November 28, 2017
When one is considering selling a company it is never too early to start planning for the process. It is vital to have an exit strategy in place if the shareholders wish to maximise the value of their company. An exit strategy is not just a decision to sell the shares at the highest possible price as soon as possible. A potential seller needs to consider when is likely to be the optimum time to sell, do they wish to sell all or part of the equity, are they prepared to take shares in a purchaser company, do they want an all cash deal are they prepared to consider an earn out or deferred consideration and do they want a quick sale.
Perhaps the most important consideration is price expectation and this is something that should be discussed with a competent corporate finance adviser as soon as a decision has been taken to exit.
Careful planning well in advance of a purchaser being identified is very important. This is particularly so in relation to the due diligence exercise which a purchaser will carry out. In this article I concentrate only on legal due diligence, but a purchaser will typically also carry out financial and commercial due diligence. Legal due diligence is a process that the buyer’s lawyers will conduct and it will be deep and detailed. It is a process of eliciting information relating to the company in order to understand and identify any legal risks associated with that company. It is an essential part of the M&A process and enables the potential buyer to understand the company prior to its acquisition. The information that is discovered on due diligence will enable the appropriate legal documents to be drafted and may, if it discloses something significant, call for indemnities from the sellers and/or a reduction in price. It can also identify issues which need to be resolved before any deal can close. Any potential sellers should be discussing with their lawyers and corporate finance advisers any major areas of concern that they are aware of so that preparation can be made in advance of the due diligence process commencing to alleviate these concerns. Normally an electronic data room will be established into which all relevant documents will be placed and which will be made available to potential purchasers after the entering into of a letter of intent or heads of agreement. It is unusual for the due diligence exercise to discover issues which are likely to stop the deal going ahead although I have known this happen on one occasion. The reason why this is unlikely is because any sellers know of such issues if they exist and will take steps to deal with them in advance. Alongside the request for documentation and its examination by the buyer’s lawyers there will be warranties given by all or some of the sellers in the sale and purchase agreement. The buyer will typically ask for all sellers to give warranties but this will be resisted by sellers who are not involved in management of the business and who do not have knowledge of the day to day activities. Certainly, financial shareholders for example a private equity company never agree to give warranties relating to the business. In a significant number of M&A transactions warranty and indemnity insurance is put in place. This will indemnify the insured for loss resulting from a breach of warranty or tax covenant in a sale and purchase agreement and is typically taken out to protect the sellers against claims. Typically a policy will offer coverage that matches the liability under representations and warranties in the same as the sale and purchase agreement. The cost of such insurance is usually around 1% of the transaction value. These warranties will be qualified by disclosures in a “disclosure letter” and the main purpose of these warranties is to produce information alongside the due diligence investigation. If however there is a breach of warranty then the buyer will have a remedy and will be entitled to claim damages. The damages will be assessed as being the difference between the value of the company if the breach had not taken place and its actual value. This is different to an indemnity which would entitle the buyer to recover the total cost of a specific liability. Indemnities are frequently sought when specific issues are identified as part of the due diligence procedure.
In relation to a food business there will be certain specific items of due diligence which will be carried out including are the premises properly registered, are the products properly and correctly labelled, is the food safe to eat and does it contain additives and if so are they approved. If food has been imported are health certificates and/or import licences needed? These are unlikely to be needed if imported from the EU.
I have referred to heads of terms/letter of intent. These are documents which will set out the main principles of the transaction and will only be binding in relation to confidentiality and exclusivity. However, it is agreed between the parties that these main principles, including price, will be adhered to unless something material is discovered during the due diligence process. It is important that this document encapsulates and records the main commercial terms agreed between the parties with clarity.
Other matters that may be relevant are such things as anti-trust issues and specific issues that may arise from cross border transactions. Tax structuring is important as proper advice in this field can add significant value to the transaction. This is both for the selling shareholders and for the acquirer.
