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Avondale Expertise: How we protected transactional risk

Business sales are complex and no two are the same. Because of this many sales fail and leave a very disappointed seller and buyer. Even when an advisor is familiar with the type of challenges that occur most regularly, there will always be issues which are unique to a sale and which can cause it to fail.

In the case of one client, the unique challenge which nearly caused the failure of their sale was related not to either the buyer or seller’s company, but to that of another complementary company being purchased at the same time. A rare occurrence in the world of business sales.

Few buyers have the resources to make two acquisitions at one time but in this case a third company became available that proved to be too good to pass up for our buyer.

But how did this affect our client’s business sale? In this unique instance, the buyer was looking to merge the two companies it had acquired and aimed to help them to grow together as one business.

However, in many sale and purchase agreements there are performance related targets and associated payments and this was one such example. However, our client overlooked the impact this second acquisition could have on the financial performance of his company. In such a unique situation, anyone could be forgiven for overlooking this potential issue.

But we did not. We recognized the potential financial implications of this double purchase and integration and recommended due diligence  into the second company.  When completed this indicated that whilst it would likely provide a profit longer term, there would be significant overhead costs post completion, which  could impact our client’s ability to generate additional performance related payments.

Essentially, our client’s company’s financial performance could have been negatively affected by the performance of the other company over which it had no previous knowledge and which also required further investment.

In view of this, we negotiated a change to the previously agreed sale purchase agreement to protect our client’s future revenue payments. Without doing so our client could have lost hundreds of thousands of pounds of performance related payments and it was only down to our expertise that this issue was highlighted and avoided.

Just another example of Avondale expertise in action.

If you would like to find out more about how we can apply this expertise to the sale of your business, please call 0843 6344 901 or click here.

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