Draw up business acquisition contract
Taking over a business can be easier and more efficient than starting a business from scratch. That is why many companies are turning to closing mergers and acquisitions, or M&A (merger and acquisitions). For a business acquisition, a business acquisition contract is drawn up between buyer and seller. This contract stipulates, for example, the sale of shares in the BV or the contractual transfer of assets (and/or liabilities). A business acquisition contract is essential for limiting risks and setting out wishes and intentions in black and white.
Mergers and acquisitions: promising in every industry
M&A deals are a promising way to start, expand or diversify a business and occur in almost every industry. Like merging with another company, it can give the buyer access to new customers, distribution channels, skills and knowledge. At the same time, the buyer gets more resources at its disposal, think staff, additional branches and intellectual property. Such an exquisite opportunity is not without risks. Therefore, draw up a good business acquisition contract.
Before concluding a business acquisition contract
In the process of buying a business and acquiring shares or assets, buyers would do well to first draft a letter of intent and then conduct due diligence on the various legal, accounting and operational aspects of the desired business. After this verification period, buyers have a better understanding of the risks of the transaction and can negotiate with sellers on ways to mitigate these risks. The next step is to draft a business acquisition purchase agreement, or a business acquisition contract.
What is stipulated in the purchase agreement?
In the business acquisition contract, several things need to be properly recorded. This is important to avoid discussions afterwards. What exactly is taken over differs per type of business. Also, for each business takeover, different agreements can be made about, for example, taking over customers, profit distributions for the old owner (earn-out) and other relevant elements in mergers and acquisitions. For this reason, there is no ready-made example of a business takeover contract. However, there are a number of essential components that are included in almost every business acquisition contract.
- The elements of the agreement
- The price
- The date of the transfer of ownership
- Declarations and warranties
- A non-compete clause
Components of a business acquisition contract
It sounds very obvious, but it is important to accurately describe exactly which parts will be taken over in the business takeover. For example, which shares are involved? Are staff members or possible debts taken over by the buyer? And which customers are covered by the deal? In addition, the business acquisition contract sets out various guarantee provisions and possibly approval resolutions or shareholder agreements. You can view a shareholder agreement example here.
The amount of the business acquisition
In some cases, the price is a predetermined or agreed amount. If the hurdle has been taken to establish it, this is a simple element of the business acquisition contract. In practice, it is common for the sale price to consist of a fixed amount and a variable part. The variable part requires a clear legal description and substantiation so that no discussion can arise about it afterwards.
Date of transfer of ownership
This requires careful consideration. Which date is convenient, given financial and tax implications or advantages? And are there any suspensive conditions that need to be fulfilled first?
Declarations and guarantees
The business acquisition contract will include various declarations by the buyer and seller, for example about the state of the goods and the debtor status. It is also important to record who is liable for what and what the consequences are if agreements are not fulfilled or complied with. Many business acquisition contracts include warranties and indemnities.
A business takeover often also involves the buyer taking over the customer base. If this is the case, it is wise to include a non-compete clause in the business takeover contract. This agrees that the selling party will not compete with the old company, for example by continuing similar activities and dealing with customers sold at the time of the business takeover. Often, a non-compete clause in a business acquisition contract has a time limit attached to it, making it only valid for a certain period of time.
Committed advice and guidance on mergers
The corporate lawyers at Fruytier Lawyers in Business have a lot of experience and all the legal expertise in guiding mergers and acquisitions. With our knowledge, we can provide you with sound and targeted advice in the preliminary phase to avoid potential pitfalls. We also assist you in drafting confidentiality agreements, letters of intent, conducting due diligence investigations and drafting the business acquisition contract. For more information, please contact one of our M&A specialists.