Mergers and Acquisitions: Moving the Goalposts

What small businesses should consider when going through a merger or acquisition

Mergers and Acquisitions: Moving the Goalposts

I write this on the eve of a completion meeting, having helped yet another client sell his business. It should have been a straightforward exercise. My client is one of the most decent people I have met in business. The buyer is also someone I believe to be straightforward. Yet somehow in the last fortnight both have reached the point of pulling out of the deal and both are faced with much higher legal costs than they expected.

Both feel the other has moved the goalposts.

Some of this may have come from the Heads of Terms. Though never intended to cover every eventuality, what wasn’t said in the Heads has taken on a significance far beyond what was intended when they were signed.

Another key factor has been the draft contract. The deal concerns the sale of the goodwill and trade of a business, plus stock. What should have been a relatively simple exercise in identifying a suitable agreement precedent, and then amending it for particular items in the Heads, has turned into a 70 page document which one solicitor described as something more suitable for selling a division of Coca Cola.

What recommendations come from these observations?

Firstly ensure the Heads of Terms set out all matters that are key to both parties. It is worth taking time at this stage to document sufficient detail on the deal that both believe they have done.

Secondly, as the contract takes shape, the parties must immediately stop their respective lawyers and get them talking if they spot anything in the draft documentation that they believe was not intended when they signed the Heads. Document drafting should be suspended until points of difference are resolved. If all else fails, the parties will need to talk directly again to iron out areas of dispute.

This deal will close, but not without considerable effort on the part of the corporate finance advisors to keep it on track. M&A deals are often a roller coaster ride, and corporate finance specialists have a key role in keeping communication channels open to smooth out that roller


This business advice article Mergers and Acquisitions: Moving the Goalposts was written by Adam Stronach of UK200Group member firm Harwood Hutton Limited

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