Back in August 2017, we received an enquiry for a business that had been on the market with ourselves only a matter of months. The enquirer, a large multi-million pound turnover business hot on an acquisition trail and keen to acquire much smaller concerns. Ours had a niche market position which fitted well with the proposed acquirer who operated more generally in the sector.
Having arranged a meeting with the acquirers Financial Director and our client, we negotiated Heads of Terms to include the net working assets (which included cash) and we all seemed ready to go, albeit this was at the smaller end of the acquirer’s market and previous acquisitions. The proposed target date to complete was December 2017.
We had worked closely with the accountant (also the introducer) who remained helpful and involved.
So far so good!
The purchase was solely for the main trading company. A smaller service business with a different client base being excluded from the purchase. The smaller service business shareholding was 50/50 with a key employee of many years, who whilst working for the main trading company as a Director was not a shareholder and therefore not a beneficiary from the share sale. Furthermore, he was not privy to the proposed sale, as the relationship between our client and this Director had deteriorated over the years.
What happened next!
The Director (no shares) met with the acquirers on his own and highlighted his perceived importance to the transaction; needless to say this caused a rethink and renegotiation.
Time continued to pass and now the acquirer wanted the non-shareholder to enter into the sale and purchase agreement, including the non-compete clause. So we had to issue shares to meet his requirement and also, with the aid of the Accountant, negotiate the sale of the smaller service company shares held by our client, so that the other shareholder then had full and sole ownership. Meanwhile, this modest acquisition was put further down the pecking order as larger acquisitions took priority.
Between ourselves, the Accountant, the Shareholder and the Director plus some input from the Solicitor we achieved the sale in August 2018.
So what can be learnt!
- Tell the Broker the true importance of key staff and possible future challenges
- Tell key employees at an appropriate stage – not necessarily at the outset
- Tell the acquirer the importance of key staff early (if this is relevant)
- Include staff as part of the negotiation process in a group format
- It is worth paying for a suitably qualified legal team early (the Accountant proved invaluable in this case)