It is intended to provide you with an outline of what is typically involved, and looks at some key issues, procedural steps and documentation you are likely to encounter.
This first article will provide you with an initial overview of the whole process and subsequent articles will delve a little deeper into each key stage.
In this article:
Is everyone who needs to be on board with the decision to sell? Confidentiality concerns can make it difficult, but where possible, key stakeholders, even if they are not current shareholders, should know about the plan.
Take financial and legal advice right at the outset on issues such as valuation and price expectations, how you approach prospective buyers, pre-sale legal audits, and protecting confidential and commercially sensitive information and whether or not to broach the matter with key customers. Make your advisers part of the team - they can shoulder a lot of the burden if you let them.
The parties will usually sign Heads of Terms (sometimes referred to as a Letter of Intent or Memorandum of Understanding) following an initial period of negotiation, which outline the key commercial terms and structure of the deal.
Heads of Terms are not usually legally binding (except for elements like confidentiality and exclusivity) but they should set a clear framework for the commercial deal which neither side should expect to withdraw from without very good reason.
Due diligence is the process by which a buyer investigates financial, legal and commercial aspects of the target business to ensure it has enough information to understand risk and justify price before finally deciding to proceed with the sale.
If businesses want to keep transaction costs down, they will often opt to oversee this aspect of the transaction themselves. This approach may, in some cases be beneficial, as in reality you are the person that will know the most about your business. Furthermore, the due diligence involved in reviewing a business in the aerospace and defence sector can be complex and technical.
On the other hand, the due diligence exercise is often far more time consuming than you often first imagine, and whilst having the responsibility of continuing to run your own business, it can be a real test of patience and your commitment to the process.
We recommend you discuss this aspect on the transaction with your legal and financial team to consider the benefits that their involvement in this process may have.
For reasons of timescale, these are often progressed alongside the due diligence exercise.
The key document will be the acquisition agreement, whether you are selling the shares in a business, or its assets.
A typical acquisition agreement may run to 100 pages or more. The operative provisions (which transfer assets or shares) might only cover two of those pages and most of the rest will be about apportioning risk between buyer and seller on issues such as:
Completion is the point at which the sale is legally concluded, with shares or assets transferring to the buyer in consideration of cash, shares or other assets paid to the seller.
You will need to prepare for a future outside a business you may have spent a long time working in, unless you will stay on to assist the management of the business going forward. It will probably feel very strange - some clients talk of an empty feeling. You should also take steps to protect wealth created on sale, and ensure you have funds available to pay any tax due.
At VWV, we regard guiding our clients through sale process and wealth protection issues as key to our role when acting on any sale or acquisition.