During this month, Scott Richardson from our Corporate and Commercial Department will be providing a four stage summary of the acquisition process for anyone looking to purchase a business or shares in a company.
After negotiating the terms of purchase with the Seller (with the help of trusted accountants to ensure you are not overpaying for the target), the first action that should be undertaken is to set out the agreed terms in a Heads of Terms document, and sometimes a separate NDA if confidentiality obligations are not set out in the Heads of Terms.
Although Heads of Terms are generally non-binding (except where stated, for example confidentiality obligations), and are not strictly necessary, they are useful to:
- avoid protracted negotiations later in the process when agreeing the legal documents required, and more importantly to keep costs down;
- provide both parties (and all advisors) with a summary of the agreed terms in one easy to access document; and
- confirm those obligations agreed with the Seller which are intended to be legally binding before you begin to incur more significant time and costs, for example confidentiality and exclusivity obligations.
The Heads of Terms should include the following key points:
- Type of transaction - so whether a business/asset purchase or a share purchase.
- Price and payment terms - the headline price and whether this is adjustable, along with whether all or part of the consideration is to be paid at completion or on a deferred basis.
- Due diligence - confirmation the agreed terms are on the basis you completing further due diligence on the target and are satisfied with your findings.
- Key terms in sale agreement - a summary of some of the key terms to be included in the main sale agreement, including any post-completion handover assistance and non-compete provisions.
- Exclusivity obligations - a provision which should be expressly stated as legally binding to ensure the Seller may only deal with you for a specified period of time regarding the sale, to try and avoid the risk of the Seller withdrawing part way through the process for another buyer and you potentially incurring wasted costs.
- Confidentiality obligations - whilst primarily for the benefit of the Seller, such provisions are also important for a Purchaser to ensure your interest and terms of the deal are kept confidential from third parties. For larger or more riskier transactions, a separate NDA may be more appropriate.
If you are at an early stage of looking to purchase a business or shares in a company, and require legal assistance with reviewing or preparing the Heads of Terms and NDA where applicable, please contact Scott Richardson in our Corporate and Commercial Team by phone on 01329 227907 or by email on scott.richardson@glanvilles.co.uk.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice, and should not be relied upon as advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. All content was correct at the time of publishing. Legal advice should always be sought in relation to specific circumstances.