Planning Private Share Acquisitions

Written by Talek Cox | Corporate and Business Law Team | 10 July 2024

Private share acquisitions involve the purchase of shares in a private company, typically characterised by direct negotiations between the buyer and seller. This type of transaction can be intricate and requires meticulous attention to legal and procedural details.

The primary steps involved in private share acquisitions are as follows:

Structuring the Transaction

Initial discussions focus on the overall structure of the deal, the financing method, and the preliminary valuation of the company.

Preliminary Agreements

The parties usually enter into preliminary agreements such as a letter of intent or heads of terms, outlining the key terms and conditions of the transaction. These will only have limited legal enforceability, and do not commit the buyer and the seller to the deal, but can provide useful clarity on the shared intentions and avoid wasted professional costs if the parties were progressing on separate understandings.

Due Diligence

A thorough due diligence process is conducted to assess the financial, legal, and operational status of the target company. This step is crucial for identifying any potential risks or liabilities that could affect the acquisition and the results may result in further negotiations on price structure of payments or the need for specific indemnities or other assurances for the buyer. Ensuring transparency early on can mitigate against last minute surprises for either party. 

Negotiating the Share Purchase Agreement (SPA)

The SPA is a critical document that sets out the detailed terms of the transaction, including any conditions precedent to the sale proceeding, the purchase price, how this is paid and any future performance conditions affecting how parts of it are calculated, general as well as more specific warranties and indemnities, qualifications against these to protect the sellers, and covenants restricting the sellers’ future activities.

Other Transaction Documents

Additional documents may include disclosure letters, board resolutions, resignations, consultancy agreements, and any necessary regulatory filings.

Signing and Completion

The final stage involves the signing of the SPA and other related documents, followed by the completion (or closing) of the transaction, where the shares are transferred, and the up front elements of the purchase price is paid.

Key Considerations in Private Share Acquisitions

Several key considerations must be addressed to ensure a successful private share acquisition:

• Valuation: an accurate valuation of the target company is essential. Methods may include discounted cash flow analysis, comparable company analysis, or precedent transactions. A suitably experiences accountant or professional business valuer should be consulted early on to ensure that expectations are met

• Financing: determining the source and structure of financing is crucial, whether through equity, debt, or a combination. As a buyer, the availability of funding needs to be ascertained early on, and where there is insufficient cash it is possible that other arrangements such as an enhanced earn-out or share options in the buyer could fill the gap

• Legal and Regulatory Compliance: compliance with relevant laws and regulations, including securities laws, anti-competition laws, and industry-specific regulations, is necessary to avoid legal pitfalls. Some businesses, particular where working for government agencies or with more sensitive goods or services may be subject to requirements for governmental approvals, which can take time and need to be anticipated

• Tax Implications: understanding the tax consequences for both the buyer and the seller can influence the commercial viability of the deal and the structure and terms of the transaction

• Employee and Management Considerations: addressing issues related to key employees and management, including retention agreements and employee share schemes, can be pivotal for post-acquisition integration

 The Role of a Law Firm in Private Share Acquisitions

A law firm plays a pivotal role in private share acquisitions by providing the following services:

• Advisory Services: offering strategic advice on structuring the transaction, negotiating terms, and identifying potential legal risks

• Due Diligence: conducting comprehensive legal due diligence to uncover any issues that could affect the transaction, or assisting the sellers to ensure that appropriate responses to enquiries are given

• Document Preparation and Review: drafting, reviewing, and negotiating all transaction-related documents to ensure they are legally sound and as favourable as reasonably possible for the client while still getting the job done

• Regulatory Compliance: ensuring that the transaction complies with relevant legal and regulatory requirements

• Completion/Closing Assistance: managing the closing process, including the execution of documents and transfer of shares and the funds to ensure a smooth and efficient completion

Navigating the complexities of private share acquisitions requires expert legal guidance and strategic planning. We are committed to assisting you every step of the way. Our experienced team provides comprehensive legal support, ensuring that your transaction is executed smoothly and efficiently.

Whether you need advice on structuring the deal, conducting due diligence, drafting and negotiating agreements, or ensuring regulatory compliance, Nash & Co is here to help. We understand the intricacies involved and are dedicated to protecting your interests and achieving your business objectives. You can get in touch with us by calling 01752 827125 or emailing enquiries@nash.co.uk.