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Buying a Company or Business
16 February 2010
Buying a Company or Business – preparation is the key !
Whether you are purchasing the shares of a company or the assets of a business, for even the most experienced of business people, it will be both an exciting and stressful time. There will be many things to consider to ensure that the transaction proceeds smoothly and to a successful conclusion. However, from our experience, one of the key factors is preparation and to seek good advice from an early stage.
The difficult economic circumstances have put many business deals on the back burner in recent times, but with signs that the economy might have “weathered the worst of the storm,” there are opportunities for businesses to be bought and sold. This article looks at some of the key factors which should be considered if you’re thinking of buying a business.
What are the key considerations ?
- Funding
Once you have found the business you wish to purchase, the next question will be “how will the purchase be funded?” This might be by way of bank finance or, if you’re an already existing company purchasing a business, you might consider issuing more shares to fund the purchase.
Whichever route you take, it is important to seek help and advice early on by speaking with your bank and other business advisers, such as accountants and corporate financiers to assess which finance options are available to you.
- Agreeing terms
Once the price and terms of the deal have been agreed it is quite usual for the buyer and seller of a company or business to produce what are called ‘heads of agreement’. In a nutshell, this document usually sets out the most fundamental aspects of the deal, such as, the purchase price for the business, what is or is not to be included in the sale and the likely timescales for when the deal will complete.
Although heads of agreement are a useful document for the buyer (and seller) of a business, it is important to bear in mind that they should not be drafted so as to form a binding contract between the parties. It is therefore advisable to seek advice from a lawyer as to what should or should not be said in any document of this kind to ensure that no binding agreement is created unintentionally.
- Protecting information
Many sellers of a business will have sensitive information which they will want to protect until the business is sold. You might be a competitor for example, and the seller will want to ensure that you do not obtain information, which can be used to your advantage, should the deal not go through. Similarly, as a buyer of a business, you might want to ensure that you do not get bad press if you pull out of the purchase or you might want to ensure that the seller cannot try and sell the business to a third party, whilst the negotiations are taking place.
Some thought should be given to whether a confidentiality and lock-out agreement should be drawn up between the parties to ensure that these interests are legally protected and to give you peace of mind in your negotiations over the business purchase.
- Assessing the business
One of the most important and time-consuming aspects of any business purchase is assessing exactly what it is you’re buying and identifying whether there are any hidden risks which you’re unaware of, which could cause you to pull out of the deal. This process is called ‘due diligence’ and should never be overlooked or underestimated.
The due diligence process is likely to involve both financial and legal aspects, looking at things like the business’ accounts, key contracts with customers, suppliers and staff, terms of leases to any properties from which the business operates and asking questions of the seller to ascertain exactly what you are purchasing. It is advisable that any potential buyer seeks the advice and assistance of a lawyer and accountant to help with this demanding task from an early stage, working closely with them, to help avoid any unforeseen circumstances arising at the last minute.
- Managing your risk
At the heart of any business deal is the level of risk involved and how a buyer can be shielded from those risks. When buying a business warranties and indemnities are typically used when negotiating the purchase contract, which will try and limit the seller’s liability once he or she sells the business.
Any buyer should consider what the key risks for them in the deal are and with the help of their legal advisers, these risks can be negotiated and limited as far as possible, through the drafting of the sale and purchase documentation.
- Developing the business
Once the purchase has completed and you are the new owner of the business, how the business will grow and develop in the future is in your hands. Thought should be giving to your plans going forward at an early stage and advice sought in relation to things like, terms and conditions of business and employment contracts for staff, to ensure that your business’ operations are legally compliant.
How can howell jones help you ?
howell jones’ business and commercial team have many years experience advising on business purchases, whether through the acquisition of shares in a company or the purchase of the assets of a business. We are well placed to guide you through the process of purchasing a business and help you meet your objectives.
We can:
- Advise you on purchasing the assets of a business or the shares in a company
- Carry out legal due diligence on the business you’re buying and report to you on our findings so you’re fully informed of the key issues involved
- Prepare bespoke documentation such as, confidentiality and lock-out agreements, heads of agreement, assignments of leases and employment contracts
- Negotiate and draw up the purchase documentation and help limit your risks as far as possible when the purchase is complete
- Guide you through the whole process so that it is as smooth and stress-free as possible, working closely with other advisers such as, accountants and banks
- Provide on going advice and support after completion to help your newly acquired business grow and develop
If you are thinking of buying the assets of a business or the shares of a company and would like to talk to us about your options, or you have another general company and commercial matter upon which you need expert advice, please contact a member of howell jones’ business and commercial team for a non-obligatory discussion.
