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Smooth the ride - Top tips for expediting your next business disposal
- AuthorMignonette Ellis
The speed of the sale of your business or company (or 'Target') is directly linked to how expediently the parties correspond, provide documents and negotiate terms. Mignonette Ellis highlights three stages of the transaction that commonly consume the most time and explains how to accelerate them.
1. Respond quickly and thoroughly to Legal Due Diligence (LDD) queries
The buyer will want a full picture of the Target through questions provided to you by the buyer’s solicitor. Although the buyer may have good understanding of the Target through working in the industry, working for the Target or from conversations with you, there are matters they will need to know about that may not have been covered.
The buyer’s solicitor will need this information so that the purchase agreement reflects this information, particularly the warranties that the buyer will want you to provide. In some cases, the information can affect the agreed purchase price or whether the buyer wants to proceed with the purchase.
It's fundamental at this stage that you provide all of the information requested, that it is complete and accurate in writing and/or documents. As the seller, you will need to carry out most of the leg work at this stage of the transaction. It can take some time to provide all of the documents and information requested, so it's helpful if you can gather company documents as early and as promptly as possible. Your solicitor will not be able to gather information for you beyond what is available publicly, for example at Companies House or the Land Registry.
Once the information has been provided, your solicitor should review your replies to make sure nothing is outstanding.
2. Strategise and review any warranties
This can be the largest section of the purchase agreement. There will be a combination of general and specific warranties which will relate to the Target. The specific warranties may be in response to the LDD replies. The buyer will want as many warranties in the purchase agreement as possible for protection, because if a warranty is untrue, the buyer will have a claim against you for breach of warranty. However, as a seller, you'll want as few warranties or amendments to the warranties which remain as possible – to limit your liability. This will lead to negotiations taking place which may be extensive.
To save time, it's important that you review each warranty carefully and raise any queries with your solicitor as soon as you can. They should review some of the warranties with you to make sure you understand what you are dealing with. Given that you can make disclosures against warranties to limit your liability, any information in connection to the warranties should be given as early as possible.
3. Engage an accountant if needed
As some law firms don't advise on tax or financial matters, you may need to involve your accountant to review the tax and financial clauses and covenants in the purchase document. They may also advise you on the most beneficial structure for the sale of the Target (i.e. asset sale or share sale).
You should engage your accountant as early as possible in the transaction so they have sufficient time to review the purchase document and report back to your solicitor. They may then have further questions to address or prepare completion and target/final accounts, depending on the mechanics of the sale.
- It's in your interest as a seller to be prompt and efficient in responding to LDD queries
- You'll need to balance requests for warranties by the buyer with your need to minimise them as a seller
- Engage an accountant early in the sales process – should your solicitors firm not provide tax or other financial services.
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