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Asset sale is a means of acquiring or relinquishing certain assets and liabilities of a company or business. It differs from a share sale in that the buying company does not acquire control of the selling company, rather, the buying company can “cherry pick” the assets and liabilities to be transferred to them.

Throughout an asset sale or acquisition, it is the priority of any business owner to minimise financial risk and grasp the complexities of the deal entered into. As such, it is vital to seek advice from experienced solicitors in order to secure the most favourable terms for a deal, and ensure all legal requirements for completion are met.

Why are asset sales and acquisitions useful?

Acquisition can be useful for avoiding the need to start afresh in a new market. Instead, a buying company can acquire rights to a selling company’s already established brand presence, market knowledge and intellectual property. The buying company can exclude assets they do not wish from the acquisition, such as leases and deeds to property. Conversely, selling off assets and liabilities is a means of a company or business exiting a market at minimal loss.

What are the key features of a sale/acquisition process?

Alongside their benefits, sale and acquisition transactions carry an inherent financial risk and can be highly complex in nature. From the preliminary negotiation stage to post-completion of a deal, factors including confidentiality, price, consents, employees, guarantees, indemnities and tax implications have to be ironed out.

After the preliminary stages of a deal, these factors are enshrined in a legally binding Sale and Purchase Agreement entered into by the transacting parties.

Preliminary stages – due diligence, confidentiality agreements, terms and consents

In order to minimise financial risk, it is paramount to carry out necessary “due diligence”. Due diligence is where the buying company embarks on pre-contractual enquires as to the operation of the selling company’s business, to which the selling company will respond, most often with documentary evidence such as minutes of board meetings. This process enables the buyer to identify potential weak areas, and where they may require binding guarantees and indemnities from the seller.

Typically, upon completion of due diligence, the seller will issue a disclosure letter, noting general and specific disclosures against the warranties set out in the acquisition agreement, shielding them from potential legal action brought by the buyer.

At the outset of the process, the transacting parties may wish to enter into a legally binding confidentiality agreement. Here, both parties will agree to keep all data and information shared confidential, including where a transaction fails to progress beyond negotiation stage.

The outcomes of a successful negotiation will be laid out in the Heads of Terms, or Memoranda of Understanding, where the parties acknowledge their intent to enter into a transaction, agree on a timescale for the process and determine responsibilities. Such agreements are not usually binding but are an indication of the parties’ sincerity in seeing the deal through.

Where assets such as contracts and leases are transferred, it may require the preliminary consent of third parties, such as landlords.

Sale and purchase agreement

The legally binding Sale and Purchase Agreement outlines the core terms of the deal, principally the parties, assets to be transferred, prices, guarantees, indemnities over tax implications and matters relating to employees. The Agreement should also set out resolution mechanisms if any disputes arise.

  • Price: will cover the expected costs for each asset sought to be acquired, and accommodate for any adjustments that may have to be made in the course of the deal.
  • Guarantees: will typically be required as to the accuracy of representations made by the transacting parties to each other.
  • Indemnities and tax implications: will determine agreed liabilities for the buyer or seller covering costs that arise, including any tax implications in the course of the transaction. The sale and acquisition of company assets may entail tax liabilities, including stamp duty and VAT, as well as capital gains tax subject to holdover relief.
  • Employee matters: where the contracts of employees are up for sale, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (commonly referred to as TUPE Regulations) come into play. The Regulations put into place certain protections for employees, such as retention of contractual terms agreed with their previous employer. A seller may also wish to introduce restrictive covenants, such as geographic, industry-specific or time-limited constraints upon their former employees so as to minimise competition should their former employee be hired by a competitor.

Post-completion stage

Upon completion of a deal, there may be a number of issues that require ongoing compliance and monitoring.

Where the asset sale or purchase has involved land, the buyer will have to register the transaction with necessary authorities, such as HM Land Registry. If the asset purchase was carried out by a listed company, there may have to be requisite filings to be made with Companies House. Under TUPE Regulations, a transitional plan for employees entered into by the buyer and selling company will have to be implemented over time. Lastly, if any guarantees have been agreed upon, these will entail ongoing compliance subject to agreed expiry dates.

Contact our Asset Sales and Acquisitions Solicitors in Mayfair and throughout London

Lewis Nedas Law has a wide pool of clients, covering large corporations, SMEs, family owned-private businesses, start-ups and entrepreneurs wishing to enter into asset sale and acquisition agreements. Our service does not follow a boilerplate approach, rather, we offer innovative, practical and cost-effective solutions, including where issues arise and a deal can no longer be completed. In every case we strive to understand our client’s business operation and objectives, so we can assist at every step from due diligence and preliminary negotiation through to post-completion.

For further information or to speak to our expert Corporate Law Solicitors, please call us on 02073872032 or complete our online enquiry form.

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