Getting ready for a future sale or acquisition

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It is never too early to prepare for a sale of your company. Whether you are aiming to sell in the next few months or new few years, the key to a successful sale which will maximise your return is good planning and preparation.

Despite deal activity in the UK merger and acquisition market experiencing a downturn last year, the new year brings optimism. There is growing positivity about the global economic outlook amongst UK CEOs with over a majority of CEOs (61%) expecting the global economy to improve over the next 12 months. Interest rates have started to stabilise, inflation is falling, and the less volatile markets makes it easy for investors and buyers to plan ahead.

MBM have set out some top tips to help prepare your business for sale:

Financial information

Ensure your company has good quality and up to date financial information, in particular clear and accessible statutory and monthly management accounts. A buyer will undertake financial due diligence to investigate and analyse the finance performance of your business. Being able to provide this information with clarity and accuracy makes the process smoother and improves the buyer’s perception of your company. It will also reduce the chance of any challenges by the buyer to the sale price.

Statutory accounts, or “annual accounts”, are a set of accounting and business reports that summarise a company’s finances over a 12-month period. However, statutory accounts may not present a current picture of the business at the time of sale. This is where management accounts can be useful, providing more detail on the company’s financial information where needed.

It should be noted that there is a legal requirement for companies to file statutory accounts with Companies House. For small businesses, you have a choice of submitting a full set of statutory accounts or an abridged set, containing less detail but meets the compliance requirements of Companies House and HMRC. We suggest checking with your accountant that all filing requirements are satisfied.

Get your paperwork in order!

In the lead up to a sale, it is a good idea to gather and organise the important documentation that a buyer may be interested in reviewing, such as:

  • any licences you hold;
  • insurance policy documents;
  • details of VAT and tax returns;
  • a full list of your assets (including non-physical assets); and
  • an anonymised, but detailed, staff list.

During the transaction, the buyer’s solicitors will carry out legal due diligence, where the company’s documents will be reviewed for any problems and concerns regarding the business and any potential liabilities for the buyer. As part of the legal due diligence, an extensive questionnaire from the buyer’s solicitors will be shared with you, requiring a lot of time and effort to complete. To streamline this process, we suggest taking the time to organise your documents and prepare soft copies of any important papers.

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Legal tidy up

Companies House

Directors of companies must report certain changes to the company on Companies House, such as:

  • changes to the company’s directors and company secretaries, for example new appointments, resignations or changes to their personal details;
  • changing your registered office address;
  • changing your accounting reference date;
  • changes to your ‘people with significant control’ (PSC) information;
  • amending the company’s articles of association;
  • changes to your company’s share structure, for example if you issue new shares; and
  • details of any new mortgages it has or mortgages it has paid off.

Some of these changes will require shareholder approval, such as changing the company name, removing a director or amending the company’s articles of association. As part of legal due diligence, the buyer’s solicitors will review your company’s records on Companies House to check that any changes to the company have been carried out in accordance with the company’s articles of association and the Companies Act 2006. To avoid any mishaps during the transaction, it may be worth checking your Companies House records with a solicitor as soon as possible.

Statutory Registers and Cap Table

Under the Companies Act 2006, a company must keep up to date the following statutory registers and ensure they are available for inspection on request:

  • Registers of members (as per s 113)
  • Registers of directors (as per s 162)
  • Registers of directors’ residential addresses (as per s 165)
  • Registers of secretaries (as per s 275)
  • Register of People with Significant Control (“PSC register”) (as per s 790M)
  • Register of Charges (only those created before 6 April 2013) (as per s 876)
  • Directors and secretaries (collectively known as “company officers”) have a legal duty to ensure their company meets all statutory obligations imposed by the Companies Act 2006. Maintaining accurate and up to date company registers is one of these duties, therefore failing to comply with this obligation is a statutory offence.

In addition to checking your statutory registers, we suggest reviewing your latest cap table to ensure the figures are correct and up to date. The main transaction documents (i.e. the share purchase agreement/share transfer forms or the asset purchase agreement) will refer to the shareholding of the company and even include warranties on this so it is essential to check your cap table is error-free.

Speak to a solicitor before signing a term sheet

The term sheet, or a “letter of intent”, is a significant document outlining some of the key terms and conditions of the deal. Whilst you may be eager to sign this and formally start the process, we recommend that you ask your solicitors to take a look over the term sheet before signing.

There are only a few terms within a term sheet which are legally binding (i.e. confidentiality and exclusivity clauses) however the term sheet evidences serious intent to enter the transaction on the terms that are agreed in principle. It is important that you understand the implications of any provisions in a term sheet before you sign, as it may be very difficult to negotiate any changes later on during the transaction.

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