Planning at the outset of an acquisition transaction is crucial and it is extremely important that your trusted advisors, i.e. your Accountant and your Solicitor are involved in the negotiations from the start. Working together with your Accountant and Solicitor will help you navigate the transaction which will involve a number of key defined steps, for example, pre-sale planning, due diligence, negotiating the sale price, arranging finance, completion of the sale, and post-sale planning.
There are several key factors that need to be considered and these will be largely driven by what is being acquired, i.e., shares or the trade and assets of an existing business.
If you are acquiring the shares of an existing business, this can be a riskier option compared to acquiring the trade and assets. In a share sale, the purchaser will be acquiring the history of the business since its commencement. Therefore, it is critical to carry out complete due diligence of the acquisition company to ensure that there are no hidden liabilities and the appropriate warranties and indemnities have been provided by the seller. Depending on the outcome of the due diligence, you may be able to renegotiate the consideration if any risks have been identified.
Alternatively, the acquisition of the trade and assets is less risky. Under this option, the trade and assets that make up the business are being acquired. You can decide what assets you wish to acquire and may have more control over the acquisition cost. Depending on the type of assets being acquired, you may also need to do some due diligence to ensure that all future available tax reliefs on any of the assets can be secured, for example, capital allowances.
Deciding on where the new business should sit within your business model, should be determined at the outset of the transaction, as there could be a number of pre-planning steps required.
Consideration should be given to who the ultimate owner would be. In a share sale, for example, you may decide to acquire the business as a subsidiary of your existing company, perhaps create a group structure, whereby, a parent company owns 100% of your existing business and 100% of the new business or alternatively you may decide to own the new business personally.
Similarly, if you decide to acquire the trade and assets, you will also need to consider where the new trade should sit within your business model, i.e., within your existing business or would you need to incorporate a new company either owned by your existing business, within a more formal group structure or personally.
There are many benefits to have a group structure in place, however, if a new group structure is being implemented, advanced clearance may be required from HM Revenue and Customs.
Funding of the acquisition will also be an important factor, could impact the ultimate ownership of the new business, and should be considered at the pre-planning stage. If funds are being borrowed, securing tax relief on interest payments needs to be considered. If the corporate entity has borrowed money, interest relief would be available in the corporate entity. However, if the new business has been acquired by you personally, income tax relief may be available on any interest paid by you personally.
Due time needs to be given to evaluating the asking price and carrying out detailed due diligence on the performance and profitability of the business to ensure that there are no hidden provisions or liabilities that could crystallise at a later stage or alternatively, in an asset sale, that the value of the assets being acquired is not overstated.
In this modern era, social media platforms can be a key asset to a business and due consideration needs to be given to this in any sale in respect to ownership of this data. This can be something that could be easily overlooked.
As demonstrated, there a number of key steps that need to be considered on the acquisition of a business and should not be solely driven by commercial or taxation factors. Instead, a holistic approach should be taken and each stage of the process carefully planned with your trusted advisors.
The advice in this column is specific to the facts surrounding the questions posed. Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.