Business owners who are planning on an exit strategy or passing on their company to a successor have many complicated and challenging issues to face before successfully achieving their aims.
Recent studies have found that 65 per cent of businesses that earn over £5 million have considered an exit strategy, with nearly half intending to do so within the next year.
There are a number of different exit strategies for businesses, including:
- Trade sale
- Private equity sale
- Management buyout (MBO)
- Initial public offering (IPO)
Legal teams can support businesses with their exit strategies, whether it be for startups seeking acquisition or established corporations contemplating mergers.
This support is crucial for businesses planning for an exit and helps businesses navigate highly regulated and often complex situations.
Due diligence and risk assessment
A business exit strategy is filled with risks that can be mitigated by conducting proper due diligence. Legal teams can help with compliance, auditing contracts, examining intellectual property rights, and evaluating any potential legal disputes. They can identify potential issues that could devalue the business or hamper the exit strategy.
Structuring the deal
Every exit strategy, be it a merger or an acquisition, requires detailed legal structuring. With legal counsel, business owners will want a deal that is structured favourably for them, all while remaining legally compliant. Various factors such as tax implications, shareholders’ rights, and employee contracts should all be considered.
Shareholder disputes
When selling a business, shareholders may not agree with the direction of the sale and could potentially disrupt the negotiations. Legal teams can interject here, either through mediation or persuading shareholders to agree to the deal.
Negotiations and closing the deal
Negotiating an exit can be a challenging and complex process. Legal teams have to represent the business’s interests, negotiate terms, and finalise the deal.
It is essential that these teams have a deep understanding of the business, its market value, and its growth potential to ensure a successful negotiation.
Compliance and collaboration
Businesses must comply with a range of regulations during an exit. This is where the legal team steps in by liaising with regulatory bodies such as the Financial Conduct Authority (FCA) and the Competition and Markets Authority (CMA). This compliance is crucial to prevent legal disputes, penalties, or even cancellation of the deal.
Legal teams will need to work closely with businesses from the initial exit plan, understanding their long-term goals and helping them develop a thorough exit strategy.
By building a strong relationship, these teams can guide businesses through a successful and profitable exit.
Support beyond the exit
The role of legal teams doesn’t end with the exit. Post-exit, these teams may assist in integrating the business into the new structure, handling legal aspects of the transition, and providing support for any issues.
Legal teams can also help with the transition of existing employees to new ownership. This can be achieved via Transfer of Undertakings Protection of Employment (TUPE), which is used to protect employees’ rights when a business is sold to a new buyer.
The influence of legal teams is significant for business exit strategies. The knowledge and expertise they bring to the table can turn potential challenges into smooth transitions, helping the businesses they serve.
Their ongoing involvement can be a crucial factor in providing a successful and profitable exit strategy, supporting the overall growth and continuity of businesses across the country.
If you are considering an exit strategy, please contact our expert team today.