The Seller's Survival Guide to M&A Deals What every business owner must do to exit safely

Selling a company is a complex process that requires care and preparation by the owner to mitigate any risks and to protect confidential data. Sellers often get swept up in the process, particularly in the case of a high valuation, and can lose focus on important issues. It's crucial for sellers to take the time needed to protect their interests and pre-empt any risks.

In the negotiation stage of mergers and acquisitions [M&A], the target company is expected to disclose information regarding key areas of interest to the potential buyer and to the company's legal and financial advisors. It is the seller's responsibility to organise and manage this information and the required access. During negotiations and the subsequent due diligence process, there is a risk that the potential buyer could be a competitor attempting to acquire valuable information for its own purposes. It's therefore vital that the company being acquired is protected against common risks before entering the negotiation process.

But what steps can business owners take to protect their interests during M&A? NDAs and protecting commercially sensitive information Confidentiality agreements, otherwise known as non-disclosure agreements [NDAs], are invaluable legal instruments targeted to protect commercially sensitive information. They are particularly useful in commercial transactions, such as the selling of a company, and it is standard practice to include such provisions in the early stages of a transaction. Confidentiality obligations should be added into the Letter of Intent [also known as a pre-contract protocol], which is a preliminary document showing the intentions of both sides entering a business transaction.

If the NDA was not in place before the negotiation process started, the company can enter into a standalone NDA retrospectively, prior to or during the due diligence stage. What terms should be included in the NDA by the seller? The seller needs to clearly define "confidential information", as well as the potential uses and purposes of the information acquired. One common example is stating that confidential information can only be used for the acquisition, negotiation andadjacent processes. The agreement should include a list of the parties who can access the information, such as professional advisors, solicitors or accountants. A number of provisions should also typically be present, including agreement from the buyer not to disclose any confidential information for any other purposes, terms requiring the potential buyer to destroy all the information acquired if the transaction is unsuccessful, and terms preventing the buyer from poaching employees.

Due diligence
Carrying out due diligence is an important part of the M&A transaction process and helps to increase the chances of a successful sale, from the perspective of both the buyer and the seller. A large amount of information if often needed for a thorough due diligence process, including company documents, shareholders' agreements, articles of association, copies of annual and management accounts, key business contracts, information regarding intellectual property owned by the company, contracts of employment, and any ongoing or threatened litigation procedures against the company. Providing accurate and thorough information helps the buyer build a clear picture of the business. This can also give the seller peace of mind and confidence that the new owner has all the required information on the company's past and present
situation.

Safe sharing of information
Data rooms are often used for efficient information sharing between two parties. In most cases, it is set up and administered by the seller. A data room is typically a virtual repository where all the documents related to the target company are stored. It is usually represented by a secure website, which allows authorised users to obtain documentation. It is vital to ensure that access is only provided to the authorised individuals, and that all those using the secure website link have agreed to the terms and conditions, including confidentiality undertakings. The seller is solely responsible for administering all the information in the data room, including the duty to refrain from sharing any information that is restricted by GDPR or other regulations. Ensuring confidential data does not end up in the hands of the wrong people is vital in protecting the seller during the M&A process. SPAs and mitigating risksA sale and purchase agreement [SPA] can be highly beneficial for both buyers and sellers. An SPA provides a legal framework that details the sale process, allowing both the seller and buyer to understand their rights and obligations. Warranties, indemnities and other provisions in an SPA also help to manage and allocate risks associated with the sale. Buyers, who are often seeking protection from the caveat emptor principle known as "buyer beware", commonly require warranties to be included in an SPA to reduce the starting disadvantage. These warranties usually include the absence of any ongoing or threatened litigation, financial issues and other risks. It is essential for the seller to also include warranty limitations to reduce liability in the event of a dispute. For instance, sellers can set terms stating that all claims must be made within a certain time period, typically up to 24 months after the sale, as well as detail any exceptional conditions upon which warranties do not apply, or set a limit on the aggregate liability for breach of warranties.

Selling a company is a complex process that requires the seller to take numerous precautions, many of which can be taken care of with robust and well-established legal instruments. Confidentiality agreements are an effective approach to protect sensitive data, while well-designed sales and purchase agreements should greatly reduce financial liabilities. Due to the complexities of legal structures and the wide variety of risks involved, it is vital to engage legal and financial advisors throughout the process to ensure that all potential issues are covered and a smooth process is achieved.