We now come to arranging legal advice. Greg (the purchaser’s agent) and I are not fans of lawyers. So I was emboldened to say that we don’t need two groups of them arguing between themselves at our expense.
All corporate lawyers have acted for buyers and sellers. So they all know what constitutes a reasonable contract. So why do they have to spend time, and earn money, arguing about it? My all-time record was being told by one august individual that the Income Taxes Act didn’t cover corporation tax! Needless to say, it does, but there’s £400 just to say so. While they may point to short-term wins over their opponent, but in an earn out, the aim is to forge a partnership. An adversarial approach doesn’t foster that.
A good friend of mine is a senior corporate lawyer so I asked him, gently, if he would look after me and let me use one of his juniors to go through the checklists of warranties and indemnities.
He said that, sadly, it just wasn’t economic ,but offered to find someone who could help. He gave me three names and I also met a guy in a pub (at a Christmas party) who also seemed to have the right approach: listen and provide value for money.
I contacted the other three.
The first was actually a litigator but he put me onto his partner. Roger phoned me back and said, “I don’t know you but I have done several deals recently of £85m and £90m that are in the public domain and you need me to make sure the deal is structured correctly for you because it’s all really complicated and not for those who although they’re good businessmen, don’t know anything about it”. Hmmm.
The second, John, simply listened. I suggested that I send him my business plan, and he said fine. I sent him the plan and the heads of terms and I’m meeting him soon to discuss it.
The third wasn’t at his desk so I hit zero to get through to the switchboard and ask for his secretary. She didn’t answer and as the phone system was bewildering, I reduced my shortlist by one.
Then a new gremlin. I had a chat with Harry, one of my managing directors whom we promoted earlier this year. He already has five shares and I offered him and the other MD Charles another ten as part of their promotion.
Charles paid for his, but Harry said that he’d prefer to wait until he had earned them. Fine, but things have moved on. So I said it would be best if he also bought his ten. He said he’d get back to me. A week later, he hadn’t, so I asked for his response.
I can’t exactly remember his argument, but it didn’t make sense. I replied that no sensible purchaser would buy a business that one of the management team wasn’t backing.
He replied that he was committed. Then he said, “actually it’s Julie [his wife] who has a problem with it all because of an experience in her life”. Faced with deciding between his job and his partner, not surprisingly he had sided with his wife. I repeated my position and asked him to discuss it with her further. Twenty-four hours later, he agreed to take up the shares.
Oh, and the purchaser… After meeting Greg, James reported back to me that the purchaser wasn’t clear about the initial payment and would like me to run scenarios in which we get zero upfront and half of what we want upfront. They implied that if we got less upfront we could earn more later.
Funnily enough, I don’t agree. The deal is cumulative – ie, each year you take five times the profits and pay out that amount minus what’s been paid before, and apportion it among all the shares in issue at the date of sale. IMHO, their argument doesn’t hold.
That’s where we are now. My current focus is on getting the heads of terms approved by our chosen lawyer, discussing them with my team and then getting them over to the purchaser.
It’s unlikely that we’ll progress things before Christmas. Meanwhile I’m keeping a close eye on sales. During a sale process, normal business rules don’t seem to apply. Bad month equals bad company and a reason to reduce the consideration, regardless of the 120 months preceding it.
On the positive side, Greg has put me in touch with another company acquired by our purchaser. We may do business with them. I know of another deal when the acquirer did the same thing. It’s a way for them to show good intent and also do a bit of real-life due diligence. Fine by me.
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