“A lot of people think due diligence is already done when they have looked after the tax and accounts and so on,” he points out. “But legal due diligence can involve a 20 to 30 page questionnaire in relation to all aspects of the business. It’s quite intensive and should be done in advance of any sale process.” 

The company register and corporate minute books must be available, in order and up to date, he advises. “Every company is required to have a register showing shareholders, directors and so on. This can be seen as boring and often gets neglected. We sometimes get confused or blank stares when we ask for them. There is an increased focus on compliance in this area. If the beneficial owner register hasn’t been maintained, you can run into real problems. That’s the title deed of the company. Reconstituting a register can be an onerous and expensive task. It can involve going back through years of share transfers, buybacks, director changes and so on.” 

Failure to keep the register up to date can be an indicator of other omissions such as share transfer transactions not being recorded or executed properly, Gavin adds. “You could potentially have people who are still shareholders even though they had sold out years before and they might be entitled to a share of the sale proceeds. You need to ensure it has all been done properly and that the relevant documentation is to hand.” 

Assembling the transaction team is an important first step in the process according to Adrian Benson, partner and head of Corporate and M&A with law firm Dillon Eustace.

“The transaction team can vary considerably, depending on different factors such as the size of the transaction and the nature of the seller and target involved but common participants include senior management to assist with and play an important role in all aspects of the sale process, including engaging external advisers, marketing the target, dealing with due diligence and negotiating the transaction documents; legal advisers to carry out and co-ordinate the legal workstreams involved in documenting the transaction and transferring legal ownership of the target shares or assets to the buyer; accountants to advise on the tax and accounting treatment of the disposal; and a corporate finance adviser to source prospective buyers for the target and to assist in managing the sale process.” 

A pre-sale internal due diligence process may also be advisable. “Before actively engaging with prospective buyers, the seller may want to consider undertaking an internal sell-side due diligence investigation, which essentially involves reviewing the target and its operations from the perspective of a potential buyer,” Benson notes.

He says the key benefits of carrying out a pre-sale internal due diligence review include: identifying and addressing potential issues or areas requiring improvement; identifying any consents or approvals required for the sale; assisting preparation of information memorandum or other sale materials; laying the groundwork for buyer due diligence; and assisting preparation of seller’s disclosure letter.

There can also be complications regarding the ownership of the assets of the company. “If the proposed transaction involves the seller divesting a target company that forms part of a larger corporate group, or divesting a target business in circumstances where the seller or its group will retain other businesses, a key step in the transaction planning process is to consider and identify any separation issues that need to be addressed either before or at completion of the transaction,” says Benson.

“Often, non-sale and sale assets will be mixed and held partly by the seller, on a business sale, or the entities to be sold, on a share sale, and partly by other seller group companies, the retained group,” he continues. “Common examples of assets that may be shared in this way include land and buildings, intellectual property rights and IT infrastructure.” 

Where shared assets exist, he advises sellers to put appropriate arrangements in place to ensure that the target business or sale group either owns or has the right to use any shared assets it requires for carrying on its business, both before and after completion of the proposed transaction. After the transaction has completed, the retained group will continue to own or have rights to use any shared assets they require for their operations.

“Depending on the circumstances, it may be necessary to carry out a pre-sale reorganisation to transfer title to certain assets from or to the seller or the sale group or grant formal licences regulating the use of the shared assets following completion,” he adds. “Where separation issues arise, the seller may find it preferable to develop and implement appropriate separation arrangements in advance of negotiations with prospective buyers, with a view to ensuring that these arrangements are kept out of the disposal process and are addressed in the most straightforward and tax efficient way.” 

Other ownership issues can arise, according to Diarmad Gavin. “The business premises is one example. Is it owned by the business owner or by the company? Other assets like intellectual property are also very important. You need to make sure the company owns it or has very, very robust access rights to it. A company might outsource development to third parties, and you need to be very sure of IP ownership in that instance. If the company co-creates solutions with clients, you’ve got to make sure you’re not blocked from your own technology platform. They are all items that will be looked at very carefully by a buyer.” 

Finally, both Gavin and Benson highlight the importance of data privacy and confidentiality issues during a sale process. Care must be taken to ensure that the company has a right to share information with a potential buyer and is not prevented from doing so by contractual obligations with employees or suppliers and customers.

In addition, sellers should ensure that everyone involved in the sale process is subject to appropriate confidentiality and non-disclosure agreements.