Mergers and Acquisitions

A merger or acquisition is a very rapid way of expanding your business but the process has many risks. Heald can help you minimise the risks by guiding you through the process and identifying the pitfalls. The process can be broken down into a number of stages.

Due Diligence

Due diligence is the process whereby the Buyer investigates the history and records of the target company or business as the case may be. There are many things to investigate, some of which are standard and some of which depend on the nature of the target company. The standard investigations will include investigation of the tax history of the target company, its employees, any buildings that it may own and its trading terms and conditions of business.

Particular issues can arise depending on the industry that the target operates in, for example, an IT company will have very different issues compared with a property company or a haulage company. Heald has a wide experience of many different types of businesses, including professional service businesses like consultancies and also medical businesses, such as, surgeries and dentists and vets.

Heads of Terms

It is important that the key terms of the proposed purchase are set out clearly in heads of terms. This process should not be ignored. There are many areas where careful negotiation is required and may include the following:-

• Any earn out provisions or deferred consideration.
• How the price is to be calculated whether by a multiple of EBITDA or turnover or asset value.
• Whether the selling shareholders will continue to be involved in the business after completion.
• Whether any security is being offered by the Buyer such as PG or debenture.
• Whether there will be completion accounts and consideration of net assets.
• The extent of any indemnities for any particular issues discovered during due diligence.
• The boilerplate provisions included in the HoT are important too such as lock out and exclusivity.

Purchase Documentation

The main document in an acquisition is the share purchase agreement or asset sale agreement. A share purchase agreement is sometimes abbreviated to “SPA”. The SPA is, these days, a very long document containing the main commercial terms but also many pages of warranties. A warranty is a promise about the target company which the Seller will be forced to give. If any of the warranties prove to be untrue then the Buyer can claim damages from the Seller which acts like a retrospective adjustment of the purchase price. In the case of an asset sale agreement, the target company is selling its business to the Buyer and the shareholders of the Seller will remain the owners of the selling company. The selling company is the seller not the shareholders of the seller; we can advise the selling shareholders how to get their money out of the selling entity.

There are many documents involved in a business acquisition including board minutes, stock transfer forms, shareholder resolutions, new employment agreements and Companies House filings. The Seller will want to disclose all of the things that may be in contradiction or qualification of the warranties. The Buyer will need to scrutinise the Disclosures very carefully to make sure that they are fair and reasonable. The disclosure letter may draw on the data room and will be constructed from specific Disclosures against numbered warranties.

Completion Process

The completion process can be very pressured and drawn out. Heald can guide you through the completion process as we have conducted a great many transactions through to successful conclusion. Sometimes negotiations may last long into the night. We will process the completion proceeds on the Buyer’s behalf and make sure that the funds are dealt with correctly by the Sellers solicitors by crafting appropriate client account undertakings.

Post-Completion

There is often quite a lot of tidying up to do after a transaction. Companies House needs to be notified of any changes and a bundle will need to be created providing each party with a copy of the important transaction documents. This is sometimes referred to as a “bible”.

Contact Us

If you are thinking about buying a business or company, please contact us as soon as you can. We can advise you as the best structures to put in place and guide you early on in the process of how best to conduct due diligence. Please contact David Dees or Alexander Windo on 01908 662277 or email them at [email protected].