david beveridge
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David Beveridge, MacDonald Henderson Preparing to Acquire a Business David, corporate lawyer and Managing Director of Macdonald Henderson will give his thoughts on key legal elements to consider when considering the acquisition of a business, including: Heads of Agreement Due Diligence The Acquisition Documents Three Vital Takeaways The Business Journey aims to act as a free, non-executive board to owner-managed businesses operating in the West of Scotland SME community.TRANSCRIPT
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The Business JourneyEvent No.626 August 2014
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David Beveridge
The Business Journey
Preparing to Acquire a Business
Leading Advisor to Scottish Family Businesses at The Herald Scottish Family Business Awards 2012 & 2013
Turnover and profits increased by 25% since a Management Buyout in 2009
A top 15 Scottish corporate law firm by number of deals (over 30 completed in 2013) Business Insider)
Based in the International Financial Services District of Glasgow
Law Firm of the Year 2010 (under 50 fee earners)Up and Coming Law Firm of the Year 2010(Law Awards of Scotland)
“Best Friends” policy with 20 firms in 15 jurisdictions and a conflict referral firm of choice for some of Scotland’s largest commercial law firms
KEY FACTS
CorporateOur corporate team advised on 30 deals in 2013, ranking us as one of the most deal active corporate teams in
Scotland, a significant achievement in the current market conditions.
Commercial & Intellectual Property
Recognised as respected advisors in the field of commercial law, we advise in all areas from drafting contracts to
protecting intellectual property.
Employment
Highly proactive client service: our team is experienced in all aspects of non-contentious employment law and
employee option schemes and benefits.
Property
One of the busiest commercial teams in Scotland providing a comprehensive range of commercial property
services to a national and regional client base drawn from both the private and public sectors.
Private Client
Our Private Client team advises on all aspects of domestic conveyancing, wills, and executry work on behalf of our
individual clients.
CORE SERVICE AREAS
Journey: “the act of travelling from once place to another”
If business is a journey, then the acquisition of another business is a milestone, whether as business owner or advisor;
Acquisitions – exciting, exhausting, profitable, but risky
Two Elements of Preparation for Acquisition
Due Diligence
Heads of Agreement
Due Diligence – what is it?
“A comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential”.
Due Diligence - forms
Financial Diligence – accounts
Commercial Diligence – customers
Technical Diligence – technical/operation matters
Legal Diligence
Due Diligence - Legal
Crucial for you/your advisors to consider:
Tailor legal diligence to the target business and sector
Focus on the important value drivers: Examples:
- Strategic customer contracts - Title or planning consent to valuable land - Intellectual property rights
Don’t waste time and resource on in-depth investigation of peripheral matters
Legal Due Diligence - Process
Issue focussed legal due diligence questionnaire
Carefully catalogue responses and documents
Evaluate and ask follow up questions – be tenacious!
Critically – if liabilities are identified, consider – price adjustment, indemnity/warranty/retention protection
Be prepared to walk away if liability identified or information is not forthcoming
Heads of Agreement – What are they?
“a non-binding document outlining the main issues relevant to a tentative agreement”
PriceConfidentialityExclusivityAbort CostsAccessTimescaleStatus
Heads of Agreement - Price
State clearly the Price but also how it is calculated ie “on the basis of…”
Consider a company “valued” at £2m…but if no debtors are paid in the three months leading to completion, then worth may be £1.5m or less – tackle by way of a minimum net asset value and completion accounts to check the value after completion and adjust price if necessary
Heads of Agreement – Confidentiality
Confidentiality agreements are usually standard form and for the sellers to be very concerned about
But look out for restrictive covenants, preventing the purchaser from approaching employees, customers and suppliers of the target…even if the deal does not proceed!
Heads of Agreement – Exclusivity and Abort Costs
Exclusivity period to prevent sellers from talking to other interested parties
Provide for abort costs – that is, if the seller breaches exclusivity, they will pay the purchaser’s professional advisor costs (and if possible management time costs…)
Difficult for a seller to reasonably resist abort costs for breach of exclusivity
Heads of Agreement – Access and Timescale
Ensure that the buyer has sufficient access rights to information and if necessary to the target’s premises to carry out due diligence – this may be tricky given confidentiality aspects
Ensure that the timescale agreed to complete the deal is sufficient – this is linked to exclusivity. Always presume that you need more time, particularly if funding the transaction through third party investor or bank
Heads of Agreement - Status
Yes, mostly non-binding
But…if the buyer, ensure that these clauses are binding:
ExclusivityAbort costs
Preparing to Acquire a Business – three “takeaways”
Focussed, tailored and tenacious legal due diligence
Heads of agreement are important – put them in place early
Three A’s – Appoint Appropriate Advisors- ensure your lawyers and accountants are fit for purpose – and take references if required!
THANK YOU
@TheBusJourney #SMEJourney
Questions for David?