An often underrated, yet perhaps most crucial, stage of a business sale or share sale is the period from signing the sale agreement through to completing the transaction. It is easy to get caught up in the excitement of finally putting pen to paper after weeks (if not months) of negotiating the sale, while choosing to ignore (if only briefly) the fact that there is still a mountain of work to do to complete the deal.
Complacency can kick-in and a seller might assume the value of the deal is secure because the sale agreement has been signed. However, the completion process can place a considerable strain on the seller’s time and the business’s resources. If the profitability of the business is impacted during the completion period, this could in turn have a negative impact on the completion accounts process and the hard cash that can be taken out of the business by the sellers in the lead-up to or at completion.
In the last of our four-part series on selling your business without losing business, we provide some useful tips for navigating the post-signing or pre-completion phase as smoothly and pain-free as possible.
Get agreement on the deliverables
Depending on the nature of the transaction, there will typically be a number of documents that need to be provided by the seller to the buyer at completion, such as third-party consents, officeholder resignations, board minutes, etc. The exact form of most of these documents will hopefully have been agreed as part of the sale agreement, but there may be some that are not in a pre-agreed form at signing. Where it is practicable to do so, asking the buyer to pre-approve the completion deliverables in the lead up to completion can save a last minute scramble trying to re-issue or re-execute documents on the completion date.
Speaking of deliverables, many will require signing by one or more of the sellers. This can be a relatively smooth process where there are only one or two sellers involved, but for a company with numerous shareholders it can take time to coordinate the required signatures in time for completion – particularly if some of the shareholders are based interstate, overseas or will be travelling during the period between signing and completion. It is important that the sellers all keep each other updated on their availability right up until completion and put in place alternative arrangements (such as a power of attorney or delegation of authority) if there is any chance of a seller being unavailable for signing at any stage of the process.
Third-party consents or approvals
Many conditions precedent and completion deliverables in a sale will revolve around third-parties. Common examples include landlord or supplier / customer consent to a change of control, Foreign Investment Review Board approval where a foreign buyer is involved, or Australian Competition and Consumer Commission approval on competition aspects. These consents or approvals typically pose the greatest risk to a deal not being able to complete on time as they are out of the seller’s control. Lead times can be uncertain so it is important to submit requests to the relevant third-parties as soon as possible and to regularly follow up to see how the request is tracking. If you were successful in negotiating out the change of control consent requirements from the bulk of your contracts as we suggested in the first part of our series, this will hopefully be a manageable list.
Keep the buyer in the loop
While the sale negotiations can sometimes feel like a battle between opposing sides, at the end of the day the buyer wants to get the deal done as much as you do otherwise they wouldn’t have come to the table. This is particularly relevant during the post-signing or pre-completion period. Most buyers are eager to help the seller work through the conditions precedent and completion deliverables, as the sooner these are all satisfied, the sooner the deal can complete and the parties can move on to their next endeavours. The seller should keep in regular contact with the buyer through the completion process at a commercial level (and not just through the lawyers on legal points) to help maintain the momentum from signing all the way through to completion.
The period between signing and completion under a sale agreement can be daunting, but with the right preparation and approach it will hopefully lead to the outcome you have been working towards since the sale journey began.
This concludes our four-part series on how to sell your business without losing business. We have touched on some regular housekeeping (part 1) you should be on top of even before you start thinking about a sale, how to assemble your A-team of internal support and external advisors (part 2), the benefits of carrying out a pre-sale restructure in advance of sale (part 3) and how to navigate the period between signing and completion.