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Commercial Question

Anatomy of a sale

updated on 06 May 2008


What are the practical elements of selling a business?


Your client has run his own business for 12 years. Now he is selling it for £10 million. The first things you need to do is to explain to him:
  • why the main agreement to sell the business is going to be 100 pages long when he has already agreed the deal (you need to know the answer to "why can't they just write me a cheque?");
  • why he is going to have to spend days and days answering written questions about his business (many of which he has already answered verbally in his initial discussions with the buyer); and
  • why he needs to come clean about the business's weaknesses as part of the sale process - behaviour that is completely counter-intuitive to any businessperson.

You need to manage his expectations - you have been through this process hundreds of times before; he hasn't. If he understands why all the paper is being generated, he will probably complain about it less during the next six weeks. You are likely to be speaking to him several times a day for the next few weeks - so starting each conversation with a moan about the process would be painful.

The company has an investor who put £100,000 in for shares seven years ago. Despite the fact that the investor's £100,000 is now worth £1 million, he is going to be awkward. Some of the sale price is going to be paid in two years' time. The investor wants to make sure this payment is tax efficient for him and is making the unspoken threat of not doing the deal if he isn't accommodated. In accommodating the investor's demands there may be an element of the tail wagging the dog, but you have to sell 100% of the shares in the company or there is no deal. So you need to understand the investor's tax position, commission tax advice and turn that tax advice into legal documents. You don't really want to do this - it looks like a sideline to the main deal - but it is fundamental to it.

Negotiation of the main legal documents begins in earnest. You need to advise the client as to which points he can concede and which he really needs to win. Life isn't an American TV show, so you aren't going to win every single point with ever increasing strokes of genius. This is where your understanding of the client and his business becomes important. What looks important to a lawyer isn't necessarily important to the client. If you concede a point, your client is relaxed about it and you can go on to win the next one instead - the one that you know is really important because you understand your client's business. 

Throughout the process the deal needs project management. You need to be part of a team from your firm that is delivering on corporate, property, employment, pensions, IP and commercial law - all to the same timescales. On top of that you need to be sure that the other advisers on the transaction (eg, tax accountants, auditors, insurance brokers and surveyors) are also all working to the same timetable. If you don't do it, the deal will slip. You will end up recording time you can't bill. If it slips too much, the deal may even go away. 

The deal hits a major unexpected hitch. Emotions are running high. People are tired. You identify potential solutions to the problem. You explain how the solutions would affect your client and then recommend one of the solutions. Your recommended solution is used.

You complete the deal. The client thinks you are brilliant. Not because you have the right technical knowledge - he takes that for granted - but because you have managed him and others through the process, you found solutions to problems when others panicked and you were there with him every step of the way.

Now it's onto the next one - after your client has bought you a beer or two.

Clare Lloyd is a solicitor in the corporate finance team at EMW Picton Howell LLP.