6. Are there any obstacles to overcome to get to completion?
You may already be aware that there are certain issues (whether they are from a commercial, legal, tax, regulatory, or timing perspective) that a buyer will need or want to be resolved ahead of completion. For example, you may have material customers whose contracts contain change of control provisions, and whose consent the buyer will need, or want, to obtain prior to completion. There might be other issues that you know will be significant to a buyer of the business and will be uncovered by or revealed to them via the diligence or disclosure processes – or both!
In all cases, you should communicate these potential issues to your advisers at the outset of the process so you can consider together at what stage to make these known to the buyer and how best to handle them at that time.
Regulatory approvals can slow down M&A deals of any size – Authentic Brands Group’s acquisition of Boardriders (Roxy, Quiksilver and Billabong) announced this Spring is expected to close in Autumn 2023 subject to regulatory approvals. L’Oréal’s acquisition of luxury Australian brand Aēsop announced in April, is contingent upon regulatory approvals, too, following L’Oréal’s acquisition of smaller brands Youth To The People in late 2021 and Skinbetter Science in late 2022.
7. How long might the process take?
Ultimately, this is not a question we (or anyone else) can answer, as a vast number of factors can influence the timing of a transaction.
On any deal, the buyer will want to conduct a due diligence exercise. The timing of this exercise will depend on the buyer’s level of urgency, the amount of information to review and the materiality thresholds the buyer might have set for such review. You should be considering the logistics of this as well. Management time and effort will be required to provide the information and documentation required for the buyer to conduct its due diligence.
Further, you will almost certainly be required to give warranties in the sale documentation relating to the company and its business operations, against which you can disclose any untrue or misleading information to limit your liability. This disclosure process can also take some time to complete.
In addition, there can be other deal-specific complicating factors, such as regulatory approval, which can take several months to obtain.
We have exchanged and completed complicated deals in relatively short timeframes and can work with you and any other advisers to ensure the deal is concluded as soon as reasonably practicable.
As part of the sale process, the potential buyer and its advisers will conduct due diligence to investigate the company and its affairs. This will naturally involve the disclosure of a large amount of information and documents by the company. You may also be concerned about the public, customers or suppliers learning of the deal itself before it completes. There is likely to be a particular concern if the potential buyer is a competitor and/or within the same industry.
We recommend entering into a confidentiality or non-disclosure agreement at the outset of discussions to provide some comfort that potential buyers will keep the information they learn during the deal process, and the existence of the potential deal itself, confidential. Indeed, many fashion M&A deals will be embargoed until the transaction completes. Little is known about the terms (other than a headline purchase price) of Advent’s acquisition of Australian fashion house Zimmerman for a rumoured $1.15billion in August, or Next’s recent acquisition of a further 34% shareholding in Reiss.
There are other ways you can protect sensitive information that will need to be disclosed as part of the transaction, for example, only uploading it once it has been established that the buyer is sufficiently serious about the deal and applying certain permissions to documents (if hosted on a virtual data room platform) so that they cannot be printed or downloaded.
9. What will the tax implications be for you personally?
Your proceeds from a share sale should be taxed as capital gains. The rate of capital gains tax will depend on whether you are a basic rate, higher or additional rate taxpayer and whether you have made any other capital gains within the same tax year.
You may also be entitled to business asset disposal relief (BADR) (formerly known as entrepreneurs’ relief) on the sale of the shares. This entitles you to a 10% tax rate rather than the otherwise applicable capital gains tax rate. Broadly speaking, this relief is available on asset sales and share sales to those who have owned and run businesses for at least two years prior to the date on which they sell their shares. We can assist with advising as to the applicability of this relief.
We recommend that you speak with a tax adviser to discuss the potential tax implications of a sale for you personally and how best to structure it. We can introduce you to recommended tax advisers if you wish.
10. When should lawyers and other advisers become involved?
Once you are seriously considering a sale of your business, we recommend instructing specialist lawyers and any other advisers as early as possible. If you are in the early stages of the transaction and have not instructed other advisers, we can recommend corporate finance advisers, accountants and other advisers to you. Early involvement of advisers, as mentioned above, maximises the chances that you achieve your desired outcome.
If the sale of your business is high on your agenda, do get in touch. We are experienced in advising on all the areas outlined above. We will explore your preferred outcome with you and are able to recommend other advisers. Please contact Paul Taylor or Georgie Glover if you require any further assistance.
Need more information about the above people and legal expertise? Talk to one of our lawyers: +44 (0)20 7628 2000
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