Jun 23, 2021

Acquring a UK Company - the do's and the don'ts

Thinking of acquiring a UK company?

Read our guide to the key points

Throughout this article, when we refer to the UK, we mean England and Wales. The regulations can vary for Scotland and Northern Ireland.

Preparation is all

Are you thinking of purchasing a UK company or business? Then there are numerous principles to keep in mind, the most important being due diligence and contractual arrangements. Mistakes or oversights in either of these two areas could prove time-consuming and costly. In this article, we explore these areas and highlight our role in advising and supporting you throughout the acquisition process.

 

Structuring your purchase

This is an essential first step. In your earliest discussions, you need to be clear about

 

-          what you want or don't want to acquire

-          the practicalities of the transfer of control

-          the tax implications

 

Are you making a share purchase?

This is where you acquire a company with all its assets, employees and the benefit of contracts. But, of course, you also take on the historic liabilities and obligations of the target company. On the surface, you might think that, once your purchase has been completed, everything will carry on as before. Your newly acquired company will continue to deal with its suppliers and customers as though nothing has changed. However, you'll need to check in advance whether, for certain contracts (such as dealing with finance), you need consent from the other party.

 

What about an asset purchase?

This is where you plan to purchase only the target company's assets and liabilities - everything else remains the property of the selling company. Complications can arise in relation to the employees. They will usually transfer to you on their current terms of employment. As part of the acquisition process, you may also be obliged to inform and consult with them. You will also need to transfer contracts, real estate, and certain intellectual property rights.

 

Due diligence

There is a principle under UK Common Law called 'buyer beware'. This is where you use 'due diligence' to find out as much as possible about the target company to understand exactly what you're purchasing. The information you glean will be vital in supporting your decision to go ahead with the purchase. The results of your due diligence will help you

 

-          understand the strengths and weaknesses of the business

-          calculate the right price

-          identify liabilities or areas of risk

-          learn about any third-party consents or approvals that you may need

 

There are two types of due diligence

 

Legal due diligence

Acting for you, we would prepare an information request detailing every aspect of your target company – its constitution, employees, contracts, licences, real estate, intellectual property rights, and IT systems. We would then evaluate the information the seller provides before producing a report for you, identifying issues of concern and suggesting relevant protective measures.

 

Financial due diligence

This is where your accountant will assess the historic trading performance of your target company, making sure that the assumptions you're making about its prospects are valid.

 

Other due diligence

You may need other specialist due diligence reports - for example, commercial/market due diligence, real estate surveys, environmental audits, IP/IT reviews, insurance analysis, health and safety investigations or pension actuarial valuations.

 

Warranties, indemnities and disclosure

These relate to contractual assurances in the sale and purchase agreement and are designed to protect the buyer against existing liabilities. Should any of these assurances turn out to be false, then the seller may be liable to pay you damages under breach of warranty.

 

Warranties are usually one of the most negotiated aspects of the sale and purchase agreement. You will, of course, want them to be as wide as possible. The seller will try to limit them. Warranties also encourage the seller to provide more information about the company throughout the disclosure process than they might otherwise do.

The seller will prepare a disclosure letter to qualify the warranties with information that clarifies the true state of affairs. The degree to which your seller qualifies the warranty with the disclosure will govern whether you can subsequently successfully sue them for a breach of that warranty.

 

You can require your seller to give certain indemnities (promises to reimburse you). These are used to protect you against specific risks or identified liabilities. This could be tax indemnities on a share purchase or indemnities to cover issues highlighted during due diligence.

 

Buying a business from overseas?

This can make the contractual arrangements more complex, resulting in prolonged negotiations and consequently increased costs. Issues might include –

 

-          regulatory or other third-party consents or clearances, e.g. from the competition, tax, industry or pension authorities or regulators.

-          complex specialist matters, such as tax structuring, historic environmental contamination, or pension issues.

-          deferred consideration or external financing arrangements.

 

Here to help

Acquiring a business can bring significant financial success. However, just as easily, it can be hugely damaging … unless supported by careful structuring and due diligence.

At MettLaw, we'll use our experience and expertise to make sure you take all the right steps to protect your acquisition.

Find out more. Call us on

020 3813 2866

or send us an email.

 

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