Buying or selling a business is one of the most significant transactions a business owner will face. From offer to completion, the legal steps can be complex but with the right guidance, the process can run smoothly. Below, we outline the key legal steps involved in a typical M&A transaction.
Step 1. Offer letter / heads of terms
The starting point of most transactions is the offer letter or heads of terms. This document outlines the commercial deal agreed in principle between the buyer and seller. It typically sets out:
- The proposed purchase price and payment structure (e.g. upfront cash, deferred payments, or earn-outs)
- Whether the transaction will be a share or asset sale
- Any conditions that need to be satisfied before completion (such as regulatory approval or financing)
- Confidentiality and exclusivity clauses
Although generally non-binding, certain provisions – like confidentiality and exclusivity – are legally enforceable. It’s also a valuable opportunity to align expectations early on, which can save time and cost later in the deal.
Step 2. Preliminary due diligence
Once the heads of terms are signed, the buyer begins preliminary due diligence. This is a high-level review of the target business, designed to flag any obvious issues that could affect the decision to proceed. Key areas reviewed include:
- Financial summaries and historic performance
- Organisational structure and ownership
- Major customer or supplier contracts
- Regulatory or legal compliance
This stage allows the buyer to assess whether the business is fundamentally sound and whether any early concerns need to be addressed in the deal structure or valuation.
Step 3. Negotiating the purchase agreement
If the buyer is happy to proceed, the parties turn their attention to negotiating the purchase agreement. This is the core legal contract governing the transaction. This document is legally binding and covers:
- What is being sold (shares, assets, or both)
- The final purchase price and how it will be paid
- Warranties and indemnities (promises about the business, and remedies if those turn out to be untrue)
- Limitations on liability for the seller
- Any restrictive covenants (e.g. non-compete clauses)
This stage can involve intensive negotiation. The buyer wants protection against unknown risks, while the seller aims to limit their post-sale exposure.
Step 4. Ancillary documents
Alongside the purchase agreement, several supporting or ‘ancillary documents’ may be required to complete the deal. These vary depending on the nature of the business but commonly include:
- New or amended employment contracts
- IP assignments (for trademarks, software, brand names, etc.)
- Assignments or new supplier/customer contracts
- Property transfer documents or lease assignments
- Board resolutions and shareholder approvals
These documents ensure that the sale is legally and practically effective, with all relevant elements of the business correctly transferred to the buyer.
Step 5. Final due diligence
At this stage, the buyer typically undertakes more detailed due diligence. Unlike the initial review, this process dives deep into:
- Legal structure and compliance history
- Intellectual property ownership
- Employment contracts and any HR disputes
- Tax affairs and historic liabilities
- Ongoing litigation or disputes
- Terms of key commercial contracts
Findings from this process may affect the final deal and warranties might be added, indemnities included, or the price adjusted. It’s a critical phase to minimise post-acquisition surprises.
Step 6. Preparing for completion
With the documents agreed and due diligence complete, both sides begin preparing for completion. This is where the deal logistics are finalised. Preparation includes:
- Collating and signing all legal documents
- Ensuring regulatory approvals (if applicable) are in place
- Confirming that financing arrangements are ready
- Preparing documents for the transfer of shares or assets
- Agreeing on a completion statement to determine any adjustments (e.g. working capital or debt)
Clear communication and coordination between legal teams is essential to ensure everything is ready for the agreed completion date.
Step 7. Completion
Completion is the formal close of the transaction. On this day:
- Funds are transferred from the buyer to the seller
- Shares or assets are legally transferred
- Signed documents are exchanged
- Resolutions and share certificates are executed
- Control of the business passes to the buyer
Depending on the structure, this might happen virtually or in person. The legal team plays a crucial role in confirming all conditions are met before completion occurs.
Step 8: Post-completion filings and integration
After completion, there are several important post-completion steps. These include:
- Filing notices at Companies House (e.g. change of ownership, directorships, registered office)
- Updating statutory registers and share ledgers
- Notifying HMRC or other relevant bodies
- Ensuring all employment and property changes are recorded
- Integrating the acquired business into the buyer’s operations
For the seller, this may also include responding to any warranty claims or assisting during a handover period. For the buyer, a successful integration plan is key to realising the value of the acquisition.
