Selling your business to be acquired by another company can be an exciting, but also highly complex, process.

The UK has seen a flurry of business acquisition activity, particularly in private equity, with the latter half of 2024 experiencing a surge in investments. UK private equity deal volumes increased to 4.4 per cent higher than 2023, while the year’s total deal value came in at nearly 12 per cent higher.

If you are the seller in an acquisition transaction, there are essential legal considerations to take into account.

Negotiate Heads of Terms

The initial agreement of a purchase price for a business is often substantially more complicated than simply receiving a cash amount for the business with no other obligations or expectations between the parties.

Heads of Terms summarise the deal terms agreed at the outset of the sale so that all parties are aware of what the key terms are – even if there might be some scope for changes along the way.

While Heads of Terms are not essential to an acquisition, there are many reasons why it is legally advisable to set them out.

• Good faith: Agreeing terms at the outset is usually an indication that both parties are acting in good faith to follow the terms agreed between them when entering into the transaction.
• Complexity: The acquisition of a business can often involve a number of complex issues such as delayed payments to the sellers or particular post-completion employment and introduction obligations which are best highlighted at an early stage.
• Exclusivity: This keeps both parties focused on completing the deal within a certain timeframe. Exclusivity often benefits the buyer but can also protect the seller if the buyer is targeting other competitors.
• Instructing advisers: Legal advice early on can help to ensure the Heads of Terms accurately reflect the overall intention of the parties and allows advisers to provide prompts about matters to be addressed, such as warranty periods or post-completion restrictions.
• Confidentiality: Heads of Terms provide an early opportunity to bind both parties into confidentiality restrictions which can be critical if customers of the target company are unaware of the potential sale, or the buyer does not wish for its potential expansion into a particular area of the market to be public knowledge.

Heads of Terms are a very flexible tool when buying or selling a business, providing the opportunity to draw out areas of contention and agree key terms early in the process thereby increasing the likelihood of a smooth transaction.

An expert solicitor can help you to negotiate Heads of Terms to ensure that your interests are protected.

Prepare for due diligence

The buyer must complete due diligence on your business before they can proceed with the acquisition and as a seller, preparing for the buyer’s due diligence is critical.

Due diligence is an audit of a potential investment completed by a potential buyer. Their aim is to verify the accuracy of the seller’s information and assess its value, making it a highly important part of the process.

They will review your company’s existing contracts and agreements, as well as its general terms and conditions. Any contracts that create challenging legal obligations could affect the attractiveness of the deal.

Issues with due diligence can lead to dissatisfaction from the buyer, possibly leading to a failed acquisition.

A solicitor can help you prepare for due diligence by assisting with information gathering and resolving weaknesses that could affect the sale.

Acquisition agreements

An acquisition agreement contains the terms and conditions of the acquisition, such as the purchase price, how it is going to be paid and will also contain various warranties about the business which will be given by the seller to give the buyer comfort around issues such as litigation and compliance with laws.

It is also important to put necessary contractual agreements in place that consider the future legal requirements of your business.

An experienced solicitor can help you draft an agreement that protects the interests of both parties and secures the future of your business.

Employees

It is important to consider the future of your employees once your business has been acquired.

Reviewing contracts, benefits, and any potential issues is a crucial step to prepare for a smooth transition.

You set out arrangements with the buyer on how employees will be supported with integrating into the buyer’s systems effectively.

It is important to understand the legal obligations to your employees and their protections under employment law.

There will be different employment considerations depending on whether the sale is structured as a share purchase or an asset purchase.

A solicitor can help you negotiate and agree terms that protect your employees after acquisition.

How we can help

Working with a specialist has many benefits. We handle all aspects of the transaction,  from advising on how to structure the deal, to advising on the Heads of Terms, navigating the due diligence and disclosure process and drafting and negotiating the acquisition agreement.

We recognise the legal complexities of a sale process and can provide advice on how to best handle any issues.

For tailored support and guidance on acquisitions, please get in touch with a member of our Corporate team.