactions, there may be additional considerations relating to the assets of the Company-i.e. the property, employees (if any), debtors (i.e. others who owe the business money) etc.
It is important to note that anything agreed at this stage is not legally binding. Once all the above information is obtained, this can be transcribed in to a document known as ‘Heads of Terms’ which is a non-legally binding document setting out the proposed transaction moving forward.
The Heads of Terms will also incorporate an exclusivity clause to ensure that the seller will not negotiate the sale of the business with other potential buyers at the same time (the period of time is to be agreed between yourself and the seller). The seller will usually request that a confidentiality clause is also inserted in the Heads of Terms to ensure that any information disclosed to you and/or your advisors relating to the business remains confidential.
The Corporate & Commercial Department would be delighted to assist you and guide you through the transaction as well as assist with the preparation of any documentation required. Should you require any further information or assistance please do not hesitate to get in touch – call 01206 700113 or email [email protected].