Selling A Business

There are many different ways to a sell a business. This could be selling to:

• A third party, a competitor or to private equity

• The existing management (known as a management buyout or a "MBO")

• An Employee Ownership Trust ("EOT")

• Family Investment Company ("FIC")

Once a strategy has been identified, it would be prudent to take both legal and financial advice before agreeing the headline terms with any buyer. Renegotiating the deal structure or key terms later may prove very difficult. Owners will want to make sure that they are not leaving value on the table or opening themselves up to a high level of risk.

How is payment structured?

The payment profile could include payment:

• Upfront

• Over time (deferred consideration)

• Conditional on performance or events (earn-out consideration)

• By receiving shares in the buyer

• By receiving loan notes

Seller protection for consideration not paid upfront

This should be considered at an early stage because once a deal has been agreed, buyers may be reluctant to agree to offer this. What could be available will depend on how the buyer is funding the deal and any incumbent lender of the business. Seller security/protection could include:

• Personal and corporate guarantees

• Debentures over the buyer or target

• Charge over shares in the target

• Undertakings to operate the business in a normal manner (to give the best chance for earn-out criteria to be met).

• Rights of veto to material business changes.

• Rights to be a director or access to information.

Sellers should also consider whether they will remain involved in the business after the sale has completed. While owners may be looking to retire, buyers may require a transitional period. Thought should be given to as to the key terms and length of any employment or consultancy.

I regularly advise sellers across a wide range of industries and sectors. I’m committed to getting transactions over the line quickly with sensible and fair sale agreements. Contact me on: 07359 989311 or Robert.Flannagan@acuitylaw.com