We helped a UK company with the sale of its business to another UK entity. The business was owned by one individual and was sold as a going concern through an asset transfer.
Context and Challenge
Our client was a small business with a single owner/director. The business had been trading for many years and now the owner wanted to retire.
These situations can be tricky to deal with because often the owner isn’t aware of what’s going to be involved – they think it’s going to be a simpler process than it is. This is understandable because most of the time, owners haven’t been through this kind of process before.
On the one hand the owner wants minimal fuss while being totally protected from future claims, wants things doing quickly, wants to spend as little as possible on legal fees, may not have an accountant who understands the tax issues and doesn’t appreciate the buyer’s position. Added to this, the owner may be concerned that the process is disrupting their day-to-day business, they’re incurring legal fees and they don’t know for sure that the buyer will go through with the deal until the contract is signed.
On the other hand, the buyer’s lawyers tend to produce agreements that could just as well be used for a much larger transaction because it’s easier to err on the side of caution and sometimes they haven’t spent the time (especially if the buyer has squeezed them to a low fixed fee) on understanding the commercial realities of the deal.
All of the above applied to this transaction.
The key thing from our perspective was to understand, at the outset, exactly what had been agreed between the buyer and the seller, the rationale for the sale and what our client wanted to achieve from the deal. We then gave our client our thoughts on their position and came up what we thought was the best way to do things.
Once we had agreed on a way forward with the client we put forward the deal structure to the buyer’s solicitors who agreed with our approach, reviewed the asset purchase agreement that the buyer’s solicitors had prepared, amended it (our changes were all accepted) and then produced a disclosure letter which the buyer also accepted. So, negotiations were minimal. We got on well with the buyer’s lawyers and this made things easier.
We felt that the parties were overcomplicating things around prepayments and the arrangements for the owner and the buyer to work together following the sale. While these things needed to be addressed and adequately provided for in the documentation, we agreed with our client that things should be simplified. The size of the deal very much called out for that and our suggestions were accepted by both parties.
The deal completed and the client was able to retire with appropriate protections in place around the business sale.