How we helped save £1 million on a business sale

A travel business owner was already part-way through a sale to a stock market listed company when he asked us to help. He was uncertain what the terms would leave him with, before and after tax. Half an hour before the parties were due to sign, we spotted a drafting error that could have cost him over £1 million.

Here’s how we helped him through the final stages of the deal.

Getting clarity on the numbers

This was an existing client. He had engaged a broker directly to find a buyer, but the buyer came through a contact directly to him. The sale process was up and running with lawyers involved, but he wasn’t sure what the terms would mean for his sale proceeds before and after tax.

At that point we built a sale model and began discussions with one of the buyer’s senior finance staff.

Negotiating the detail

Initial negotiations were difficult, but once we had made contact we found that both parties understood each other’s positions, and it became easier to negotiate the detail with the lawyers in the background.

Our client negotiated quite hard on several points and, unusually, it felt in this case that our role was to be the “good cop”. There were several difficulties with the lawyers on the buyer’s side, and the seller’s lawyer had to work hard to get clarity on various issues.

In particular, discussions around normalised working capital required us to be very firm on legal definitions and example calculations. A couple of points were conceded, but the interpretation of most issues was in our client’s favour. The deal was postponed several times whilst negotiations continued, and we updated our sale model for each change on every draft.

Racing the clock

Eventually the deal reached a point where it had to be done before a particular weekend, because the buyer was required to notify the stock market. We ended up working into the evening answering questions.

Approximately half an hour before the parties were due to sign, we pointed out an error in the wording that effectively double-counted over £1 million of debt, due to inconsistencies in the definitions section of the SPA. Had it not been amended, the error could have reduced our client’s sale proceeds by £1 million, or at the very least put him in a difficult negotiating position on the completion accounts.

The completion accounts also had to be produced to a date part-way through the month. That required a significant amount of work on accruals and prepayments, and a few debates about the recognition of income, which don’t normally arise for figures prepared to the end of the month.

A successful outcome

Our client worked through his consultancy period and is now happily retired.

Considering selling your business?

Selling your business is one of the biggest decisions you’ll make. Whether you’re considering a trade sale, a management buyout or exploring your options with potential buyers, getting the right advice early can make a significant difference to the outcome.

At A4G, we help business owners understand their options, structure transactions and plan for the financial and tax implications of a sale.

Thinking about selling your business? Speak to one of our Principal Advisers to discuss your options and how we could help you achieve the right outcome.