Buying or selling a vet practice: Part 2

Due diligence

In essence, due diligence is the process where the potential buyer takes a very close look at the practice it is thinking of buying. It will be keen to make sure it is getting what it expects and that no nasty hidden surprises are lying in wait that will reduce the value of the business after completion of the purchase.

The process itself is likely to involve the business owner’s advisors setting up a “data room” where the key information the buyer has asked to see is provided. These data rooms are now frequently online – essentially, file sharing sites.

Compiling information for a data room can be a very time-consuming process, and the more organised the practice owner is, generally the easier this process will be.

Usually during this process the owner doesn’t want too many employees knowing about a potential sale. This can impact the information gathering, often putting a greater burden on the owner.

It is, therefore, usually worth considering bringing some key colleagues into the process to help ease that burden (it is only so often you can use the excuse “the auditors need the information”).

Due diligence tips

Some key points to bear in mind for a business owner during the due diligence phase are:

  • Always have robust confidentiality agreements in place with the buyer. But remember, if any sensitive, confidential information exists that could significantly disadvantage the business if the buyer doesn’t buy it, don’t disclose it to the buyer until you are happy a sale is very likely.
  • Don’t try to hide any “skeletons”. Trust is very important to buyers; if they think they can’t trust you, a real risk exists of the deal not proceeding or the due diligence becoming much more detailed and prolonged than it might otherwise have been.
  • Having clear lines of communication and responsibility mitigates the risk of detrimental issues and later potential disputes arising.
  • Know what you are passing across. If any “skeletons” exist, make sure you know you are passing across a “skeleton”.
Documentation

Assuming due diligence has progressed well, the buyer will then move to producing the first drafts of the main deal documents.

Depending on timescales (and the buyer’s confidence it won’t uncover any nasty surprises) the documentation is often produced at an early stage in the due diligence process, so negotiation of the documents can take place while due diligence is ongoing.

In most cases, it is going to be the buyer’s lawyer who produces most of the deal documents.

Documentation tips

Key points to bear in mind during the documentation phase are:

  • Don’t underestimate just how much documentation is required and how long it might take to agree. The main document is, of course, going to be the acquisition agreement, but ancillary documents (particularly those that rely on third party consent, such as banks, landlords or other funders) can play a very important role. Failing to address issues arising in relation to these documents can have a dramatic impact on the timetable.
  • If possible, you (and your advisors) should avoid negotiating key documents at the last minute – preparation and planning is critical to avoid this. A detailed timetable and responsibility list should be prepared – and adhered to wherever possible.
  • When appointing advisors, it is worthwhile asking them for a list of documents likely to be required. This will give you an idea of what is likely to be involved and may also indicate to you how experienced your advisor is in relation to disposals or acquisitions of businesses.

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