The deal is agreed. So why hasn't the sale or acquisition completed?

The deal is agreed. So why hasn't the sale or acquisition completed?

Lydia Sevenoaks, Corporate

When selling or buying a business, it's easy to assume that once the price and key terms have been agreed, the hardest part is over. However, there's often a considerable amount of work still to be done before the transaction can complete.

Even when the buyer and seller are in agreement and keen to proceed, legal, financial and practical issues can cause unexpected delays. Lenders, landlords, employees and other third parties may all need to be involved, with various requirements to satisfy before completion can take place.

So, what are some of the most common causes of delay, and what can business owners do to avoid them?

Funding arrangements/considerations

If the buyer is borrowing money to fund the acquisition, the lender will have its own requirements before releasing the funds.

This can involve additional legal documentation, checks on the business being acquired and conditions that must be satisfied before completion.

The business being sold may also have existing loans or other borrowing arrangements that need to be repaid, with any security held by lenders formally released.

Historic borrowing can also cause problems. For example, a loan may have been repaid years ago, but if the lender's security was never formally released, this will need to be resolved as part of the sale.

Even where everyone agrees on what needs to happen, coordinating the different lenders, legal advisers and documents can take time.

The earlier funding arrangements and existing borrowing are considered, the less likely they are to cause unexpected delays.

Agreeing how and when the purchase price will be paid

Not every business sale involves the full purchase price being paid on completion.

Sometimes part of the payment is deferred until a later date or depends on certain conditions being met.

Where this happens, the parties need to agree not only when the remaining money will be paid, but also what protection the seller will have if the buyer fails to pay.

These arrangements can require additional negotiations and legal documents - what may appear to be a straightforward commercial agreement can therefore add considerable work to the transaction.

Uncovering issues during due diligence

Before buying a business, the buyer will carry out due diligence, examining its legal, financial and operational position to identify potential risks.

This is often when historic issues come to light.

Missing contracts, unresolved disputes, discrepancies in company records or questions over ownership of intellectual property can all require further investigation.

Share ownership can be a particular stumbling block. A business may have changed hands, brought in investors or issued shares over the years without being properly documented.

The buyer needs to be confident that the sellers legally own the shares they are selling.

These issues can usually be resolved, but investigating and correcting them takes time, particularly if records are incomplete or date back several years.

For business owners considering a sale, reviewing company records and addressing potential problems before going to market can make a significant difference.

Securing approvals from landlords and other third parties

Even when the buyer and seller are ready to proceed, other parties may still need to give their approval.

If the business operates from leased premises, for example, the landlord's consent may be required, depending on the terms of the lease and the structure of the transaction.

Key customer and supplier contracts, licences and funding agreements may also contain provisions requiring consent or notification when ownership changes.

These requirements are not always immediately obvious and may only be identified when contracts are reviewed in detail.

The difficulty is that the timing of a response from a landlord, lender, customer or other third party is not always within the buyer's or seller's control.

Identifying these requirements early allows the necessary conversations to begin before they become an obstacle to completion.

Agreeing what happens to the people and the business after the sale

A business sale isn't always as simple as one owner leaving and another taking over.

The buyer may want existing directors or senior employees to remain involved, which can mean negotiating new employment contracts, incentive arrangements or other terms.

Existing employment arrangements may also need reviewing. Issues involving bonuses, share options, contractual restrictions or undocumented changes to employment terms can all require attention before completion.

If the seller is retaining shares in the business, there is even more to consider.

The parties will need to agree how the business will be managed going forward, who makes key decisions, what happens if disagreements arise and how shareholders can eventually sell their remaining interests.

These arrangements are usually documented in a shareholders' agreement and potentially other supporting legal documents, for example a cross-option agreement.

Getting these arrangements right is important, as they will govern the relationship between the parties long after the sale has completed and can also indirectly help to secure any deferred consideration due to a selling shareholder.

Preparation makes the difference

Selling or acquiring a business involves much more than agreeing a price.

There are often multiple stakeholders and professionals with a role to play, and a delay in one area can affect the entire transaction.

In our experience, the transactions that progress most smoothly aren't necessarily those without complications. They're the ones where potential issues are identified early, everyone understands what's required and the different parties work together to keep things moving.

For business owners, this means getting your house in order before starting the sale process wherever possible. Reviewing company records, understanding existing financial commitments and identifying contracts that may require consent can all help avoid unnecessary delays.

How we can help

At Hay & Kilner, our Corporate Team works closely with business owners, acquirers and their advisers throughout the process, helping to anticipate potential obstacles, coordinate the different elements of a transaction and keep deals progressing towards completion.

If you're considering selling your business, or a business acquisition, get in touch to find out how we can help you prepare for the process and understand what needs to happen to get your deal over the line.