BUYING A BUSINESS

Generally, the earlier and more thoroughly you prepare the better. At Birch Law we can help with:

• The deal structure.
• Due diligence.
• Heads of terms.
• Warranties and Indemnities.
• The purchase agreement and other associated documentation.
• Post completion restrictions and obligations.

Before you start it is important to understand how you are going to structure the deal – are you purchasing the shares in the business or just the assets? It is vital that you consider the structure of the deal as early as possible as this will have an impact upon how the deal proceeds, including the level of due diligence required and the associated purchase documentation. At Birch Law we can advise on the best structure for you and your business. Our corporate team will consider the nature of the transaction with you and work closely with your tax advisor and accountant to ensure that you are fully aware of your options and we can agree the best solution for you.

The due diligence stage is integral to any business sale. As the buyer you will want full disclosure of all relevant information (such as financial, business, intellectual property, employees, and any disputes) to determine whether you want to proceed with the purchase. The due diligence stage will impact upon the whole deal, including the price to be paid and how the deal is to be structured. We can manage this whole process for you.

Once the parties have agreed terms in principle it is important to record these in a set of heads of terms. This is a simple document that records the main terms of the agreement and forms the basis of the other transactional documents such as the purchase agreement.

As part of the sales process the buyer will want to rely on certain warranties and indemnities to ensure that the seller has not misrepresented the value of the business. A warranty is a statement about a particular aspect of the business. An indemnity is a promise to reimburse the buyer if a particular event or set of circumstances arise. The buyer will want to ensure that these are as comprehensive as possible. The seller on the other hand will want to limit these as much as possible. It is therefore a balancing exercise between the wants of the buyer and interests of the seller.

Once agreed the seller will be afforded the opportunity to provide disclosure of anything material to the business. The seller will prepare a disclosure letter and bundle setting out anything that would otherwise put it in breach of the agreed warranties and indemnities.

The purchase agreement records the terms of the agreement. It is a formal document recording both parties’ respective obligations. It records how the deal is to proceed, sums to be paid on completion, what is being purchased, the extent of any warranties and indemnities, and post completion matters. It is a complex document, and it is therefore advisable that you obtain expert assistance at the very outset. At Birch Law we can review and/or draft the terms of the agreement, explain what the agreement means, deal with any negotiation and advise on any future liabilities and/or concerns. In addition to the purchase agreement, we can assist with the preparation of associated documentation such as board minutes, share transfer forms, and board resolutions.

As the buyer you will want to ensure that sufficient safeguards are built into the agreement to protect your interests in the future. Careful consideration needs to be provided prior to completion as to the extent of these safeguards. Typical clauses would include confidentiality clauses, to prevent the seller from using information belonging to the company in the future, and restrictive covenants to prevent the seller from competing with the business for a specified period (and within a specified geographical location).