The typical stages involved in a private company sale, from the seller’s perspective, can be outlined as follows:

  1. Planning and Preparation: This initial phase is crucial for a successful sale. It involves several key activities:
    • Deciding on the rationale for selling and defining the seller’s objectives. This could be for financial, commercial, or non-commercial reasons.
    • Appointment of a lead advisor who will act as a project manager for the transaction and guide the seller. The lead advisor should be experienced in company disposals.
    • Preliminary review of the target business to assess its marketability and likely sale price from a prospective purchaser’s viewpoint. This review can also highlight potential issues that need to be addressed.
    • Appointment of the project team to handle the disposal. The composition of the team will depend on the seller’s circumstances.
    • Formulation of a sale strategy, including deciding on the method of sale (auction or private treaty), the structure of the sale (shares or assets), and the timing of the sale.
    • Pre-sale planning measures to maximise the seller’s return and minimise risks, which could include tax planning and ensuring the target is in the most attractive form. This may involve addressing shared contracts, assets, or intellectual property, and considering tax and pension issues.
    • Determining the financial and tax structure of the disposal.
  2. Marketing: This stage focuses on attracting potential buyers:
    • Preparation of sales literature, typically the information memorandum, which describes the target business and highlights its attractive features.
    • Approach to prospective purchasers, which can be done directly or through the lead advisor, sometimes on a ‘no names’ basis initially to maintain confidentiality.
    • Establishment of confidentiality arrangements with interested parties, usually involving signing a confidentiality undertaking. A precedent confidentiality letter is included in the sources.
    • Distribution of the information memorandum to admitted interested parties who have signed the confidentiality agreement.
    • Setting up and managing a data room where all material information relating to the target is made available to potential purchasers. Precedent data room rules are provided.
    • Solicitation of indicative offers from prospective purchasers by a stated deadline.
  3. Negotiation Process: This involves interacting with potential buyers to secure a favourable deal:
    • Selection of the preferred purchaser(s) from those who submitted indicative offers.
    • Negotiations with the preferred purchaser(s) to agree on the principal terms of the deal, which usually include the purchase price, assets, liabilities, and payment terms.
    • Responding to the purchaser’s proposals, which may involve considering different forms of consideration such as deferred consideration or earn-outs.
    • Striking a deal in principle and agreeing on the need for heads of agreement which outline the key terms and may include an exclusivity period.
  4. Due Diligence: This is the stage where the purchaser investigates the target business in detail:
    • The seller responds to the purchaser’s due diligence enquiries, typically in the form of a legal due diligence request. Precedent due diligence requests are provided.
    • This may involve the purchaser conducting an accountant’s report and legal investigations.
    • The seller will need to prepare for and manage the due diligence process, ensuring information is provided while protecting confidential business information.
  5. Completion: This is the final stage where the sale is concluded:
    • Obtaining necessary approvals and consents, which may include shareholder approval depending on the circumstances. Target board minutes approving the transfer of ownership may be required.
    • Entering into the purchase agreement, which formalises the terms of the sale. Precedent share purchase and business transfer agreements are available.
    • Disclosure against warranties made in the purchase agreement.
    • Completion of the transaction, which involves the transfer of ownership and payment of the purchase price. A completion agenda may be prepared.

Throughout the process, the seller will need to consider tax implications, which differ depending on whether the sale is structured as a sale of shares or assets. The seller should also be aware of the importance of maintaining confidentiality throughout the process.