Meeting deadlines in M&A transactions

MEETING DEADLINES IN M&A TRANSACTIONS

Meeting deadlines in M&A transactions is crucial. In general, the legal process in an M&A transaction (such as a share sale or acquisition) can take between 2 and 3 months to complete, but this can vary on a case-by-case basis.

There are various stages to an M&A transaction and some stages may take longer to deal with than others. We’ve put together a few prompts to guide you through some of the key stages of a transaction.

Initial Negotiations

Once the seller has gone through the valuation process and found a buyer, the first step is to enter initial negotiations with them. The negotiation step between the buyer and seller is crucial. Once the headline price has been agreed, the parties can negotiate the terms in more detail via what is known as the heads of terms.

Heads of Terms

The heads of terms is essentially a written offer for the company, outlining the terms and conditions of the transaction including the payment structure. There is often some back and forth at this stage whilst negotiating the heads of terms as the buyer and seller will seek to include or exclude clauses which favour their respective interests.

It is important to include appropriate detail within the heads of terms to ensure that the transaction proceeds as smoothly as possible. On the other hand, it is essential not to get too “bogged down” in the nitty-gritty because it starts to undermine the main phase of the legal process and document negotiation.

If you are about to enter the heads of terms stage, we would be happy to guide you through this.

Completion Date

The seller will often have a deadline in mind as to when they want to complete the sale. This can vary depending on how the negotiations and due diligence process play out. The transaction timetable can be disrupted if there are any problems during these phases e.g. material defects arising from the buyer’s due diligence or sticking points on the legal documentation negotiations.

It is helpful to include a target completion date within the heads of terms. This ensures there is no confusion between the parties but also helps for the sake of good project management – everyone has the same target to work towards.

Exclusivity Period

The head of terms will usually include an exclusivity clause. Its main aim is to prevent the seller from speaking to and negotiating with any other interested parties for a fixed period. This deadline can often be negotiated commencing from the date the heads of terms are agreed to until the target completion date or sometimes a bit afterwards to allow for a short-overrun period.

The advantage of including a time limit on the exclusivity period is to give the buyer an incentive to meet the target deadline.

Due Diligence

The success of the deal will at this point rely on the results of the due diligence process. The buyer will

conduct a due diligence process by raising enquiries with the seller to gather as much information as possible about the company. The enquiries will cover areas of the company’s including operations, employees, financials, property and assets. The seller will provide information in response to the enquiries and present it in an organised virtual data room. The timeline of this process can vary.

If you’re selling, it is prudent to respond as accurately and promptly as possible to avoid potential delays to the transaction. If you’re buying, then we would not recommend raising a “standard” enquiry list; instead, it is advisable to review your draft enquiries before issuing it and ensuring that it is tailored to the deal (i.e. not containing unnecessary enquiries).

If you’re unsure whether you want to undertake a due diligence process for your transaction, please read our article.

Share Purchase Agreement

The Share Purchase Agreement (SPA) is normally drafted by the buyer’s solicitors and would usually be issued once the initial replies to due diligence are available (but sometimes earlier). The SPA can be lengthy and complex, with often a lot of back and forth whilst negotiating the terms.

It is essential to work with solicitors who are well-versed in corporate transaction because they will understand what is normal or unusual in an SPA and be familiar with important negotiating tools to ensure a fair and efficient negotiation of the terms of the SPA. Critically, working with a solicitor who is unfamiliar with corporate transactions will likely result in delays to your transaction due to the being unsure of what they’re doing.

Post completion

Where completion accounts are applicable to the transaction, the share purchase agreement will provide which party (either the buyer or the seller) is to provide a draft set of completion accounts, how many ‘business days’ prior to the completion they should be provided and in which format.

Provided it has been negotiated in the SPA, once the draft completion accounts have been provided, there will then be another deadline by which the party receiving the draft completion accounts should serve notice confirming their acceptance of the accounts or otherwise. This is often called the Review Period.

If the receiving party does not respond during the review period, once the deadline has expired, the draft completion accounts will be deemed final and binding. It is important to include a Completion Accounts schedule within the SPA to avoid uncertainty which could, in turn, lead to costly and lengthy disputes including court proceedings.

It is also important to consider any applicable post-completion filings and/or registrations you need to make at Companies House or with HMRC.

At Birdi & Co, we are highly experienced in dealing with M&A transactions across a broad range of sectors including but not limited to Nurseries, Dental Practices, Care Homes, Franchises and Online Retail.

For more information, please call us on 020 4571 8634 or email us at hello@birdilaw.com. Alternatively, please take a moment to complete our free enquiry form.

Disclaimer

Content on the Site is provided for your general information purposes only and to inform you about us and our products and news, features, services and other websites which may be of interest. It does not constitute technical, financial, or legal advice or any other type of advice and should not be relied on for any purposes. While we use reasonable efforts to include accurate and up-to-date information on the Site, we do not represent, warrant or promise (whether express or implied) that any information is or remains accurate, complete and up to date, or fit or suitable for any purpose. Any reliance you place on the information on the Site is at your own risk.