Buying a business can represent a significant opportunity for growth, investment or succession planning. However, many acquisitions encounter problems not because the business itself is fundamentally unsound, but because important legal and commercial risks were not identified early enough.
For buyers, the challenge is rarely just agreeing a price. It is understanding exactly what is being acquired – and what liabilities or obligations may come with it.
Andrew Campbell, Partner at Allsopp Campbell Rainey, explains: “Business acquisitions often move quickly once commercial terms are agreed. The difficulty is that many of the most important risks are not immediately visible and only emerge through detailed legal and financial due diligence.”
Understanding What Is Being Bought
One of the first issues is understanding the structure of the transaction itself. A buyer may be:
- Purchasing shares from the owners of the company which runs the business
- Acquiring from the company itself specific assets of the business and taking over its contracts, staff or premises
Each structure carries different legal and financial implications, particularly in relation to hidden liabilities and ongoing obligations. Understanding this distinction at the outset is critical.
Due Diligence Matters
Due diligence is the intensive process of investigating the business before the acquisition completes. In Northern Ireland, this requires alignment with the Law Society of Northern Ireland guidelines and rigid compliance with the latest Anti-Money Laundering (AML) regulations to fully verify corporate control structures.
This typically involves reviewing:
- Corporate Records: Verification of directors, share capital, and compliance with the Insolvency (Northern Ireland) Order 1989 to ensure assets are clear of historical insolvency challenges
- Commercial Contracts: understand termination or variation rights in customer or supplier agreements, including requirements in assignment clauses or change-of-control clauses (i.e. where a shareholding changes hands)
- Employment Matters: Existing staff contracts, additional informal verbal arrangements including bonuses, outstanding litigation risk and grievances, and pension liabilities
- Property & Leases: Rent review provisions, repair obligations, and Land Registry or Registry of Deeds verification
- Financial & Tax: Outstanding commercial disputes, regulatory compliance, and hidden tax exposure.
Contracts and Hidden Obligations
Commercial contracts are often an area where unexpected risks arise. Informal commitments or restrictive covenants may affect the value or operation of the business after completion.
Furthermore, in asset purchases, contracts do not transfer automatically following a sale; third-party consent is frequently a mandatory hurdle before legal completion can occur.
Employees and Employment Risk
Where staff transfer as part of the acquisition, employment issues require careful navigation.
In Northern Ireland, the Transfer of Undertakings (Protection of Employment) – often known as TUPE – regulations apply strict rules around consulting with staff and ensuring they are not prejudiced as result of the transfer of their contracts.
Unexpected employment liabilities can significantly alter the commercial viability of the transaction.
Property and Lease Issues
If the business operates from commercial premises, the legal position of the lease or property ownership is central to the deal. Northern Irish property law has unique features regarding land tenure, ground landlords, and restrictions on assignment.
Buyers must thoroughly understand the remaining lease term, upcoming rent reviews, and strict dilapidation (repair) obligations.
As Andrew Campbell notes: “A business may appear commercially strong, but hidden difficulties relating to commercial property leases or undocumented arrangements can materially erode its long-term value.”
Warranties and Protection
Transaction documents – such as Share Purchase Agreements (SPAs) – must include robust warranties and (if there are identified issues) indemnities designed to protect the buyer if issues emerge post-transaction. Essentially it gives the buyer legal rights against the sellers if a warranty is untrue and causes loss, or if an indemnity is triggered.
Essentially, these provisions carefully allocate financial risk between the seller and buyer, same time as the results of the due diligence come to light. Negotiating these protections properly under the guidance of corporate specialists is one of the most critical steps in safeguarding your investment.
Looking Beyond the Purchase Price
The value of a business acquisition depends not only on the agreed price, but on the quality of the business being acquired and the risks attached to it.
As Andrew Campbell explains: “The strongest acquisitions are usually those where there is a productive relationship between the parties, and where buyers fully understand both the opportunities and the risks before completion takes place. But there so no one size fits all.
“We recently completed a purchase where buyers mainly needed the intellectual property of strong drinks brand to be legally robust, as buyers had their own contacts to dramatically increase the reach of the product.
“As such we needed to focus more due diligence on challenges to its trademarks and design rights, and less on its existing contracts. We are closing a deal over the coming weeks where the key issue is the value of the sellers, therefore them staying with the business for a number of years. Our purchase negotiations have focussed on incentivising this to happen.”
Allsopp Campbell Rainey advises businesses across Northern Ireland and beyond on acquisitions, due diligence and corporate transactions, helping clients approach deals strategically and with confidence. They are also appointed to give advice to FSB members across Northern Ireland, reinforcing their commitment to local businesses of all sizes.
Andrew has wide experience with corporate law in both Northern Ireland and in England and Wales. He completed scores of transactions practising in central London, and has now practised in Northern Ireland serving his English clients as well as local businesses for the last ten years. Contact Andrew Campbell or the Allsopp Campbell Rainey team.