Advice On Selling Or Buying A Business
For most people selling their business is one of the most important decisions they will ever make
. Having spent years building up a business you need to make sure that you make the most of its eventual sale.
By the same token, buying a business requires just as much care and thought so as to avoid inadvertently buying unknown liabilities and to ensure that you have the best possible chance of success with your new business.
This article is designed to give a flavour of the structure of transactions and provide practical advice for anyone considering a sale or an acquisition.
Here is the basic order of processes involved in a sale/acquisition of a business:
First off, the buyer and seller both instruct their advisers as to what they are looking for from the sale/acquisition.
Then both parties agree on a Heads of Terms and Confidentiality Agreement.
The buyer can then make whatever enquiries he likes, these are known as due diligence enquiries, and the seller is obliged to reply.
The buyer is then required to draw up an acquisition agreement, and the seller, a disclosure letter.
Both parties will then meet up and agree (or compromise until an agreement can be made) on their acquisition agreement and disclosure letter and exchange copies of each.
The only thing left at this point is the actual implementation of change of ownership, and after that it's just a case of carrying out any pre-agreed post completion actions.
The main documents involved may include:
Heads of Terms;
Confidentiality Agreement;
Due Diligence Enquiries
Acquisition Agreement (of shares or assets as appropriate) and Deed of Indemnity (share purchase only)
Disclosure Letter;
Service Contracts
SHARES v ASSETS
If a company is purchased, all of that company's liabilities and assets, whether the buyer knows about them or not, will be handed over in the sale.
On an asset purchase, the buyer will only take on the assets & liabilities he specifically agrees to purchase.
Either way, employees will retain rights of employment.
CONCLUSION
Buying and selling businesses is a specialist area so it is worth considering appointing one off advisers to help you through the transaction. Your main advisers will be your accountant, a specialist law firm and possibly a corporate finance adviser.
A good starting point is to seek your accountant's advice on a value for the business. Although valuing private companies can be a complex process, it is always better to have a realistic price in mind before you embark on a sale or purchase process.
Top Five Tips
1.Do as much preparation as possible;
2.Pay attention to the Heads of Terms;
3.Deal with due diligence enquiries/replies promptly;
4.Use your advisers well;
5.Don't forget the price;
by: Philip Douglas Patterson
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