Acquisition: Some Practical Pointers

Dec 1, 2011 by Alastair Dunn

Buying a business can be a daunting prospect but an understanding of the process, sensible advisors and a healthy dose of common sense should steer you away from the rabbit holes that the unwary can fall into.  If you are buying a company you will be acquiring its shares.  This means that you are taking over all of its assets and/or liabilities that go with it, so you will want know what all of these are at an early stage of the acquisition process.  A business purchase is more straightforward as you get to cherry pick the assets you want to buy and by implication ditch the liabilities. The exception to this is that if you are acquiring an “undertaking”, then all of the employees will automatically come across to you on their existing terms and conditions.

All of this points to the need to instruct your lawyer and accountant to conduct a due diligence exercise at an early stage to evaluate what you are getting and to see that the proposed price still stands once any problems are identified.  To the extent that any potential problem is identified, there are mechanisms that can be factored into the negotiations that can be used to cover the risk, without there necessarily being an immediate hit on the price – for example a price retentions.

Once it is established that the deal stacks up, its key terms should be written up and set out in a heads of agreement document.  This establishes in outline how the deal will proceed and acts as the template for the formal legal documents to follow.  The document is non-binding other than in relation to confidentiality and exclusively (lock out).

With it being clear that the parties are on the same page and with any third party funders on board, your lawyer can draw up the acquisition agreements.

The acquisition agreement itself will contain warranties and other protections to be given by the seller which will back up the earlier due diligence exercise and the work that you have carried out at the outset should stand you in good stead for the acquisition to progress smoothly.

 

Contact: Alastair Dunn, Partner

E: akd@bto.co.uk

T: 0141 221 8012

DISCLAIMER

The views and opinions expressed in the blogs are independent and do not constitute endorsed advice or necessarily reflect the views or position of Social Firms Scotland or the Acquiring Business for Good Programme.