Despite the impact that COVID-19 has had on the UK economy, many businesses have found a way to continue.  There will have been businesses that have not just survived the crisis, but will have thrived, and equally there will be many businesses struggling to stay afloat.

The owners of struggling businesses may naturally consider a sale of their businesses to be an attractive option.  Now may be a good time, but what pitfalls await the unwary?

We would advise all business owners against making snap decisions.  Many potential business purchasers will understand the current situation is likely to present some real bargains, and sellers will have to be especially careful when dealing with issues such as due diligence, warranties, indemnities and price adjustment mechanisms, to ensure that their eagerness to sell does not lead to them accepting much poorer terms than they normally would.

The circumstances surrounding the COVID-19 crisis are changing almost daily, and may lead to a situation in which the buyer, after the purchase price and other terms have initially been agreed, attempts to revisit terms and alter matters in their favour and to the detriment of the seller.  It is vital that such situations are avoided if possible.

It should always be borne in mind that the buyer is making the purchase, presumably, on the grounds that the business in question has some kind of long term viability, beyond the unusual circumstances we find ourselves in presently.  It is this longer term viability which needs to be reflected in the terms of the deal.

In the current circumstances, we have found that it is more likely that a seller will have been directly approached by a buyer, who will of course be keen to secure the purchase of the business as cheaply as possible.

In cases such as this, the seller should be careful to evaluate the status of the buyer just as carefully as they would in more normal times.  Does the buyer, for example, have the finance in place to fund the purchase? It may be tempting to rush due diligence of the buyer, but this would be a mistake and exactly the kind of panicked response a buyer may be hoping for.

If part of the payment of the purchase price is to be deferred, what guarantees are in place with regard to those payments?  Do they reflect the reality of the current market conditions?

Additionally, if payments are linked to future business performance, will you still have any means of influencing that future performance?  Have the figures been modified to take the impact of COVID-19 into account?

Selling might be the only option for some business owners, who may have exhausted the possibility of loans, grants and furloughing, but caution should still be the watchword for every seller.  While COVID-19 may have created market conditions in which some speculators feel they can pick up bargains, the wise seller will still be able to negotiate an agreement in such a way that they do not allow the business they have worked hard to build to be undervalued.

Ansons Solicitors have remained open for business, albeit remotely, throughout the lockdown period.  Our Corporate team are on hand to discuss any challenges faced, and to provide specialist advice on any business sale or purchase.

If you own or manage a business and would like to discuss your situation, please speak to Neil Jones, Head of Corporate and Commercial,  on 01543 431184 or email him at njones@ansons.law.

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