Day 4 – Selling a Business

It’s day four of our blog series and our Corporate Finance team look at appointing a preferred bidder.

Assessing offers

No two offers are ever the same. Deal structure and negotiations are driven by each vendor’s specific requirements. There are many ways of paying for and acquiring a business (cash, shares and loan notes or a combination thereof) and the role of the Corporate Finance Advisor is to assess what is on offer and to obtain the best outcome for the Vendor.

When appointing a preferred bidder, the main deal structure considerations are price, form of consideration and handover period:


  • Set a reserve price; know what you are happy to accept.

What form will payment take?

  • Day one: what proportion of cash should be offered on day one? Cash payment up front is the safest option.
  • Deferred cash: establish whether it is guaranteed. If deferred cash payment is offered, establish whether it is guaranteed. It may be in the form of earn-outs, which are linked to future sales or profits.
  • Earn out: consideration linked to future sales or profits can bridge price expectations. Vendors can often achieve a higher price via this route as they are assuming part of the risk of the future performance of the business. In a situation where payments are reliant on the future performance of the business, make sure you retain some form of management control to enable performance targets to be met.

What will your responsibilities be post completion?

  • Would you be willing to continue being involved in the business for a period of time post completion?

Heads of agreement (‘HoTs’)

Once all offers for the business have been analysed and the preferred bidder has been appointed, the next step is to negotiate terms. Although the HoTs are not a legally binding document they cover all the important parts of a deal and should outline main terms including consideration, payment profile, due diligence and timetable.

In many cases, lawyers do not need to get actively involved in drafting heads of agreement. However, it is important for a lawyer to cast an eye over the heads of agreement before they are finalised, as it is difficult to negotiate away from a position entrenched in the heads of agreement or to introduce new elements after the heads have concluded.


A purchaser will usually insist on a period of exclusivity long enough for completion of due diligence and prepare and negotiation of legal documentation.

The length of exclusivity period is generally in the region of six to eight weeks. It is in the interests of the vendor to complete a transaction in the shortest possible time frame mainly due to the disrupting in the business. This period may be longer if the purchaser needs to raise finance or seek shareholder approval for the acquisition.


Both parties will start to incur significant costs once HoTs are signed, therefore it is important that a detailed timetable is agreed, planning every week up to completion.

Please contact a member of our Corporate Finance team for further advice on appointing a bidder.

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