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The Business Journey No.1025 August 2015
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The value of attending The Business Journey events
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David Beveridge
The Business Journey
The Meaning of Value to a Business
25th August 2015
A top 15 Scottish corporate law firm by number of deals completed (2012, 2013, 2014 and 2015 Business Insider)
Leading Advisor to Scottish Family Businesses at The Herald Scottish Family Business Awards 2012 & 2013
Based in the International Financial Services District of Glasgow
Turnover and profits increased by 25% since a Management Buyout in 2009
Law Firm of the Year 2010 (under 50 fee earners)Up and Coming Law Firm of the Year 2010(Law Awards of Scotland)
“Best Friends” policy with 20 firms in 15 jurisdictions and a conflict referral firm of choice for some of Scotland’s largest commercial law firms
Appointed to CYB Commercial Panel – Scotland – West Region – Autumn 2014
Aggregate deal values completed tripled in year to April 2015 against previous year (Business Insider March 2015)
KEY FACTS
Squeaky Clean Ltd
Incorporation Heads of Terms Due Diligence Completion Warranty Period0
0.5
1
1.5
2
2.5
3
3.5
4
Price
/Val
ue (£
m)
Ramshackle Ltd
Incorporation Heads of Terms Due Diligence Completion Warranty Period0
0.5
1
1.5
2
2.5
3
3.5
4
Price
/Val
ue (£
m)
Four Price Pressure Points
Heads of terms
Due diligence
Retentions
Warranty and Indemnity claims
Heads of Agreement – What are they? “a non-binding document outlining the main issues relevant to a tentative agreement”
PriceConfidentialityExclusivityAbort CostsAccessTimescaleStatus
Due Diligence – what is it?
“A comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential”.
Due Diligence - forms
Financial Diligence – accounts
Commercial Diligence – customers
Technical Diligence – technical/operation matters
Legal Diligence
Strategic ContractsAre they signed? By both parties?
Have they expired?
Do they contain change of control provisions?
Is there a specific written contract – if not, is there a “battle of the forms?”
What are the arrangements for introducing the buyer to the customers and presenting the sale to the market?
Strategic ContractsAre they signed? By both parties?
Have they expired?
Do they contain change of control provisions?
Is there a specific written contract – if not, is there a “battle of the forms?”
What are the arrangements for introducing the buyer to the customers and presenting the sale to the market?
Property Does the company have security of tenure?
Is there a lease and has it expired (not necessarily a bad thing)
Is there a Pre-emption right to previous owner on a sale?
Is there a sitting tenant and on what terms?
Planning permissions and building warrants in place?
Asbestos surveys – these will be instructed
Energy Performance Certificates in place?
Disputes over common charges?
Employees Every employee should have a written, signed contract of employment
Are key employees under contract and are bonus provisions clear and understood – are they contractual?
Long term sickness/absence to be disclosed
Disciplinary issues to be disclosed – can steps be taken before the sale process?
Arrangements with consultants – in writing and if so can these be terminated or amended?
Shares Do the articles of association reflect the current share structure and the rights
of each share class?
Does the company have statutory registers? – if not, these need to be created
Have the share movements been correctly documented – does your advisor know the difference between a share buyback and a reduction of capital?
Is there a shareholders agreement – any consents required to complete – or indeed even BEGIN the sale process?
Are the annual returns and accounts filed and up to date?
Shares Do the articles of association reflect the current share structure and the rights
of each share class?
Does the company have statutory registers? – if not, these need to be created
Have the share movements been correctly documented – does your advisor know the difference between a share buyback and a reduction of capital?
Is there a shareholders agreement – any consents required to complete – or indeed even BEGIN the sale process?
Are the annual returns and accounts filed and up to date?
Dividends/Connected PartiesIs there a paper trail for all year end and interim
dividends? Can board/shareholder authorisation be evidenced (board minutes/resolutions?
Connected parties – think about salaried and shareholding spouses, members of family who are employees and how these aspects are to be presented and the effect of a sale?
Intellectual Property
Check that all required IT and software licences are held and for the correct number of users
Website – who owns the intellectual property ie the content and design? Get this assigned when the website is being constructed
Hosting – is this by a third party and what are the terms?
“Usual Suspects” – Part 1 Have expired charges been removed from Companies House?
Does the company’s insurance policy endorse all companies in the group?
Has the company registered for data protection?
Does the company have an anti-bribery policy?
Does the company have pension arrangements – if so, the pension advisors need to be brought in to the loop to provide summaries and documentation?
Does the company have a disaster recovery plan?
“Usual Suspects” – Part 2
Does the company have plant and equipment - maintenance contracts must be exhibited
Does the company lease/hire purchase equipment? – again clear paperwork is required –request if not on site
Grants – do these contain claw back provisions – engage early with the agency in question
“Usual Suspects” – Part 2
Does the company have plant and equipment - maintenance contracts must be exhibited
Does the company lease/hire purchase equipment? – again clear paperwork is required –request if not on site
Grants – do these contain claw back provisions – engage early with the agency in question
Beware Sale/Exit Related Agreements
Confidentiality agreements/NDA’s are usually standard form - but look out for restrictive covenants, preventing the party from approaching employees, customers and suppliers of the purchaser…even if the deal does not proceed!
Sole Selling Rights agreements – these can be widely drafted and have effect for year(s) after they have terminated – approach with caution
Heads of Terms – these must be reviewed from a legal and accounts perspective to check terms, binding nature and pitfalls. Take advice.
Beware Sale/Exit Related Agreements
Confidentiality agreements/NDA’s are usually standard form - but look out for restrictive covenants, preventing the party from approaching employees, customers and suppliers of the purchaser…even if the deal does not proceed!
Sole Selling Rights agreements – these can be widely drafted and have effect for year(s) after they have terminated – approach with caution
Heads of Terms – these must be reviewed from a legal and accounts perspective to check terms, binding nature and pitfalls. Take advice.
CorporateOur corporate team advised on 30 deals in 2014, ranking us as one of the most deal active corporate teams in Scotland, a significant achievement in the current market. The Corporate team has strength in depth, experience and a strong presence in mergers and acquisitions (many with an international/cross border context), private equity, banking and finance ensuring a smooth transaction process.
PropertyOne of the busiest commercial teams in Scotland providing a comprehensive range of commercial property services to a national and regional client base drawn from both the private and public sectors. We provide advice across all areas of commercial property for landlords, occupiers and developers.
Commercial & Intellectual Property Recognised as respected advisors in the field of commercial law, we advise in all areas from drafting contracts to protecting intellectual property.
CORE SERVICE AREAS
Dispute Resolution & Corporate RecoveryOur team advises on all aspects of commercial dispute resolution and is highly active in delivering insolvency and restructuring advice to both companies and insolvency professionals.
Employment Highly proactive client service: our team is experienced in all aspects of non-contentious employment law and employee option schemes and benefits.
Private Client Our Private Client team advises on all aspects of domestic conveyancing, wills, and executry work on behalf of our individual clients.
CORE SERVICE AREAS
THANK YOU
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Questions for David?
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Next eventTuesday 10 November 2015
