If you want to get the deal done you should consider us. We can run a chunk or the entire transaction process for you. We handle matters both large and small with deal values starting at around £150,000+. There are experts on hand to deal with specialisms if needed such as IP, technology, tax and indemnities and warranties.
Why pick us to sell your business
We are a specialist law firm focused on private companies and their owners. Our overheads are well managed which translates into a competitive service punching well above our weight in terms of service and expertise.
Issues we resolve include but are not limited to:
Restructuring in advance of selling a business
Prior to selling a business, restructuring can be worthwhile. Maybe you wish to retain a niche activity for your own exploitation, or maybe a loss-making activity is reducing the overall value. Spin-offs are common especially where there is commercial property which may not form part of the deal. We have employment and commercial expertise, and re-structure your company to obtain an optimal valuation. We plan carefully to avoid unexpected taxation charges, which often arise on any pre or post sale, asset transfer, or distribution.
Agreeing the heads of terms
Prospective buyers request confidential information about your business, e.g. your customer list, financial information and your product information. Clearly you do not want to share this information with anyone else. We limit your exposure, protect your position and safeguard your business if the buyer walks away. Our confidentiality agreements fit your circumstances, and define appropriate timescales for selling your business.
Purchasers often expect exclusive rights, i.e. a lock-out period during the costly due-diligence process. However, a lock-out can strengthen the purchaser’s negotiating position. We’ll tell you what is reasonable.
The framework for selling a business
The heads of terms define a framework showing:
- What you are selling; and
- How you will sell.
The preparation and agreement of the heads of terms is an important step that in our experience reduces the cost of selling your business. Usually, the head of terms are drawn up after preliminary negotiations, and the actual terms are subject to due diligence. We know which headline points minimise long-winded negotiations later down the line.
The heads of terms define the purchase price or consideration due to the shareholders on selling the business. We check the following:
Purchase price calculation
The buyer will seek to ensure the closing position supports the purchase price. The heads of terms may include provisions for purchase price adjustment, to prevent leakage. An adjustment mechanism could enable the seller to demand a higher purchase price if the business performs better than expected. EBITDA (earnings before interest tax depreciation and amortization) is a method of calculating the purchase price. We advise the buyer or the buyer’s financiers to use the method most likely to increase the consideration to be received by our client.
The consideration may be payable upon completion. Sometimes, buyers pay a lump sum on completion, followed by additional amounts if the business achieves earn-out targets. Some transactions involve the purchaser’s cash and shares. When shares are offered, share valuation issues arise. We offer share valuation expertise.
Due diligence management
The buyer uses the due diligence process to flush out weaknesses, potential liabilities, and perhaps negotiate price reductions. We manage this process. The buyer will ask to inspect your business and view key records and documents. Due diligence can range from:
- Looking at the business’s finances;
- Evaluating what the business’s assets are and the maintenance costs;
- Reviewing business performance; and
- Spotting future risks that might reduce the valuation.
We prepare you, organise your documents, and respond to enquiries raised by the buyer’s solicitors.
Essential terms for the business sale agreement and negotiation
The sale agreement legal documentation is the last piece of the jigsaw. This is when our clients most need our expertise to limit their potential liabilities and risks.
We review and/or draft the terms for selling your business, and
- Explain: what the agreement means;
- Flag: key risks;
- Negotiate: as appropriate, on your behalf; and
- Ring-fence your future exposure: warranties and indemnities form part of the terms of sale. Our disclosure letters minimise future problems.
Warranties and indemnities
Usually we will negotiate these down for you. To understand the commercials you need to understand the difference between a warranty and an indemnity.
A warranty is regular contract term
This means that a buyer claiming for breach of contract under a warranty has to show loss, mitigate that loss, and usually can only claim for direct loss which flows naturally from the breach, or is in the reasonable contemplation of the parties.
Indemnity is more like insurance
This means that the seller promises to protect the buyer against a loss, or to compensate the buyer for a specific liability that that the buyer incurs. Indemnities typically cover specific concerns that may arise from the due diligence process, and which may potentially cause a loss in the future (e.g. a tax indemnity or environmental indemnity). There is no need for the buyer to mitigate its loss.
You will need to review the equity structure to ensure all shareholders can be reached and a minority shareholder cannot hold up the sale. Drag along provisions and powers of attorney signed in advance of sale can be very helpful and provide assurance to a buyer that the sale will proceed without any unnecessary delays.
Employees are usually important to the business’s success. We have the expertise to manage employment law issues and changes to employment contracts.
- Asset sale as a means of selling a business: If the transaction is an asset transfer, then we manage the seller’s obligations under TUPE to consult with the relevant employees. The buyer cannot change the employment contract’s terms and conditions for a period after the sale. Some buyers therefore require the seller to implement employment contract alterations before sale. These changes can create difficulties for the seller, particularly under TUPE.
- Share sale as a means of selling a business: If the transaction is a share sale there is no change of employer and all existing employment contract terms and conditions remain. Therefore, TUPE is not an issue for the seller. Often the buyer wants to negotiate new terms for key members of staff who the buyer wants to retain. Retention bonuses designed to help transition the business are common. It is in the seller’s interests to engage in these negotiations because future profits and hence additional consideration is often at stake.
Tax on business sale
Our expertise encompasses capital gains tax on the consideration for your business. Usually our top consideration is to ensure your eligibility for entrepreneurs’ relief which offers:
- 10% capital gains tax for qualifying shareholders; rather than
- 20% the usual capital gains tax rate.
Not every shareholder qualifies for entrepreneurs’ relief. There is a HMRC clearance process for the tricky cases – we can advise.
We’re specialist solicitors for business sales – get in contact to discuss selling your business and how our lawyers can help.