Preparing for a corporate sale

Recent research from Deloitte suggests, that the STEM sectors are projected to see a considerable uptick in mergers and acquisitions (M&A) activity in 2024.

This is due to recent improvement in financial markets, spurred by decelerating inflation and expected reductions in interest rates.

With many companies publicly hunting for deals, this anticipated surge will present new opportunities.Any company looking to sell should consider the best way to maximise value. We outline some tips below:

Preparing for Due Diligence

Due diligence plays a significant role in M&A transactions. Buyers will want to know exactly what they will be purchasing, what obligations they will assume, the nature and extent of contingent liabilities of the seller, problematic contracts, litigation risks, intellectual property issues, etc., before they commit to the transaction.

Therefore, in order to be prepared and flush out any issues that can be rectified in advance, efforts should be taken to pre-emptively organise the important documentation that a buyer will likely ask to review. These include things such as:

• any documents relating to insurance;
• an extensive list of all the company’s assets, including non-tangible assets such as intellectual property;
• title documents;
• licences or permits;
• details regarding VAT and tax.

Having such key information to hand creates the impression that the company is in complete control of its assets. If any issues are discovered while retrieving these key documents, the issues can be dealt with prior to the Buyer’s involvement which will reduce the opportunity to chip the price.

Company financial records

Companies have a legal requirement to file accurate statutory accounts. The Buyer will review the accounts as a matter of course, but will also request management accounts or live financial information to get an accurate picture of the here and now. A seller should have an in-depth understanding of the finances so as to understand and be ahead of any potential issues.

Companies House

The directors of the company must also inform and update Companies House regarding any material changes to the company since its incorporation. These include:

• The appointment and removal of Directors and Company Secretaries
• Any new securities taken out against the company;
• Altering the company’s registered address;
• Any changes to the people with significant control;
• Amendments to the company’s articles of association;
• Adaptations in the company’s share structure, for example allotting new shares or subdividing existing shares.
• Any errors in this reporting process will be picked up by the Buyer so should be checked at an initial stage.

Preparing Disclosures

Disclosure schedules are an important part of any sales process. These are documents which are attached to the purchase agreement to supplement, qualify, and outline key exceptions to the statements and warranties made in the purchase agreement.

They protect the seller against any post-closing allegations from the buyer, that the seller breached its warranties and guarantees.

Consequently, it is imperative that disclosure schedules be completely accurate otherwise they could result in a possible breach of the sale agreement.

This requirement for intense detail can make the process time consuming, therefore disclosure schedules should be drafted as early possible to avoid costly omissions.

Seek experienced advice

We can help you navigate the M&A process to achieve the best price and best outcome. Please feel free to contact a member of our corporate team for a free initial discussion.