Limiting your Commercial Risk when Acquiring a Business

Grant McCall, Commercial Law Solicitor with AMD Solicitors offers advice to businesses

Whilst many in the SME sector may look back on 2009 as a hard-hitting year, there are those businesses that will be looking to use the economic climate as a shrewd time to merge or acquire rival businesses in order to prosper in the coming Year. It is those businesses who may well fare best in tackling the challenges that lie in wait for 2010. Just as we have all benefited as consumers from the reduced prices in the retail sector, there is the same opportunity for businesses in the acquisitions market.

I have worked on a number of transactions in recent months where businesses have negotiated in principle the commercial aspects of a deal, signed Heads of Terms and then contacted their respective lawyers to document the transaction. Sometimes there may be no problem with instructing lawyers at this juncture although in reality it is often difficult to isolate the legal issues from the commercial aspects of a transaction and for this reason it is beneficial for a solicitor to be involved as early as possible in the negotiations.

There are often many significant underlying issues that parties can fail to appreciate before presenting the deal to their legal teams. For example, a party to negotiations should be careful not to enter into any binding commitments and ensure that all negotiations are subject to contract. Structuring the deal can have an effect on the parties’ tax positions as without professional input it may be too late to choose the most tax efficient method.

From a buyer’s perspective there may well be risky employment issues arising from the transfer of employees under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) or the failure of a key employee to transfer as part of the deal.

For most acquisitions there is likely to be a property element to the transaction whereby the acquiring company need to take over an existing lease or negotiate a new Lease altogether for the target company’s existing premises.

Perhaps the main benefit in discussing the key issues of a commercial venture with a solicitor at the start of negotiations is to avoid any unnecessary delays when working towards deadlines. Most Heads of Terms will include a Target Completion Date and require both parties to work towards that date without delay. Without legal advice, a Target Completion Date could become unrealistic or worse still could result in negotiations breaking down altogether due to an unanticipated legal issue forcing delay.

A final consideration relates to costs. An agreed Heads of Terms may become less attractive to a negotiating party after they have received legal advice. If certain aspects of a deal then need to be renegotiated this can drive up legal costs and disbursements.

The value in working with a solicitor when structuring Heads of Terms applies to all forms of commercial ventures, whether acquisitions, mergers, working in partnership or through a joint venture, one off or long term projects.

My clients often contact me to discuss any proposed ventures before Heads of Terms have been reached. The early consultation process provides an opportunity to tackle any potential “road blocks“ from the outset and to agree a completion strategy which should be achievable within a given time frame.

Grant and the other members of the Commercial Team offer further advice and information upon legal issues for businesses (including a free first half hour consultation). E-mail or telephone 0117 9898515.

This article is provided for general information purposes only and represents our understanding of the relevant law and practice as at the date of uploading. This article should not be relied upon as legal advice pertaining to any specific factual situation. Legal decisions should be made only after proper consultation with a legal professional of your choosing.

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