David Beveridge, MacDonald Henderson Preparing to Acquire a Business David, corporate lawyer and Managing Director of Macdonald Henderson will give his thoughts on key legal elements to consider when considering the acquisition of a business, including: Heads of Agreement Due Diligence The Acquisition Documents Three Vital Takeaways The Business Journey aims to act as a free, non-executive board to owner-managed businesses operating in the West of Scotland SME community.

1. The Business Journey
Event No.6
26 August 2014
@TheBusJourney #SMEJourney

2. David
Beveridge
@TheBusJourney #SMEJourney

3. The Business Journey
Preparing to Acquire a Business

4. Leading Advisor to Scottish
Family Businesses at The
Herald Scottish Family Business
Awards 2012 & 2013
Turnover and profits increased
by 25% since a Management
Buyout in 2009
A top 15 Scottish corporate law
firm by number of deals (over 30
completed in 2013) Business
Insider)
Based in the International
Financial Services District of
Glasgow
Law Firm of the Year 2010
(under 50 fee earners)
Up and Coming Law Firm of the
Year 2010
(Law Awards of Scotland)
“Best Friends” policy with 20
firms in 15 jurisdictions and a
conflict referral firm of choice
for some of Scotland’s largest
commercial law firms
KEY FACTS

5. CORE SERVICE AREAS
Corporate
Our corporate team advised on 30 deals in 2013, ranking us as one of the most deal active corporate teams in
Scotland, a significant achievement in the current market conditions.
Commercial & Intellectual Property
Recognised as respected advisors in the field of commercial law, we advise in all areas from drafting contracts to
protecting intellectual property.
Employment
Highly proactive client service: our team is experienced in all aspects of non-contentious employment law and
employee option schemes and benefits.
Property
One of the busiest commercial teams in Scotland providing a comprehensive range of commercial property services
to a national and regional client base drawn from both the private and public sectors.
Private Client
Our Private Client team advises on all aspects of domestic conveyancing, wills, and executry work on behalf of our
individual clients.

6. Journey: “the act of travelling from once place
to another”
If business is a journey, then the acquisition of
another business is a milestone, whether as
business owner or advisor;
Acquisitions – exciting, exhausting, profitable, but
risky

7. Two Elements of Preparation for Acquisition
Due Diligence
Heads of Agreement

8. Due Diligence – what is it?
“A comprehensive appraisal of a business
undertaken by a prospective buyer, especially to
establish its assets and liabilities and evaluate its
commercial potential”.

9. Due Diligence - forms
Financial Diligence – accounts
Commercial Diligence – customers
Technical Diligence – technical/operation matters
Legal Diligence

10. Due Diligence - Legal
Crucial for you/your advisors to consider:
 Tailor legal diligence to the target business and sector
 Focus on the important value drivers:
Examples:
- Strategic customer contracts
- Title or planning consent to valuable land
- Intellectual property rights
 Don’t waste time and resource on in-depth investigation of peripheral
matters

11. Legal Due Diligence - Process
Issue focussed legal due diligence questionnaire
Carefully catalogue responses and documents
Evaluate and ask follow up questions – be tenacious!
Critically – if liabilities are identified, consider – price
adjustment, indemnity/warranty/retention protection
Be prepared to walk away if liability identified or
information is not forthcoming

12. Heads of Agreement – What are they?
“a non-binding document outlining the main issues
relevant to a tentative agreement”
Price
Confidentiality
Exclusivity
Abort Costs
Access
Timescale
Status

13. Heads of Agreement - Price
State clearly the Price but also how it is
calculated ie “on the basis of…”
Consider a company “valued” at £2m…but if no
debtors are paid in the three months leading to
completion, then worth may be £1.5m or less –
tackle by way of a minimum net asset value and
completion accounts to check the value after
completion and adjust price if necessary

14. Heads of Agreement – Confidentiality
Confidentiality agreements are usually standard
form and for the sellers to be very concerned about
But look out for restrictive covenants, preventing
the purchaser from approaching employees,
customers and suppliers of the target…even if the
deal does not proceed!

15. Heads of Agreement – Exclusivity and Abort
Costs
Exclusivity period to prevent sellers from talking to other
interested parties
Provide for abort costs – that is, if the seller breaches
exclusivity, they will pay the purchaser’s professional
advisor costs (and if possible management time costs…)
Difficult for a seller to reasonably resist abort costs for
breach of exclusivity

16. Heads of Agreement – Access and Timescale
Ensure that the buyer has sufficient access rights to
information and if necessary to the target’s
premises to carry out due diligence – this may be
tricky given confidentiality aspects
Ensure that the timescale agreed to complete the
deal is sufficient – this is linked to exclusivity. Always
presume that you need more time, particularly if
funding the transaction through third party investor
or bank

17. Heads of Agreement - Status
 Yes, mostly non-binding
But…if the buyer, ensure that these clauses are
binding:
Exclusivity
Abort costs

18. Preparing to Acquire a Business – three
“takeaways”
Focussed, tailored and tenacious legal due diligence
Heads of agreement are important – put them in place
early
Three A’s – Appoint Appropriate Advisors- ensure your
lawyers and accountants are fit for purpose – and take
references if required!

19. Contact Details
David B Beveridge
Managing Director
0141 248 4957
db@macdonaldhenderson.co.uk

20. THANK YOU

21. Questions for David?
@TheBusJourney #SMEJourney