Gannons represented the Company on the sale of 75% of the share capital to a large American corporation for over £8 million plus deferred consideration. 

Gannons represented the business being sold and its shareholders. There were a number of parties’ interests to maintain, tricky issues to navigate and an incredibly tight timescale to manage.

Heads of Terms

The Company was incorporated in 2014 and has since gone from strength to strength expanding into three further jurisdictions due to its specialist knowledge of certain custom solutions in the Tech world.

We knew the Company was fairly young and to attract the right price, the shareholders relied upon future revenue paid as deferred consideration. With this in mind we reviewed and advised upon the heads of terms which set the parameters of the deal, the basic terms of earn-out and contingent consideration. We ensured that the key director was able to direct revenue post acquisition and remained in the business on terms which incentivised him to perform.

Reviewing the Share Purchase Agreement

We had to ensure that the entire SPA represented the deal the shareholders expected, that it did not limit their rights or contain overly onerous warranties or indemnities. We had to ensure that EBIT calculations were fair and in-keeping with the type of business, profit and working capital we were dealing with. We worked through a number of commercial decisions, such as personal guarantees and negotiated solutions.

The Shareholders going forward

The sale process can get frustrated with so many opposing interests, this can be particularly difficult when the shareholders are to remain involved in the business or even as employees. Sale negotiations become crucial and a number of negotiation tactics are involved in ensuring the right deal for our clients whilst continuing the deal moving forward.

As in many deals of this nature, this involved amending the Articles to ensure protections on both sides of the table were sufficiently provided for. We also advised and negotiated employment contracts that complimented the sale documentation and the continuing working relationship going forward.

The Warranties, Disclosure letter and all things data

The individual sellers are liable for warranties to be claimed by the incoming buyer in case of breach. To mitigate the risk for the individuals we disclose any relevant documentation against the warranties, reducing the risk and exempting them from claims on matters disclosed where possible and necessary. This ranges from organisational structures to insurance, employees to accounts and disputes to company constitution. Sellers are often concerned about their liability compared to other sellers and we are able to advise on a number of options available to ensure everyone is comfortable with their individual liability.

Restrictive Covenants

It was important, as entrepreneurs, that the sellers be permitted to continue to work on their other businesses. This involved careful negotiations relation to specific carve outs and limitations on the restrictive covenants.

Good Leaver/Bad Leaver

As employees, the Seller’s were to remain part of the business’ family, this involved good leaver/bad leaver provisions effecting their earn-out and remaining shares in the company. This involved negotiating and drafting completely bespoke consequences and definitions of good leaver/bad leaver.

Entrepreneurs Relief

The Seller’s were keen to ensure that Entrepreneur’s Relief would apply on sale and upon any future sale of their remaining 25%, this involved specific tax advise and negotiation to ensure this was a possibility.

Contingent Consideration

The Consideration payable included an earn-out relying upon a calculation of EBIT, with specific inclusions and exclusions, calculations, limitations and forecasts. When a large group take over a singular company the policies, methods and calculations are often superseded, this can have a large effect in the circumstances where there are contingent considerations based on calculations the sellers no longer have control on, it is an important task that the Sellers are not only protected but can understand how this will happen practically.

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