Are you planning to sell your business, or looking for investors to raise finance to support your long term objectives, now or some time in the future?
Either way, the sale or investment process is challenging, with every aspect of your business critically analysed by the potential buyer or investor before they commit.
We recommend early and regular business reviews, to:
- identify the key value drivers for your business;
- minimise issues for the business;
- maximise the value in your business now; and
- maximise the value you receive from any sale or investment in the future.
Carrying out a review now, whilst you are not in the midst of a transaction, gives you time when you are not under pressure, helps to manage costs and can ultimately add value to the business (regardless of if and when a transaction goes ahead).
You can focus on key value drivers or plan a more thorough diligence process, so that you are ready for a buyer's or investor's approach.
Legal audit
A legal audit will assess whether there are any major legal issues that need fixing (if possible), as well as seeking to limit the number of disclosures or problems that might have to be highlighted to a third party as part of any transaction. It can also help maintain (or increase) value in the business, as remedies for highlighted issues can be put in place now, thereby strengthening the business (regardless of a transaction) and seeking to limit a third party from using those issues in an attempt to reduce the price, or require guarantees or other high-risk indemnities.
Various matters can be dealt with by carrying out regular legal audits. You can focus on all areas, or limited target areas, depending upon your business and risk profile. For example:
- Governance issues – this can include shareholder rights, but also historic company records, which can be frustrating if they have to be resolved at deal time.
- Business structure – are all the assets of the business to be part of the transaction? Is a presale re-organisation necessary?
- Contractual obligations – are arrangements sufficiently documented?
- IT – how is your IT infrastructure set up? Do you use third party providers to manage your IT services and/or use third party hosting providers for your servers/website, or any other third party software products to be able to provide your products/services?
- Intellectual property rights (IP) – are there any? If so, have they been adequately protected? The business may have more IP than you realise and even if not registered/registerable, can add value if properly presented.
- Data protection – do you process personal data as part of your business (almost all businesses do)? Data flows, policies and procedures should all be reviewed as part of the business' data protection and GDPR compliance.
- Employees – are key employees sufficiently tied into the business with enforceable written employment contracts? Are any personnel engaged as consultants, freelancers or under other third party engagement contracts?
- Disputes – is there a history of disputes? Are there any matters outstanding?
Financial and other audits
You may also review other areas of the business, alongside your legal audit, to maximise value in the business now and put you in the best place before any potential buyer or investor starts their due diligence.
You may consider:
- Financial review
- Key asset valuation
- Commercial audit
- Management team / key people
- Commercial property liabilities
Start a review of your business now!
A legal audit will help answer the key questions that are likely to be asked during a due diligence exercise by any buyer or investor.
Each transaction is different, but the audit and any remedial work should focus on the main key areas for your business, to minimise disruption to the business, reduce risks and maximise value now.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.