Live Blog: Business buying nightmares. How to avoid deals falling apart.
In our last seminar of the day, and of The Business show Maung Aye, partner at Mackrell Turner Garratt’s talks about business buying nightmares and how to avoid deals falling apart.
Due diligence
Maung likens due diligence to buying a vehicle - as a buyer you need to know what that asset is worth - you would always look under the bonnet / check if the car is running on all cylinders.
“The purpose is to make sure as a buyer you are making a sound commercial investment”
Key information
Share Sale - shared purchase - shares of a company - with this you purchase any liabilities and assets whether or not you know about them.
Asset Sale - With this you cherry pick what assets you buy and can leave certain things behind if you choose to do so.
Room for negotiation
If the buyer finds something they don’t like it can provide the buyer with a chance to negotiate.
Plan
You need to plan how you are going to take over the business at completion.
Are the employees used to Christmas bonuses or outings? - it is extremely important that as a new owner, you make sure the employees you are acquiring are happy.
Specific issues
There will be specific issues depending on the sector. For example: environmental checks (property), Intellectual property (IT) - do they own it? Is it licenced to any third parties?
Scope of Due diligence review
Tailored approach
Confidentiality and exclusivity
Time and cost
Whats important to you what are the deal-breakers?
Focus your due diligence on these areas:
Exclusivity
You need to lock the seller in with a reasonable amount of exclusivity - be realistic (3 months is standard).
As a seller ‘think confidentiality’ - the buyer could use the information for their own personal gain.
Top Tip: Restrict access to key employees until you have entered into a non-poaching agreement.
How and where to retain your information?
Due diligence questionnaire - Make sure that it is focused and tailored - time and cost implication.
Statutory books of the company - Share certificates etc - the buyer will want to see these on completion.
Companies House - In the last few months this service has become has become free - learn about directors if they have a secretary annual accounts and returns of the company.
Accounts - Small businesses are not required to file full audited accounts - balance and profits and losses - so make sure you request management accounts too.
Land registry and local authority services - Property related business
Intellectual property -Think trademarks, software and products - who owns the trademark?
If you are outsourcing - make sure that they assign all ownership over to you.
Next Steps
Review of all information - the due diligence report,
Corporate information,
Important agreements - sale/supply agreements, employment contracts, finance agreements, intellectual property licences and property leases,
Communication is key - deal breakers .
High profile disasters
Even high profile companies can get it incredibly wrong.
HP - autonomy - $11 billion
$5 billion loss
Misleading financial statements
HP sued by shareholders for negligence
BMW Rover - $800 million
Inaccurate sales figures and culture clash $790 million loss
BMW later sold Rover for $10 million
Summary for buyers
Exclusivity
Tailored and focused approach to due diligence
Communicate with your team and professional advisers
