By Jessica Nugent,

Selling an agency is no small project, whatever its size.  Commercial terms must be agreed and the legal documents will be heavily negotiated.

Lawyers will guide you through the process and do most of the work, but one area requiring significant input from the seller is due diligence.

The buyer will want to investigate the agency to ensure everything is in order and due diligence questionnaires can be dozens of pages long.

Sellers often find that so much time is taken up with responding to enquiries that the business suffers, which is detrimental to both seller and buyer. Therefore, it is advisable to get matters in order in advance, while you have the time to do so.

Presenting a clean, well organised business will reassure a buyer.  Pre-sale planning can also reduce the number of problems that arise during due diligence or after completion and therefore reduce the buyer’s scope for chipping away at the purchase price or bringing a warranty claim.

Matters to consider:

1: Check that the company’s statutory registers and Companies House filings are up to date. Overdue accounts are not a good start!

2: A buyer will want details of bank accounts and borrowings. Find copies of the facility letters and security documents for any loans and overdrafts.  If you do not have copies of these documents, you should be able to get them from the lender.

3: If relevant, make sure the agency has licences for all its activities and that they are all paid and up to date.

4: The buyer will want to see copies of all of your contracts and collating these is a time consuming process, so start early. Make a list of all client, supplier, hire purchase, equipment finance, leasing, services, utility and any other agreements, then find copies of all the written contracts.

5: What intellectual property rights does the agency own/use? Consider both registered IP (trademarks, domain names, etc.) and unregistered IP (copyright, unregistered design rights, etc.)  Check that registrations have not expired and that you have a copy of the relevant certificates.  If the agency has a website, who operates this and who owns the domain name and the rights in the web design?  Do these need to be transferred to the agency prior to its sale?

6: Make a list of all IT hardware and software used by the agency, noting if any is not located at the agency’s premises. Do you have sufficient licences for the number of users of each piece of software?

7: Make sure you have up to date insurance covering all usual risks (including employer’s liability insurance, public liability insurance and insurance over the agency’s premises). If any claims have been made, contact your insurance broker and ask for a status report on them.

8: Is your health and safety policy up to date? Are correct procedures in place for implementing that policy?  Is the agency’s accident book up to date?   If any investigations or reports have been made by any authority, details should be disclosed along with information as to how the agency has remedied any deficiencies.

9: A buyer will want details of all of your employees and freelancers so put together an anonymised list including the start date, salary, job title and full-time/part-time/freelance status of each person. You will also be asked for right to work documentation for non-UK citizens; details of employees who are leaving or on maternity leave and of those to whom offers of employment have been made; copies of employment contracts; a copy of any staff handbook; details of all benefits offered to employees and of any bonus schemes; and details of any pension scheme operated by the agency.  Check whether the agency has complied with its legal obligations regarding its employees.

10: Draw up a schedule of properties, stating whether they are freehold or leasehold and, if they are leasehold, details of the number of years outstanding on the lease, the amount of the rent and the landlord’s details.

In conclusion.

Nothing highlights how many loose ends and unresolved issues a company has quite like selling it.  However, collating the documents and information suggested above will give you a good head start in identifying problems and tying up those loose ends, which in turn should make the due diligence and disclosure processes much more painless for both you and the buyer.  It will also enable you to maximise the value of the agency and minimise your risk post-sale.

Jessica Nugent is a Partner at Goodman Derrick LLP, the London law firm. jnugent@gdlaw.co.uk.

Photo by rawpixel on Unsplash