Ask the Expert: Adding value - pre-transaction grooming
Tim Sadka, partner and head of corporate at Rawlison Butler, explains why for business leaders, the purchase or sale of a business is often the most important transaction they undertake. Being well prepared should increase the chances of success.
Ten Top Tips
1. Establish criteria for the transaction at outset - once a plan is agreed and has been tested, keep to it.
2. Determine the true valuation for the business – get independent advice to get the right deal.
3. Analyse financials - understanding the numbers. This may be obvious for a purchaser but experience suggests many sellers do not really understand their own financials. A purchaser sensing this will often reduce the value of the deal.
4. Do due diligence - the process by which a purchaser tests the strength and weaknesses of the target business. Expect the transaction documentation to include warranties to the purchaser to back up information disclosed. Sellers, consider a pre-sale health check to avoid price renegotiation later.
5. Verify critical assets and ownership - does the target business own what you think it does?
6. Remember, not all assets and liabilities necessarily have to pass to a purchaser.
7. Verify ownership of the business - for example, real estate and intellectual property are often not owned by the target business.
8. Deal structure - optimise the structure and have regard to the needs of all parties. Never assume what the tax consequences of a deal will be.
9. Close the deal to timetable – when timetables slip costs rise and uncertainty continues allow for the consequences of unforeseen developments, e.g. reduction of sales due to unexpected Middle East conflicts can cause delay.
10. Build a team of experts - independent advice will be invaluable. Deals need: (1) lawyers, with the right skills, e.g. in corporate transactions with support specialisations in employment, information technology, intellectual property, real estate, tax, competition and with the capability to deliver a transaction in the UK and (where necessary) internationally (2) an accountancy and tax planning advice and (3) someone to negotiate the deal keeping the situations, an investment bank.
Contact details
Tim Sadka - 01293 558511 / tsadka@rawlisonbutler.com
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