Date published: 25th July 2023

An ‘asset sale’ or ‘asset deal’ is the sale or purchase of all (or most of) the assets that make up the business so that the business is transferred as a going concern.

This means the buyer acquires assets and rights, and on occasion, assumes responsibility for certain liabilities. An asset deal can often be more complex than a share deal because each asset being purchased will need to be legally transferred.

Many business owners will look to expand their existing business through acquisition. Often opportunities will be spotted where a target business complements the existing business for example, through the product the business manufactures or where the target business is a key supplier to the prospective buyer.

For a seller, there are many reasons why they may be looking to sell;  wishing to retire, to move out of a particular sector, looking to relocate investment or profitability to name just a few.

The Process for business asset sales:

It’s important to note that not one size fits all but most transactions will touch on the following stages:

  • Preliminary Matters – This stage may include preparing the business for sale, marketing it, agreeing the main offer terms between the parties, entering into confidentiality agreements and/or exclusivity agreements.
  • Due Diligence – This is where the prospective buyer asks questions about the business and the seller provides information. This process allows the buyer (on the advice of his advisers) to decide whether to proceed with the purchase. It’s the opportunity for the prospective buyer to uncover any skeletons in the closet!
  • Consents and Approvals –the due diligence process might highlight the need to acquire third party consents or approvals for all or part of the transaction to be effective. The approvals required may be at board or shareholder level an/ord consents may be required from key suppliers, landlords or lenders.
  • Documenting the Transaction – An asset purchase agreement (APA) will be prepared which will document the terms on which the parties are prepared to transfer the target business. There may also be other documents required such as a disclosure letter, novation agreements and deeds of assignments.
  • Completion - Completion often takes place immediately on exchanging the APA but sometimes there will be a break between exchanging the APA and completing the deal. Whether or not this will be required will depend on the circumstances of the parties and whether any conditions need to be met before completion can happen.
  • Post-Completion –In most transactions there are matters that need to be mopped up post-completion such as company administrative matters, stamp duty payments (if applicable), concluding assignments or novations and completing any necessary registrations.

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The Property Aspects of an asset deal

The property aspects of an asset deal will vary depending on the business being acquired.

It is likely that property lawyers will need to be involved at an early stage to ascertain the types of property involved and the level of property due diligence required. Where the seller’s property is leasehold, the seller will need to secure Landlord’s consent to the transfer.

The consent given by the Landlord may be subject to conditions and so it is critical to understand these at the earliest possible opportunity.

Obtaining the Landlord’s consent is a fundamental part of the transaction and needs to be actively pursued. The Landlord may also require references for the prospective buyer and these things take time.

Common property issues for leasehold properties in a business sale are:

  • Timing – A Landlord has a duty to give consent (where it is reasonable to do so) within a reasonable time. But this doesn’t mean a Landlord will always comply with the timeframe set by the Buyer and Seller! Agreeing the terms of the consent can take time and so it is critical the property discussions are progressed alongside the APA negotiations.
  • The Buyer is newly incorporated – If the buyer is a brand new company a Landlord is unlikely to grant consent without additional security such as a guarantee or rent deposit. It is therefore important that both parties understand as soon as possible the Landlord’s likely requirements and whether these can be met.

Where the property is freehold, the prospective buyer will need to do some forward planning; instructing surveyors, establishing the property needs of the business, planning applications (if required), having the budget to fund the property purchase to include paying Stamp Duty and HM Land Registry fees.

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The Employment Aspects

If you are buying or selling a business which has employees it is extremely likely that TUPE (the 'Transfer of Undertakings (Protection of Employment) Regulations 2006' as amended) apply.

This means that employees working in the business will automatically transfer from Seller to Buyer on completion – along with all the obligations and liabilities that previously sat with the Seller.

TUPE is very clear on the responsibilities of the Buyer and Seller in an asset deal and failure to comply can lead to legal claims and financial penalties – on both parties!

Things to consider:

  • Keep Employees Informed – Employers should keep potentially affected staff informed about any transfer plans. How to go about this in a way that complies with the rules but balances issues around confidentiality and business efficacy needs careful consideration.
  • Due Diligence – The due diligence process will probably include gathering information about the target business’ employees. But even if it doesn’t TUPE requires the Seller to provide the Buyer with certain information about employees including length of service, job roles, pay and bonuses, pension information and disciplinary proceedings.
  • Changes following Completion – A Buyer can’t just change employment terms following completion of their purchase. It’s therefore important to understand the existing arrangements and obligations around the team in place prior to completion. If the business is overstaffed, or is paying staff more than the market rate, it won’t be possible to refuse to take staff on or simply change pay. Any changes at all to employees or their terms before or after completion can be automatically unfair dismissal and lead to claims so assess the situation carefully

Whether you are a Buyer or Seller, by assessing the employment situation carefully prior to completion, you can plan ahead to manage the transaction carefully for the best results for Buyer, Seller and employees.

What you want is a happy workforce post deal, avoiding claims on either party and helping the business continue to flourish.

Well prepared and suitably advised Buyers and Sellers help make the process of a business sale proceed smoothly. Taking advice from accountants, solicitors or other relevant advisers can speed the process along and avoid unnecessary bumps in the road.

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