Fail to prepare - prepare to fail

Howes Percival

1st October 2018

Buying & Selling A Business

Howes Percival

By Matthew Thompson

Howes Percival LLP

DESPITE the continued uncertainty surrounding the UK's vote to leave the European Union, the Northamptonshire economy continues to see a whole range of corporate deal activity - whether it be bolt-on acquisitions, cross jurisdictional disposals, management buyouts, or sale to private equity - the Northampton Corporate team at Howes Percival have seen it all in the last 12 months.

Those with entrepreneurial spirit continue to seek out further opportunities to grow their businesses via acquisitions. Sometimes, an acquisition can be used to add additional sites to a company's portfolio to help growth plans. An acquisition can also be used to add additional skill sets to a workforce. In some circumstances, it could also be a long-term cost saving solution by acquiring and bringing in-house a function that has historically been outsourced by the business.

If you have never acquired a business, or you want to make sure its as smooth a process as possible, there are a few key things to think about early on in the process to make sure you don't fall at the first hurdle:

1. Funding - firstly, and perhaps most importantly, how are you going to fund the acquisition? Has your business got cash sitting in the bank not earning a high level of interest, and could that to work better for you as an acquisition investment? Or do you need to approach a lender to provide acquisition finance, or some form of invoice discounting facility for the new business? Speak to your bankers/lenders early if you need funding, so that they can advise you right from the outset about what they can and can't fund, and what security you might need to give.

2. Structure - is the acquisition going to be an asset or a share purchase? Whilst a share sale is often simpler for the ongoing running of the business, an asset sale can often allow the buyer to be able to cherry pick the assets it requires from the business, without taking on any of the liabilities (or at least those a buyer doesn't wish to take on) - this can be important both in relation to contractual liabilities but also (and often more importantly) in relation to taxation, as under an asset sale, such liabilities remain with the selling company following completion of the purchase. Structuring the transaction in a tax efficient manner is also important and it is a good idea to speak with your accountants/tax advisers as early as possible.

3. Valuation - depending on the structure chosen, it is important to agree with the seller at the outset how you are valuing the shares or assets being purchased. Corporate financiers can help you value a target you want to purchase, but be warned that you are likely to need to do some financial due diligence on the target to make sure that the valuation you attribute to the business reflects reality.

4. Due Diligence - what due diligence is required to be undertaken on the target business, before you part with your hard earned cash? Whether its investigating the terms of employment for each employee, the potential dilapidations liabilities on the target business's leased premises, or investigating the ownership of intellectual property rights, it is important that you have an experienced legal team who are able to guide you through the results of your investigations into the target business.

And all of the above is done before you've even thought about putting pen to paper and agreeing the heads of terms or the sale and purchase contract. If nothing else, if you are thinking about acquiring a business, or are thinking about disposing of all or part of one, make sure you have the right team on board to assist you as early as possible.

For further information about how Howes Percival can assist, please contact Matt Thompson on 01604 230400 or by email at matthew.thompson@howespercival.com.

Howes Percival