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Wake up call: Prepare for investors to maximise value

19 September 2019

A new investor can be a fantastic opportunity for a business, but steps must be taken to ensure everything runs smoothly. James Webb explains

The problem

Selling some of your business to a new private investor, such as a private equity fund, can allow business owners to realise value while retaining some control and involvement, and even help prepare for a future exit.

But how do you ensure the best outcomes personally and financially and make sure you attract the right kind of investment for you and the business?

The law

Remember: investors will want to ensure that the financial value the owner realises at the time of investment does not distract them from delivering the new business plan and achieving growth.

While the business may be trading successfully, a transaction will subject it to external scrutiny – some matters that are not a concern under the current ownership and management structure may be viewed differently by a prospective investor and their advisers.

Expert advice

Owners need to reflect on the business they run and what they want to achieve and review the business from a neutral position.

Beware

The investment process can be very detailed and investors will look at your business from every angle and in ways that are not immediately obvious to you.

It pays to plan ahead: put yourself in their shoes and do the groundwork before you start looking for investment.

Contact James Webb, associate at UK law firm TLT james.webb@tltsolicitors.com

To-do checklist

1 Finance

Prepare a detailed financial review, including the profits being made and how they will continue to be made following the transaction. This will be used to support a valuation of the business and enable the financial and legal due diligence to be carried out.

If there is already third-party financing in place, the owners will need to consider whether they need their consent to the investment or whether the financing needs to be repaid in advance.

2 Corporate compliance

Consider whether the businesses' books, filings and tax returns are up to date. These books will need to be reviewed by the transaction lawyers at an early stage. Owners will also need to consider whether the business has the necessary consents, licences, etc, in place.

3 Employees

It is very likely that there will be employees who are integral to the business. If there are, consider whether they should be asked to sign new employment contracts containing updated notice periods, restrictive covenants or even a performance bonus. Consideration will also need to be given as to whether the business has compliant employee policies and procedures, including in respect to health and safety.

4 Assets

Investors will look at whether the business owns all of the assets (including equipment) needed for it to operate, and whether it holds correct and valid licences to use them, as well as whether any are owned by a third party, including the owner.

5 Property

The premises occupied by the business are likely to be the key to its success. The business should gather together the relevant property documents and consider the terms of its occupation. This should address the right to continued occupation, and consideration should be given to any informal arrangements that may need to be formalised.

6 Intellectual property

The business should consider whether it has taken appropriate steps to protect its brand, including whether to register its trademarks.

7 Litigation

Reflect on whether there is any existing or pending litigation that needs to be considered.

8 Information and data

It is always helpful to gather all relevant information relating to the business at an early stage. This helps to pre-emptively identify and resolve any issues likely to be spotted by the investor(s) and reduces the time spent by them reviewing the same information.

This information is usually shared with the investor(s) through an online "data room", where any documents can be uploaded. This allows the investor(s) and their advisers to access the information simultaneously and when it's most convenient to them.

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