Historically, overseas investors have viewed the UK as an attractive marketplace – with a long-standing place on the global financial stage and options to minimise corporate tax burdens. At present, following the pandemic, Brexit, and the chancellor’s recent mini-Budget, the market and economy is more volatile.
Now more than ever, if you’re in a position to buy a UK company from abroad, there’s lots to consider. That’s why it’s important to have the right team of professionals involved from the start to support you and make things run as smoothly as possible.
Here’s an overview of the process you can expect to go through when buying a UK company from abroad.
Agreeing a price and structure
As in any corporate transaction, when you’re buying a UK business from abroad, the price, as well as the conditions and structure around the price, is one of the most important things to get right.
The sale agreement can go ahead in several ways. As well as paying via a lump sum, for example, the purchase may be:
- Based on the performance of the business over the coming years (known as an Earn Out)
- Based on the net assets/profit when the sale goes through (at completion)
- Deferred over several months or years
- Partially withheld (sometimes to provide comfort around warranties).
You’ll also need to think carefully about whether to buy the business indirectly (via stocks of a parent company, for example, which would require a share purchase agreement), or directly, with all of its assets (including property, and any equipment). These factors will determine which documents you need drawn up.
The next step is to make sure your due diligence – legal, commercial and financial – is extensive and thorough. The extent of due diligence you’ll need ultimately depends on the business you’re buying and how much you know about it.
Regardless, the UK operates under the principle of caveat emptor – or buyer beware – which means any buyer needs to understand exactly what it is they’re buying fully. If you’re not familiar with the legal and regulatory framework in the UK, the due diligence process will need to factor this in.
Ultimately, thorough due diligence means you’ll know what you’re buying, its value (now and in the future), and what risks you face.
Warranties and indemnities
As part of the above two steps, you’ll come across both warranties and indemnities. Both are designed to protect you, as the buyer, and are key parts of the sale and purchase agreement and process.
Warranties are contractual assurances that, if not true, may result in the seller having to pay you damages under a ‘breach of warranty’ claim. That’s why warranties are usually one of the most negotiated parts of the sale.
Indemnities are also common, and are essentially promises that the seller makes to reimburse you as the buyer in specific circumstances. These are generally quite specific, and might include things like anything problematic that is highlighted during the due diligence process.
There are a few other important considerations and complications that can arise before moving to completion when buying a UK company from abroad. These include:
- Tax advice – this can be complicated and depends on the tax status of the buyer, seller, and company
- Transfer pricing – and any implications a new structure may have
- Handover of information by the seller – this is particularly important in owner-managed businesses, as it can be critical to the successful running of the business going forward
- Complex specialist matters – like existing company pension schemes, environmental concerns, or external finance agreements
- Operations post-completion – how will you keep things running as soon as possible once the sale is completed?
Best with professional support
For even the most experienced businessperson, buying a UK company from abroad is a complicated process that often comes with many moving parts.
You’ll need legal and financial advice throughout to make sure you’re well-informed before going ahead. At Coveney Nicholls, our team of accountants is on hand to help. Contact us to find out more.