Overview
Our corporate law team advised on the sale of a fire safety businesses based in the Midlands. Its director and sole shareholder set it up over a decade ago, after a long career as a firefighter. The business had seven employees, and the transaction value was in the <£1million range.
Context and challenge
The client, of course, wanted things to be kept as simple as possible while at the same time he wanted to be completely protected from risk. He wanted the deal to be done quickly and then not have to worry about any of the warranties that he had given in the share purchase agreement coming back to bite him.
When you sell a business, there is a process that needs to be followed, whether the deal is for £100,00 or £10 million. Heads of terms in some form need to be agreed, due diligence on the target business is going to be done. Even if (as in this case) a short form of legal due diligence enquiries is raised, the short form will still stretch to many pages of questions that need to be addressed. The share purchase agreement will need to be negotiated. In this case, typically, there were earn-outs against future target performance and our client was to be kept on as a consultant.
So there was a significant amount of work to be done, as there always is and a heavy emphasis on minimising risk, while at the same time, because the deal value was relatively low, the client wanted to keep legal spend to a minimum.
Process and Insight
We advised on the heads of terms, which were quickly agreed, and we proceeded to respond to the initial disclosure enquiries. As expected, no significant issues were identified. However, on review of the business’ disclosure, it became apparent that the business had been inadvertently contracting outside of its standard terms of business. We discussed this issue with the client, and they agreed to collate all of its purchase orders so that we could assess which customers were contracting on non-standard terms. Rather than incur significant costs reviewing these agreements, we suggested that the issue be discussed directly between the buyer and the seller, with the objective being that the buyer accepts a general disclosure against all the relevant purchase orders. This was accepted.
A key part of our cost minimisation strategy was to encourage constant communication between the buyer and the seller on nearly all contentious issues, rather than going through lawyers. Whilst not always appropriate, when the issues are more factual, as opposed to complex legal issues, this can save a great deal of time and money.
Result
After navigating a few further hurdles, common to the sale of any business, we were able to negotiate the sale document (a share purchase agreement) which incorporated relevant protections in order for the client to exit the business worry free. The sale completed, and our client was able to enjoy a long (and well deserved) holiday with their family!
