Preparing for a Share Sale: Company Health Check

The sale of a company can be a long and complex process and one of the most time consuming aspects for a seller is the due diligence process.  It is becoming more common that, before actively engaging with a buyer, the seller wants to undertake an internal due diligence review.

The seller’s legal advisers can play an important part in this process and their role will include:

  • Providing the seller with a legal due diligence information request, containing the type of questions that a buyer is likely to ask about the company, so the seller can prepare responses and start collating all the related documents
  • Collecting all the due diligence responses and documents and uploading these to a virtual data room
  • Reviewing the responses and documents provided to identify any material issues
  • Advising the seller about possible methods to rectify or limit the extent of any issues
  • If required by the seller, preparing a legal due diligence report

The type of information that a buyer will usually request about the target company and which the seller should prepare for includes:

  • The corporate structure and shareholdings
  • Constitutional documents and any shareholders’ agreements
  • Financial reports and accounts
  • Employee details and terms
  • Material contracts/commercial arrangements
  • Finance/borrowing/banking arrangements
  • Assets
  • Property
  • IT and Intellectual Property
  • Litigation/disputes
  • Insurance
  • Health & Safety/Regulatory
  • Compliance and Consents
  • Environmental
  • Pensions
  • Any industry specific enquiries

The benefits of a seller undertaking a pre-sale company health check or due diligence review include:

  • Limiting the time required on due diligence during the sale process, so the seller still has time to get on with running their business
  • Identifying in advance any potential issues, areas of risk and/or areas to improve
  • Dealing with any issues identified before the sale
  • Clarify whether any consents or approvals are required for the sale
  • Assist in the preparation of any sale materials to be provided to potential buyers
  • The information is all properly collated in a virtual data room to which the buyer and its legal team can have access once a Confidentiality Agreement has been signed and terms agreed
  • Assist in the preparation of the seller’s disclosure letter

For a more in depth look at this subject please see our previous blog: To Sell or Not to Sell: Considerations for Business Owners.

For help and advice, please speak to our Corporate and Commercial team by emailing or calling 0161 926 9969.