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A guide to selling your business - part ten: The road to completion

07/08/2025

Once the Heads of Terms document is signed, due diligence is the next phase of the business sale process.

‘Due diligence’ is a term that refers to the buyer’s comprehensive and rigorous scrutiny of the business. Its aim is to verify the seller's claims, assess risk, and ensure the buyer makes an informed investment.

During this phase, the buyer and seller will also negotiate the final share purchase agreement and prepare for completion.

What are the key areas of due diligence?

Financial

The buyer will examine financial statements, tax returns, and projections to evaluate the profitability and financial health of the business. This includes inspecting revenue streams, expenses, debt levels, and cashflow.

Legal

Legal due diligence involves checking important business-related documents, including licences, permits, and contracts. The buyers will also check for ongoing or potential litigation, ensuring regulatory compliance, and verifying ownership of assets.

Operational

The buyer will conduct a thorough review of business operations by analysing employee contracts, supply chain logistics, and customer relationships. This aids their understanding of how the business functions on a day-to-day basis, as well as potentially identifying operational risk.

Intellectual Property (IP)

This involves verifying the ownership and validity of the company’s IP, which includes patents, trademarks, and copyrights.

Market position and competition

Analysing the market position, competitive landscape, and growth potential of the business will help the buyer make a clear assessment of its future prospects.

Conducting thorough due diligence can be laborious and time-consuming, but it also mitigates risk and aids the negotiation of a fair business price.  Our team at Rickard Luckin can support this essential process by assisting with information-gathering, responding to supplementary queries, and facilitating discussions between the parties.

Share Purchase Agreement (SPA)

As the due diligence stage completes, the SPA will be drafted and negotiated. This is a legally binding document that outlines the terms and conditions of the sale.

What components are included in the SPA?

Purchase price

This section details the agreed purchase price, payment terms and schedule, and any contingent payments, such as earnouts.

Warranties and representations

Both parties will make certain assurances about the condition of the business and their respective abilities to execute the agreement. Should any misrepresentations be identified post-sale, these assurances offer a legal basis for recourse. A disclosure letter is drafted as part of this exercise, in which disclosures are made against the warranties to protect the seller against future claims.

Conditions precedent

These are specific conditions that must be met before the sale can be completed. Examples include obtaining necessary regulatory approvals, or the resolution of certain legal issues.

Covenants

This relates to agreements on actions that govern the seller in between signing the SPA and the completion date, such as not entering into new contracts or altering the business structure.

Indemnities

Provisions for indemnification protect the buyer from specific liabilities that may arise post-completion, ensuring financial protection against unforeseen issues.

Closing mechanisms

These detail the steps and documents required to finalise the transaction, ensuring a clear route to completion.

Under a completion accounts mechanism , the parties agree on a preliminary purchase price by estimating the equity value at completion. An adjustment is then made to account for any differences between the value that was paid at completion and the actual equity value based on the completion accounts.

A locked box mechanism means the parties both agree on the final purchase price using the company's accounts at a fixed date.

Note that finalising the SPA can involve complex negotiations, requiring careful consideration and specific legal expertise to ensure all aspects are comprehensively covered.

Completion – the final stage

At the point of completion, ownership is officially transferred from the seller to the buyer. This stage involves fulfilling the conditions outlined in the SPA and executing the necessary legal documents.

Key steps to completion

  • Ensure all regulatory and third-party consents are obtained
  • Sign the final legal documents, including the deed of transfer and any ancillary agreements
  • The buyer pays the agreed purchase price
  • The seller transfers ownership of assets and shares as specified in the SPA, such as control of bank accounts
  • Update employee records and implement the management transition

The sale of a business is a significant transaction that demands meticulous planning and execution at every stage. 

We at Rickard Luckin will review the drafting of the SPA and provide experience-based input in key commercial areas. Our aim is to clarify each step towards completion, in a way that meets your personal goals and helps you feel confident about planning for the future.

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Author
Author
Corporate Finance Manager | Chelmsford
 

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