The first step when looking to sell a business by way of an asset sale is to ascertain which assets are to be included in the sale and which are to be excluded.
Once those assets have been identified, consideration needs to be given to the value that should be attributed to those assets and what information in relation to such assets will be required by the buyer.
Particular areas to look at include:
It is important to work closely with the companyâs accountants to ascertain the value that should be placed on the assets - both individually for the purposes of calculating potential tax liabilities, as well as a whole, in order to arrive at a suitable sale price.
Key points to consider include:
- do the assets being sold constitute an easily identifiable business?
- has the business operated as a stand-alone unit as part of a larger company?
- is separate financial information available?
The process of identifying a potential buyer, negotiating the terms of the sale and dealing with the transfer of the assets can take some time. Consequently, it is important to identify any potential deadlines for the sale in order to be able to plan accordingly.
There may also be a requirement for the seller to remain involved in the business to ensure a smooth transition period, particularly if there are key customer and/or supplier contracts that need to transfer.
This may be linked to the amount the seller receives for the business, by way of an earn-out provision and can have an impact on timescales if the seller has specific plans post-completion of the sale.
Novation of Contracts
If there are formal contracts in place with customers the sale of the business is likely to require the transfer of certain key contracts to the buyer, which will most likely have to be done by way of a novation agreement.
This requires the consent of the other contracting party and so it is worthwhile taking the time to identify which contacts would be key to the sale and consider whether or not the third party involved would be willing to agree to the novation.
This can pre-empt any issues that could arise during due diligence or post-completion.
- Shared Assets
If there is a leasehold property included in the business sale then the consent of the landlord will most likely be required. It is therefore advisable, where possible, to investigate whether or not this will be forthcoming.
Whether or not a landlord is willing to consent to the transfer will depend on the strength of financial covenant of the buyer, so it is worth considering this when evaluating potential buyers.
In addition, if any of the assets that are being sold are subject to any charges, such as those given as security to a lender, these assets will need to be released from those charges.
Employment / TUPE
Where a business is being transferred as a going concern, the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) will apply. This means that, unless the relevant employees opt-out, the employment contracts of the employees involved in the business will automatically transfer to the buyer.
There are certain obligations imposed on the seller to inform and consult with the affected employees and to provide employee information to the buyer within set timescales so care needs to be taken to ensure that all such obligations are met.
It is important to identify the liabilities associated with the business and assets being sold in order to ascertain whether or not they should form part of the "package" to be sold to the buyer.
The level of liabilities that are to transfer with the business will not only affect the potential purchase price but also the level of interest in the sale.