Buying or selling a business is a process that often ends in last-minute wrangling, long into the night, to hammer out the details of the Sale and Purchase Agreement (SPA) before the deadline. No wonder details get missed, businesses get under or overvalued, many deals fall over at the last minute, and that litigation often follows the sale.
All of this is avoidable. The key is to start planning early and get professionals involved right from the start.
Whether you want to retire, move onto a new venture or divest a non-core part of your business, you have two priorities. First, you want to achieve the best price. Second, you want the peace of mind that the buyer of the business isn’t going to take legal action over something that should have been disclosed or clarified before the sale.
Careful drafting of the warranties and indemnities in the SPA offers critical protection for both sellers and buyers. Buyers will want warranties that are worded as broadly as possible. This may not be in your best interests as a seller. Warranties and disclosure can be a complex area, which is why legal specialists need to be involved throughout the due diligence process.
Clearly, you have to really understand what you are buying in order to pay a fair price. This involves more than analysing financial statements. In particular, you need to ensure that contracts are valued appropriately and that there are no change of ownership clauses that could breach agreements with banks or key customers.
Buying a business will mean taking over responsibility for the staff. It’s important to understand your pension and benefits obligations. It’s equally important to clarify which staff will transfer with the business. A large part of the value of a smaller business can be tied up in the people so you want to be clear that they will still be there after the sale and, ideally, are not working for a competitor.