When the price and other terms of the deal have been agreed and following the signing of a term sheet or heads of agreement, the due diligence process can start.
The process will be much shorter in an MBO as the management team should be well acquainted with all financial and operational aspects of the business.
Despite knowing the above mentioned aspects of the business, the management team should undertake both financial and legal due diligence as they will be embarking on the most expensive acquisition, they are likely to make in their lives.
DCA Corporate orchestrates both the due diligence process and the Share Purchase Agreement (SPA).
The SPA is the document which ultimately governs the terms on which the company is sold to the buyer. It is normally prepared by the buyer’s solicitors and negotiated at length between the parties and their advisers.
The SPA has two main purposes. Firstly, it sets out the mechanics of the sale of the company, such as how the purchase price will be paid, which directors will resign at completion and who will replace them. Secondly, it protects the buyer from some of the possible problems within the company, either unknown or discovered during due diligence.
It does this using warranties, statements of fact about the company given by the seller. If any of those warranties prove to be untrue, and the buyer suffers loss as a result, the buyer may be able to claim compensation from the seller.