BLOGS

Selling your company or your business?

Pardoes was recently instructed to represent the owners of a family owned group operating in the property sector, on the sale of the group to a private equity led fund operating as a consolidator in the market segment in which our client operated.  The sale was successfully completed in December last year.

When Pardoes was approached and requested to advise, the Sellers had already entered into a non-binding heads of terms (HoT) and had provided significant information to the Buyer without the protection of a confidentiality agreement and without having had the opportunity to take legal advice on the HoT.

Although non-binding, the HoT document set out detailed legal terms effectively making it very difficult for the Sellers to negotiate or re-negotiate key non-financial terms which can make a big difference.  Focusing on the price, the Sellers had already conceded key areas such as the warranty claim period, extent of indemnities, basis of the purchase price.  During the ensuing legal contract negotiation phase, the Buyer reneged on its oral commitment that it was buying on a “cash” basis and disclosed at the 11th hour it was buying on a leveraged basis using bank funding.  This accounted for the inordinate due diligence inquiries, an inflexible and unreasonable approach to the legal documentation all as a resulted of an uninvited third party bank becoming involved and dictating its requirements.  As the date for completion approached, the Sellers were deluged with a vast number of additional due diligence inquiries, requirements to take out indemnity insurance policies and other unreasonable requests.  All of this added to the strain, added significantly to the costs incurred by the Sellers and resulted in the allocation of post-completion risks on a less favourable basis than should have been the case.

Key takeaways for sellers of businesses or companies:

Involve your legal advisers early - when negotiating the heads of terms - and not after you have signed them.  You will be surprised at what can be negotiated up front.  A well negotiated heads of terms will save significant aggravation, risk and cost when formal legal documentation is subsequently drawn up.

Never share sensitive or private business information without first ensuring the buyer has signed a binding confidentiality or non-disclosure agreement.

Don’t sell yourself short.  Too many Sellers sell their business at an undervalue and to the first bidder that comes along.  Private equity led buyers rarely pay good value for businesses.  Consider appointing a success fee only financial adviser to help you approach the Buyer market in a more strategic way and to maximise price.

If you are considering a sale of your business or company Pardoes can help.  Please contact Jonathan Collins, Head of Corporate and Commercial on jonathan.collins@pardoes.co.uk