Buying a business

When buying a business, whether by way of an asset or share deal, the process of due diligence is used to assist the buyer. This also raises detailed questions about the business about to be acquired. 

This process assists the buyer to be comfortable that the price being paid for the business is appropriate. The due diligence process identifies any issues that any buyer would want to be aware of before committing to the purchase. This is so that they can negotiate indemnities for potential risks, require certain issues to be rectified before proceeding further, or adjust the purchase price.

Good professional advisers will ensure that the due diligence process covers the key issues relating to the particular business. For example, when dealing with care home purchases we include a specific section relating to the Care Quality Commission and other regulatory aspects of operating a care home.

Matters that should be investigated when buying a business, such as: 

1. Considering the resilience of any supply chain important to the business. Suppliers may be affected by their ability to obtain resources, may have struggled due to the pandemic, and be close to insolvency.
2. Considering the ability of the target to meet its own contractual obligations as a consequence of supply or staff issues.
3. Whether the target’s operations are compliant with applicable emergency laws and regulations relating to the Covid-19 outbreak.
4. Are the target’s staff working more at home? If so, a review of the technical and organisational measures the target has taken to secure its personal data and information systems would be appropriate. If the target is behind on this there could be cost consequences.
5. Detailed analysis of staff sickness and absences. Especially when related to the pandemic and use of the furlough scheme. In particular, reviewing that the processes related to the Coronavirus Job Retention Scheme have been implemented correctly. Also, that the seller has the appropriate records to enable the buyer to address any investigation that might occur following the purchase.
6. Ensuring the target has discharged its duty to protect the health and safety of its workforce during the pandemic. That it has followed applicable guidance on the safe working of employees and put applicable measures in place.
7. Understanding the extent and impact of any carried over annual leave. This is for workers who have been unable to take their statutory annual leave as a result of Covid-19.
8. Understanding whether the target has the benefit of any Government financial support schemes. Ensuring it’s eligible and is in compliance with the support conditions. Identifying when any such repayable schemes need to be repaid.
9. Whether any tax issues have been created due to directors of non-UK resident companies not being able to travel. This could possibly create issues around UK permanent establishment or corporate tax residency.
10. Ensuring the target’s compliance to data protection obligations arising from Brexit.

This is not an exhaustive list and some issues will be more critical to some businesses. It does however mean that there are additional important considerations within the due diligence process.