Day 5 – Selling a Business

Welcome to the final day of our Corporate Finance blog series focusing on selling a business – Day 5 sees the team looking at due diligence, legals and completion.

Due diligence

There are several types of due diligence:

  • Financial due diligence: involves a detailed examination of the financial affairs of the company with particular focus on the historic, current and projected performance of the business.
  • Commercial due diligence: if the purchaser is not already familiar with the market in which the vendor is operating, it may undertake some market due diligence either in-house or by commissioning external consultants.
  • Environmental: depending on the sector and activities of the target business, a buyer will often require environmental due diligence.
  • Customer due diligence: a purchaser will usually wish to speak to the company’s major customers to assess their level of satisfaction with the company and the prospects for their continued patronage. Clearly there are considerable commercial sensitivities involved in customer due diligence, but there are a number of strategies to overcome this problem.
  • Management due diligence: financial buyers will generally wish to carry out due diligence on the senior management team as well as meeting them on an individual and collective basis.
  • Legal due diligence: legal due diligence focuses on key contracts and other legal documentation of the company. The company’s exposure to litigation or other contingent liabilities and ownership of assets including its properties and intellectual property rights will also be reviewed.

The data room is a key element of the sale process. A data room should contain all detailed financial, commercial and legal information on the company. The data room is typically provided to purchasers in an on-line format via a secure third party on-line data room provider with password protected internet access. The data room can also take the form of an actual room full of information, typically at the advisers’ offices.

Important due diligence considerations:

  • It is essential to retain control throughout the due diligence process.
  • The release of information should be carefully controlled, for example it may be not be advisable to inform the purchaser about good news until a sticking point is reached in the negotiations or to counter any attempt to reduce the purchase price.
  • Keep duplicate records of everything you hand over as well as notes of everything you discuss. This will be helpful if there is a dispute and in any case will be needed for disclosure.
  • Where there is sensitive information in the business, consider only providing this at a later stage.
  • Always put the business first. If the business is suffering because of the demands of due diligence, request a period of time to focus on the business.


There are numerous legal documents required when selling a business, with the main being the ‘Sale and Purchase agreement’ (SPA). The buyer’s solicitors will normally prepare the first draft of the Sale & Purchase Agreement, which details all agreed deal terms and contains warranties and indemnities intended to benefit and protect the buyer.

The SPA usually includes restrictive covenants. The intention of these is to prevent the seller from competing with the buyer for a limited period.


To ensure that the financial position of the company upon completion is the same as what was agreed at the outset, ‘Completion Accounts’ will be prepared immediately.

For further advice regarding the final stages of selling your business, please contact a member of our Corporate Finance team.

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