If the company is being sold under an auction process then it may be sensible for the seller’s lawyers to prepare the sale and purchase agreement and for any offer to be accompanied by a mark-up of that agreement. In that way the seller is able to assess the value of the offer knowing the legal requirements of the buyer.
By Clive Garston, DAC Beachcroft
“We were delighted with the services that Bluebox offered us. Bluebox’s attention to detail through their Diamond Programme ensured that we were well prepared for when the business was taken to market and that the sale process itself was managed expertly.
We challenged Bluebox with finding the right strategic buyer and thereafter negotiating a deal that met our requirements. In helping initially to identify and to secure the deal with Mountville Mills they accomplished just that. Communication throughout was excellent and professional, managing each stage of the process. I would have no hesitation in recommending Bluebox to any corporate shareholder or private business owner looking to divest their business.”
Richard Millward, Former Client
“We were delighted with the services that Bluebox offered us. Bluebox were challenged with finding us the right strategic investor and, thereafter, negotiating a deal that met our complex requirements. In identifying and securing the deal with LGC they have done exactly that. The process itself was efficient and smooth, largely due to the excellent communication from the Bluebox team, who also demonstrated excellent experience at managing a very engaging auction process. I would be delighted to recommend Bluebox to any corporate shareholder or private business owner looking to divest a business.”
Helen Dickinson, Former Client
It has been a real privilege working with the team at Bluebox over this last year or so. Bluebox’s attention to detail ensured that we were well prepared for when the business was taken to market and the sale process itself was managed expertly. Starting the process, I had no idea exactly what this would entail and the volume of work that has been produced by everyone and the result reached today is nothing short of brilliant.
Hugh Morris, Former Client
We are delighted with the services that Bluebox was able to offer. They showed an intimate knowledge of a deal cycle, managed a tight auction process and were highly communicative from the start. I would happily recommend Paul and his team to business owners contemplating a sale of their business in the next 24 months. Experience is key and this has paid off for us.
Laurence Seward, Former Client
Aligning ourselves early with Bluebox, and entrusting the team to guide us through their process proved to be a highly rewarding investment from all viewpoints. Bluebox’s support significantly enhanced both the value of our business and its ‘saleability’. I would highly recommend Bluebox to business owners contemplating an exit in the next two years. The earlier the engagement the better so far as I am concerned.
Mike Minett, Former Client
We began working with Bluebox in early 2015 through their Blue Diamond Programme, as we were contemplating an exit. We found that the process focussed our minds on the key areas of growth in the business, and prepared us well for the inevitable rigours of due diligence. During the sale process itself, the advice offered by the Bluebox team was invaluable. We found them to be helpful, straightforward and honest.
David Stokes, Former Client
When selecting our adviser, it was extremely important that they had access to international buyers and were experienced in cross-border M&A. The team at Bluebox proved to be invaluable by identifying a strategic acquirer from America who was not known to us and by negotiating an excellent deal for all parties. I was also impressed with the process management from Bluebox, which ensured that the deal was closed in a timely fashion.
Jeff Weinstein, Former Client
When I first engaged with Bluebox, I was hesitant as to the benefits of using an advisor to firstly, find a buyer for my business and secondly, to get a deal over the line. However, now that the deal has completed with KPM, I can honestly say that the finer negotiation points handled by Bluebox and their overall management of this process has been nothing short of first class. I would be delighted to recommend Bluebox’s services to any entrepreneur contemplating the sale of their business.
Bill Ballard, Former Client
Bluebox worked closely with us over the following six months and helped us to implement some key initiatives which made InferMed a more attractive acquisition target. Once we decided to sell the business, the Bluebox team were very diligent in ensuring that no stone was left unturned. They negotiated expertly on our behalf to ensure we got the best deal possible.
Alan Montgomery, Former Client
The pre-sale planning programme that we signed up for with Bluebox made us develop our strategies and focus on the bigger picture. It proved to be a very rewarding investment from all viewpoints and significantly enhanced both the value of our business and its ‘saleability’. I would highly recommend Bluebox to business owners contemplating an exit in the next two years.
