{"id":1191,"date":"2022-01-04T05:25:04","date_gmt":"2022-01-04T05:25:04","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=1191"},"modified":"2025-07-02T00:42:12","modified_gmt":"2025-07-01T23:42:12","slug":"5-tips-when-purchasing-a-business-in-england-and-wales","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/business-sale-purchase\/5-tips-when-purchasing-a-business-in-england-and-wales\/","title":{"rendered":"5 Tips When Purchasing a Business in England and Wales"},"content":{"rendered":"<p><span style=\"font-weight: 400\">Purchasing a business can be an effective way to grow your business. However, it is a complex process that can carry substantial risks and costs. Therefore, preparation is critical. This article will give you five tips to help you prepare to buy another company.&nbsp;<\/span><\/p>\n<p><span style=\"font-weight: 400\">Note: this article assumes that:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">you are purchasing a successful business that is not in any considerable financial difficulty;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">you are purchasing a private limited company; and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">it will be acquired through a <\/span><span style=\"font-weight: 400\">share purchase<\/span><span style=\"font-weight: 400\">.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400\">Research and Using a Broker<\/span><\/h2>\n<p><span style=\"font-weight: 400\">The market for purchasing and selling a business can be challenging to navigate because what is available is not always apparent. In addition, you may find access to information is limited. Even if you know what company you want to purchase, you may find it hard to approach the directors and indicate your interest. This is why experts refer to the private company market as an illiquid market.&nbsp;<\/span><\/p>\n<p><span style=\"font-weight: 400\">Therefore, a good broker may be worth the cost if they understand the market and contracts. In addition, brokers can more easily match you up with a seller and provide you with crucial insights, such as how much a business might be worth (though you should always obtain an independent valuation). They can also arrange an introduction between you and the directors of a prospective target company.&nbsp;<\/span><\/p>\n<div class=\"box box--warning box--icon\">\n<p><span style=\"font-weight: 400\">The downside is that brokers are expensive, and sometimes you, as the buyer, may have to shoulder some or all the cost. Brokers are also not highly regulated, which means you should always do a thorough check into a broker&#8217;s background, using methods such as background checks before instructing them.&nbsp;<\/span><\/p>\n<\/div>\n<h2><span style=\"font-weight: 400\">Valuation and Financing<\/span><\/h2>\n<p><span style=\"font-weight: 400\">You will need to know how much the company is worth and consider how you will pay for it.&nbsp;<\/span><\/p>\n<h3><span style=\"font-weight: 400\">Valuation&nbsp;&nbsp;<\/span><\/h3>\n<p><span style=\"font-weight: 400\">You should instruct an account or corporate financier experienced in valuing companies. Valuation is a complex task that can produce different figures depending on your adviser\u2019s approach.<\/span><\/p>\n<p><span style=\"font-weight: 400\">In general, there are four approaches taken:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">net asset valuations;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">market multiple;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">discount cash flows; and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">dividend yields.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400\">The valuation is an essential factor in the price you ultimately pay, but it is not conclusive. Other factors will include information uncovered during the due diligence process and the buyer and seller&#8217;s positions and objectives.&nbsp;<\/span><\/p>\n<h3><span style=\"font-weight: 400\">Financing the Acquisition<\/span><\/h3>\n<p><span style=\"font-weight: 400\">There are three ways that you can acquire a company:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">using your own cash reserves;&nbsp;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">borrowing money from a bank or issuing debt securities (debt finance); or<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">issuing new shares to existing shareholders or outside investors (equity finance).<\/span><\/li>\n<\/ul>\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl 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As a buyer, you will spend considerable time and money. Therefore, it is common practice to enter into a series of agreements that give you and the seller certain protections before you commence the due diligence process.&nbsp;<\/span><\/p>\n<h3><span style=\"font-weight: 400\">Heads of Terms<\/span><\/h3>\n<p><span style=\"font-weight: 400\">Heads of terms, also called letters of intent or memorandums of understanding, are similar to the agreements in principle you receive from mortgage lenders. In general, they contain:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">the price to be paid for the company;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">how the transaction will be structured, such as if it will be an all-cash sale or if there will be other kinds of payments like shares in the company purchasing yours; and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">the timeline of the transaction and key dates.