So, you’ve worked hard building your business for years, sacrificing time with your family, missing important events and doing all you can to ensure future financial security.
Then, out of the blue, comes an opportunity which you may or may not have planned for. Somebody wants to buy your business and the offer they make is just too good to ignore. You might have had an exit plan and all of a sudden, the chance to cash-in has materialised into something very real.
If you take the offer, what is in store for you over the coming weeks and possibly months?
Once you have finalised the Heads of Terms which will set out the basis of the deal, then things will get busy. The buyer will provide you with a Due Diligence Questionnaire (also known as a “Request For Information”). This will comprise a (usually long) list of questions and requests for documents which the buyer and their advisers need to see in order to decide whether or not the deal is for them, whether the agreed price is too high, if the structure isn’t right, etc.
Transactions like this usually have quite tight timescales and, as a result, the due diligence process needs to be carried out as quickly and efficiently as possible. The enormity of this task shouldn’t be underestimated. It can be a very big job and may well result in you having to take a significant amount of time away from running the business day-to-day to get this done.
Then, after you have sent across your replies, and as if to rub salt in the wound, often the buyer adds to your workload yet again. Not satisfied with keeping you busy over weekends and late into the night, the buyer sends over a list of further enquires which they have decided need answering after seeing the information you have sent across. These further enquiries can keep coming until a full picture of the business is understood.
Coupled with a frequent need to ensure confidentiality about the deal within the business, the logistics of providing this information required can sometimes be quite challenging.
Then comes the execution phase. The buyer’s lawyers will prepare a draft sale and purchase agreement which will include numerous warranties (promises) which you would need to give about the business being sold.
The scope and extent of these warranties will depend to a large extent on the replies you provide during the due diligence process as details about the business and its affairs become clearer to the buyer. The warranties will relate to all areas of the business such as trading, accounts and taxation.
Great care needs to be taken for you to understand exactly what the warranties mean and just how much you are promising. There should be clauses in the sale and purchase agreement to place restrictions on the length of time that the buyer has to make a claim under the warranties, and certain financial thresholds before a claim can be made at all.
In addition to these restrictions, you will have the opportunity to prepare a “disclosure letter” to draw things to the buyer’s attention which affect your ability to give certain warranties. This is your chance to get yourself off the hook and make sure that the buyer knows about any issues which they may be taking over. By setting out anything here which could be a problem later, you will be removing the buyer’s opportunity to sue you on that point later.
Selling a business or company is a great experience that many never experience and some only go through once. It is challenging, exhausting and brings with it a steep learning curve. If you are fortunate enough to go through the process, enjoy the ride and hold on tight. It will be busy, very busy.