Nigel Parsons, Former Client
I have experienced first hand the value that can be created through highly structured pre-sale planning. It amazes me that it is not something that everyone does. It is so disappointing to see around 90% of transactions collapse before they complete and pre-sale planning will not only enhance your price, but also significantly enhance your chance of a closed deal.
James Caan, Investor
We worked incredibly closely with our advisers who provided expert knowledge of the sale process with which we were not familiar. We were truly delighted with the results.
Marten Nielson, Former Client
We appointed advisers to manage the sales process after we had received a number of unsolicited approaches for the business. I was incredibly impressed by the immense value that could be created by expertly negotiating with a group of already interested parties.
Paul Duckworth, Former Client
I was delighted with the service that the team offered and their real attention to detail. The deal was not without its complexities and it was reassuring to have such experienced advisers assisting me throughout the negotiations.
Peter Bennett, Former Client
Truly delighted with the way my sale process was managed. The fact that the team I worked with achieved such a great multiple is testament to their experience and their ability to create some true competitive tension.
James Averdieck, Gü, Former Client
The team at Bluebox provided invaluable support in negotiating this complex transaction. Their access to international purchasers, and exceptional knowledge of cross border M&A ensured that the deal was concluded efficiently, achieving a highly successful outcome for us all.
Jon Parslow, Former Client
“We selected Bluebox after a fairly long round of evaluating potential advisors because of their scientific, yet challenging approach to maximising value. During our initial meetings they showed us how far short of “ready” we were and consequently we completed more preparation in the early stages which meant we were equipped for what was to come. We were delighted with our choice of Corporate Finance partner. I do not hesitate in recommending Bluebox for any SME to consider.”
Simon English, Former Client
Bluebox provided invaluable advice in managing the negotiations with incoming investors. Their skills in handling these discussions were evident from the outset and the vital interface that they provided between the incumbent team and the incoming investors was truly beneficial.
Henry Braham, Former Client
Bluebox have a professional, dynamic and experienced team that is greatly assisting me with my focus on my exit within the next 24 months. Their structured approach is very refreshing and their ‘Blue Diamond’ programme is adding immense value.
Matt Evans, Former Client
The team at Bluebox provided me with a seamless service from the start of the engagement until our deal was completed. Attention to detail was commendable and their understanding of corporate M&A very impressive. I could not recommend them highly enough.
Victor Lewis, Former client
Having tried to sell my business previously – and failed – I was only too aware of the importance of pre-sale planning. This is a talented team offering a service that most people find out about, but too late.
Simon Hulme, Former Client
Bluebox are a quality outfit. Their access to International acquirers and relationships with the highest quality domestic investors was impressive. My shareholders and I received excellent service from start to finish and it was refreshing to be dealing with a senior team throughout the sale exercise.
Michael Clapper, Former Client
I cannot recommend the team at Bluebox highly enough. Their expert guidance throughout the entire sale exercise resulted in my shareholders securing an excellent deal with which the entire team was delighted.
Mark Rodol, Former Client
I’m really pleased with the service Bluebox provided. The team demonstrated excellent knowledge of the process to follow and led negotiations for the hospital in a way that allowed us to ensure we received appropriate value whilst focusing on reputational risk. Communication and service were of a very high standard.
Steven Davies, Former Client
With Bluebox’s expert advice we were able to find the right buyer that will benefit our business strategically. We’re delighted with the outcome and look forward to starting our new chapter
Clive Hillier, Former Client
The advice offered by the Bluebox team throughout the process was invaluable to the shareholders. We strongly believe that participating in Bluebox’s pre-sale planning programme was a significant driver behind the success of the deal. Their project management and negotiation skills throughout the sale process itself resulted in an exceptional deal being delivered to all parties involved.
Harpal Singh, Former Client