<\/span><\/li>\n<\/ul>\n<h3><span style=\"font-weight: 400\">Confidentiality Agreements<\/span><\/h3>\n<p><span style=\"font-weight: 400\">In the course of the transaction, you will gain access to sensitive information about the target\u2019s company business. These could include trade secrets and who their key customers and suppliers are.&nbsp;<\/span><\/p>\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">Therefore, the seller will want you to sign a confidentiality agreement, also known as a non-disclosure agreement. <\/span><\/p>\n<p><span style=\"font-weight: 400\">This means that if you later disclose this information to a third party, such as another competitor, you or your company could be sued for breach of contract and have to pay the seller for any loss you caused.<\/span><\/p>\n<\/div>\n<h3><span style=\"font-weight: 400\">Exclusivity Agreements<\/span><\/h3>\n<p><span style=\"font-weight: 400\">Whether you are a buyer or seller, the process is quite expensive. From your perspective, you will not want to enter into serious negotiations unless you are sure that you are the only potential buyer the seller is dealing with. Therefore, you should get the seller to agree not to seek out another buyer for a certain period, such as six or 12 months.<\/span><\/p>\n<p><span style=\"font-weight: 400\">These are also called lock-outs or no-shop agreements.<\/span><\/p>\n<p><span style=\"font-weight: 400\">All three of these elements may be contained in the <em>head of terms<\/em> or exist as separate agreements. <\/span><\/p>\n<div class=\"box box--icon box--idea\">\n<p><span style=\"font-weight: 400\">You must obtain legal advice before entering into these agreements, as some may be legally binding and others may not. Depending on your objectives, this can have significant implications for the transaction.<\/span><\/p>\n<\/div>\n<h2><span style=\"font-weight: 400\">Due Diligence &amp; Final Negotiation<\/span><\/h2>\n<p><span style=\"font-weight: 400\">You must follow the due diligence process (DD) before beginning the final negotiation.&nbsp;<\/span><\/p>\n<h3>Due Diligence<\/h3>\n<p><span style=\"font-weight: 400\">DD refers to the process where you investigate the target company to get a sense of all the crucial details about the company. It is also where you will try to uncover anything that might diminish the value of the business or make the purchase too risky.&nbsp;<\/span><\/p>\n<p><span style=\"font-weight: 400\">DD can be broken down into the following categories:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">commercial;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">financial;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">legal; and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">tax.<\/span><\/li>\n<\/ul>\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">For larger or more complex transactions, you may need to instruct separate advisers for each category, including management and strategy consultants, corporate bankers, solicitors, and accountants.<\/span><\/p>\n<\/div>\n<p><span style=\"font-weight: 400\">As the buyer, you are the one that will need to request the relevant information. For the process to run smoothly, you should ensure that you communicate clearly and efficiently to the seller. Your advisers will be able to advise on the specifics, but in general, you will want to examine:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">all contracts between the seller and third parties, including suppliers and customers;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">service contracts for directors and other staff;&nbsp;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">full details of the target company\u2019s constitution, including its articles of association;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">the company\u2019s accounts and annual confirmation statements;&nbsp;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">the shareholders and the number of shares issued as well as any shareholder agreements;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">directors\u2019 details;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">any debts, liabilities, and financial obligations like mortgages, charges, and liens;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">details of any ordinary and special resolutions passed by the shareholders;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">any property leases and land owned by the company, as well as valuing the property prices; and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">any ongoing or expected litigation where the company is a party to a lawsuit or dispute.&nbsp;<\/span><\/li>\n<\/ul>\n<h3><span style=\"font-weight: 400\">Final Negotiation<\/span><\/h3>\n<p><span style=\"font-weight: 400\">Depending on what the DD reveals, you may need to reconsider the final purchase price.&nbsp;<\/span><\/p>\n<p><span style=\"font-weight: 400\">For instance, a common issue uncovered in the DD process is the existence of contractual prohibitions on transfer. This is where key contracts with third parties like customers or suppliers permit the third party to end the contract if the business is sold. This can substantially impact the company&#8217;s value, especially if you cannot renegotiate with the key third party.