How an acquirer’s or bankers legal advisors will assess your business

David Smellie gave a very interesting and engaging talk to business leaders at a past MD2MD meeting on ‘how an acquirer’s or bankers legal advisors will assess your business’.

David has practiced law for over twenty years and is a partner in the corporate department at BP Collins LLP.  He handles the legal aspects of sales and purchases, as well as equity fund raising for clients.

David started off by explaining, with the use of some great analogies, that during a buying process the legal advisors’ role is to look at the ‘product/service’ and ask “is that really what it says on the tin?” In other words, is the buyer really buying what they think they are buying?

Throughout his talk, David kept referring to the need for ‘due diligence’.  This is applicable to all areas of the process and includes;

  •     Intellectual Property
  •     Litigation
  •     Property
  •     Shares
  •     Pensions
  •     Employment
  •     Contracts
  •     Tax Issues
  •     Licenses

A vendor must declare everything .  If they try to hide anything, David assures us it will be found!

He also cautioned when engaging the services of a legal advisor, give them a remit and a budget.  When purchasing a company you should be aware of where the potential problems are and ask the lawyer to concentrate on those, otherwise the legal costs can spiral.

If the vendor uses third parties to carry out work for the company e.g. creating manuals or websites, they must ensure all rights are signed over to the company by the supplier/consultant, otherwise it could cause IP issues.   The lawyers will be looking to see who has any type of hold on a company.

David recommended, as Managing Directors and business owners, that MD2MD members should start implementing the building blocks now, even if they are currently not looking to sell their business.  In particular, reviewing;

Intellectual Property  –  especially if using third parties (suppliers/consultants)

Shares  – If some shares have been give to family members or friends, they will ultimately have a say in the transaction

Employees – and what they have been promised in their contracts / pensions. Some contracts have not been reviewed for years and may now not be appropriate. It would be prudent to review them regularly through the years.

Written by Bob Bradley, founder of MD2MD.