Negotiate and structure your acquisition deal

A business purchase moves from offer to completion in a fixed order. Each stage commits you to more cost than the last, so settle the big questions early.

Decide whether to buy shares or assets

Settle this first, because it changes the price, the tax and the risk you take on.

In a share purchase you buy the company itself. It keeps its contracts, licences and employees, and also its debts, claims and tax history, so due diligence and the warranties matter most.

In an asset purchase you choose what you take over, such as equipment, stock, contracts, intellectual property and goodwill, and you can leave liabilities behind. Each contract and licence has to be assigned or replaced, and the other party may need to agree. Where a business transfers as a going concern, the employees' jobs transfer to you under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). TUPE applies only when the employer changes, so it does not apply to a share purchase.

Make a written offer

Put your offer in writing and make it conditional on due diligence, your funding and the main customer and supplier contracts staying in place. State the price, what it covers and how you will pay.

Decide how much of the price is paid at completion. Paying everything in cash at completion is simplest for the seller. You can defer part of the price to reduce what you need up front, or tie part of it to future results through an earn-out, which aligns your interests with the seller's but is a common source of disputes, so define the profit measure and who controls the business while it runs.

Agree exclusivity

Ask for a period in which the seller will not negotiate with anyone else while you carry out due diligence. Make it long enough for your advisers to finish, and agree a date by which the seller must provide the information they have promised. Exclusivity and confidentiality are the terms you want to be legally binding even where the rest of the deal is not, so ask your solicitor to draft them as such, and to say who pays the costs if the deal fails.

Agree heads of terms

Heads of terms are a short document, usually drafted by your solicitor, that records the main points so that nobody spends money on contracts before the deal makes sense. They set out the price and how it is paid, what is being bought, the conditions to completion, the target date, who pays the costs, what happens to the employees and what the seller agrees not to do after the sale. Most of it is non-binding, so either side can still walk away.

Negotiate the sale and purchase agreement

The sale and purchase agreement (SPA) is the binding contract. Your solicitor drafts it from the heads of terms. These are the points where you will negotiate hardest.

Price and how it is fixed

With completion accounts, the price is adjusted after completion for the stock, debts owed to the business and working capital that you actually receive. This matches the price to the business you get, but takes longer and can lead to disputes. With a locked box, the price is fixed by reference to a balance sheet at an earlier date, and the seller promises not to take value out of the business between that date and completion. It gives certainty and avoids a later adjustment, but you take the risk of anything that goes wrong in the meantime, so the leakage protections must be written precisely.

Warranties and indemnities

Warranties are the seller's statements about the business, and indemnities cover specific risks you have already identified, such as an unresolved tax or litigation exposure. The seller will qualify the warranties in a disclosure letter, and you cannot claim for anything properly disclosed, so read it closely.

Covenants that bind the seller

You are paying for the goodwill, so ask the seller to agree not to compete with the business, approach its customers or recruit its staff for a set period. A court will enforce a restriction only as far as it protects what you have bought, so tie it to the activities, area and customers of the business you are buying. If a covenant is wider than that, the court can refuse to enforce it at all. Courts treat a seller who has been paid for goodwill more leniently than an employee. Ask your solicitor to set out each restriction separately.

Check whether the deal needs clearance

Build any clearance you need into the SPA as a condition to completion.

Under the National Security and Investment Act 2021, acquiring more than 25% of the shares or votes in a company in one of 17 sensitive areas of the economy requires government approval before you complete. A notifiable acquisition completed without approval is void, and the civil penalty can reach the greater of 5% of global turnover or £10 million. Asset acquisitions and smaller stakes can be called in for review too.

The Competition and Markets Authority (CMA) can investigate a merger if the business you buy has UK turnover of at least £100 million. It can also do so if the combined businesses would supply at least 25% of a UK market, they increase that share and one of them has UK turnover of at least £10 million. Most small acquisitions fall below these tests.

Leave the handover, payment and transfer documents to completion day. Your solicitor will list them in the SPA.