&nbsp;<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Share Purchase Agreement&nbsp;<\/span><\/h2>\n<p><span style=\"font-weight: 400\">If you and the target company have agreed to the final price, you can simply pay the money in exchange for the company&#8217;s shares, and the transaction will be completed.&nbsp;<\/span><\/p>\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">However, you must document the transaction in a share purchase agreement (SPA). Not only does this record the transaction and the key details like the price paid, but this is where you can obtain representations and warranties from the seller.&nbsp;<\/span><\/p>\n<\/div>\n<p><span style=\"font-weight: 400\">Representations and warranties protect you from anything the seller failed to disclose or any misrepresentations. If something later turns out to be untrue or misleading, you can sue the seller for any unexpected additional costs.&nbsp;<\/span><span style=\"font-weight: 400\">SPAs<\/span><span style=\"font-weight: 400\"> also frequently contain conditions precedents and non-compete agreements that bind the seller.&nbsp;<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Key Takeaways<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Before purchasing another business, it is necessary to understand the market and consider if a broker would help you. You should also have an idea of what the company is worth so that you can figure out how to finance the acquisition. Next, understanding the important preliminary agreements and how they can protect you can save you a lot of time and money once you start the formal negotiations. Additionally, the due diligence process is one of the most important elements of the transaction, so it is important to know what it entails. Finally, you should be prepared to seek a share purchase agreement when concluding the purchase.&nbsp;<\/span><\/p>\n<p><span style=\"font-weight: 400\">If you need help purchasing a business, our <a href=\"https:\/\/legalvision.co.uk\/business-sale-purchase-lawyers-lp\">experienced business sale and purchase lawyers<\/a> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our <\/span><a href=\"https:\/\/legalvision.co.uk\/membership\"><span style=\"font-weight: 400\">membership page<\/span><\/a><span style=\"font-weight: 400\">.<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Frequently Asked Questions<\/span><\/h2>\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1641272631890\"><strong class=\"schema-faq-question\">What should I do to buy another business?\u00a0<\/strong> <p class=\"schema-faq-answer\">Understanding what to expect is the first step in buying another business. You will need to\u00a0 know if you need a broker, how to finance the acquisition, how you will negotiate the preliminary agreements, the due diligence process, and what the share purchase agreement may entail.\u00a0<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1641272640366\"><strong class=\"schema-faq-question\">What are the legal formalities required to purchase a business?<\/strong> <p class=\"schema-faq-answer\">It is possible to purchase a business with relatively little legal paperwork. However, in practice, because of the risk involved in purchasing a business, acquiring a business usually means there are several ongoing legal processes. These include negotiating warranties and representations, purchase agreements, and non-disclosure agreements.\u00a0<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"9eb4f72322\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/1191\" \/>            <input value=\"https:\/\/legalvision.co.uk\/business-sale-purchase\/5-tips-when-purchasing-a-business-in-england-and-wales\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"5 Tips When Purchasing a Business in England and Wales\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Purchasing a business can be an effective way to grow your business. However, it is a complex process that can carry substantial risks and costs. Therefore, preparation is critical. This article will give you five tips to help you prepare to buy another company.&nbsp; Note: this article assumes that: you are purchasing a successful business<a href=\"https:\/\/legalvision.co.uk\/business-sale-purchase\/5-tips-when-purchasing-a-business-in-england-and-wales\/\">Continue reading <span class=\"sr-only\">&#8220;5 Tips When Purchasing a Business in England and Wales&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13461,"featured_media":553,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"999,2757,874,2493,2170,1410","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[29],"tags":[53,168,172,215,216],"class_list":["post-1191","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-sale-purchase","tag-buying-a-business","tag-due-diligence","tag-due-diligence-process","tag-valuation","tag-non-disclosure-agreement"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>5 Tips When Purchasing a Business | LegalVision UK<\/title>\n<meta name=\"description\" content=\"Are you thinking of purchasing a business? 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