Closing a deal successfully: top tips from one of our corporate partners
When it comes to buying or selling all or part of a business, there can be many pitfalls on the road to completion. Corporate & commercial partner Chris Wills explains how to avoid some of them.
To complete any deal successfully (i.e. a deal where both parties come away satisfied that they have achieved their objectives) requires careful planning and organisation.
Such deals are very rarely completed overnight (no matter how motivated the parties are), and a failure to plan and be organised from the outset generally results in the negotiations becoming fraught and protracted.
Following these basic principles can make a significant difference to the whole process:
Engage professional advisors at an early stage
Taking appropriate advice as early as possible can help to guide the parties down the correct path and avoid wasting time and resource
on negotiations that are unlikely to achieve a satisfactory outcome.
Take the time to prepare your business for sale
Whether exiting through a trade sale or a management buyout, the buyer is going to want to undertake some form of due diligence process (which usually involves investigating legal, financial, tax and commercial issues) to understand as much as possible about the business that they are buying and to ensure that they get exactly what they are paying for.
Any action that can be taken by a prospective seller to ensure that their records and systems are organised, or to identify and address any potential issues that could hamper negotiations or result in a reduction to the purchase price, will help to ease this process.
Take care when negotiating the heads of terms
Carefully negotiated heads of terms that have been reviewed by professional advisors (both legal and financial) can help the parties to identify and/or address any significant issues at an early stage.
This generally results in strong first drafts of the key transaction documents being prepared. Although heads of terms are not usually legally binding, parties tend to feel morally bound to adhere to them unless, in the buyer’s case, the due diligence process uncovers something that justifies a revision of those terms.
As a consequence, a failure to pay close attention to the heads of terms can result in delays, or even an attempt to renegotiate the price and other key points, because they have not been fully addressed in the heads of terms.
Don’t rush the due diligence process
The due diligence process tends to be the most resource-intensive part of any deal, but ensuring it is well-run will benefit everyone involved. Responding fully to questions, and providing complete copies of any documents that are requested in a methodical manner (ideally through an online data room), will speed up the buyer’s review process, reduce the number of followup questions and allow the parties to focus on negotiating the transaction documents themselves.
From the seller’s perspective, a well-organised due diligence exercise makes the disclosure process (which is designed to protect the seller from potential breach of warranty claims under the main transaction documents) far easier to manage.
As always, if you need commercial and pragmatic legal advice, we’re here to help so please get in touch.