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Unlocking value and managing risk in buying or selling your business
Date : 25 October 2018
Author/s : Li-Jean Chew
Type : Focus Paper
 

 

Manage risk by:


1. Identifying the appropriate structure
2. Doing due diligence
3. Having risk management tools in your sale agreement
4. Using value assurance mechanisms


1. Identifying the appropriate structure

 

  • Share sale or asset sale
  • Consider what you want to buy or sell and what risk you are willing to accept or retain
  • Consider any complexities involved in transferring employees, contracts and assets

 

2. Doing due diligence

 

Use due diligence to identify:

  • Whether the business is worth the price that is being discussed
  • If there are any risks in the business that you are not willing to accept
  • If there are any risks which need to be dealt with specifically in the sale agreement
  • Whether there are any third party consents required or stumbling blocks to completing the sale


3. Having risk management tools in your sale agreement

 

  • Use warranties to ensure you are getting what you have agreed to pay for
  • Use indemnities to deal with identified problems
  • Use qualifications and limitations to adjust the warranty and indemnity regime


4. Using value assurance mechanism


Use mechanisms such as the following to bridge the price gap or assure the value of the warranties and indemnities:

  • Parent company guarantee
  • Security over purchase price
  • Escrow arrangements
  • Deferred purchase price
  • Contingent consideration structures
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