Selling your UK business to an overseas buyer: 7 key points to consider

If you are selling your UK business, to attract as many potential purchasers as possible and increase competition for your business, it is always worth considering buyers from overseas. Despite continuing economic uncertainty across the globe and particularly in the UK, the acquisition market is still active and UK assets are still attractive to overseas buyers. We recently looked at some key considerations when acquiring an overseas business (see here). In this blog we take a look at some of the key factors to consider when selling your UK business overseas.

Pricing structures

The pricing structure of a transaction is a key aspect of the sale of a business. The parties will need to agree whether the transaction price will be fixed or subject to price adjustment mechanisms, e.g. earn-outs, retentions, buyer deposits, escrow or completion accounts. The way these price mechanisms work will vary depending on the jurisdiction (for more information on structuring acquisitions see our blog here).

In Europe it is seems increasingly common to see a "locked box" mechanism in place at completion whereas in the US completion accounts still seem more prevalent. Where completion accounts are used, the seller will wish to ensure that there is no major disparity between UK accounting policies it uses and the accounting policies of any overseas buyer.

To ensure the sale is as tax efficient as possible it will be important for any UK seller that the buyer is aware of and appreciates the implications of the price structure on the seller's tax position. This is particularly so with an overseas buyer who may be unfamiliar with the UK tax system. For example, whether the sale is an asset sale or a share sale will have a significant impact on the tax position.

Transaction documents

Across jurisdictions there are often key differences in the length and style of transaction documents. Generally it is the buyer's solicitors who draft the acquisition agreement and main transactional documents which means that, depending on the circumstances, you as a seller may need to concede to using documents from the overseas buyer's jurisdiction that could have an impact on the structure and timing of the transaction. For example, documents used by US buyers tend to be heavier in warranties and indemnities than we would expect to see in the UK. In the US the warranties are likely to be on an indemnity basis making it easier to recover losses whereas in the UK the buyer is left to claim for breach of contract which can be more onerous. In addition, it is common in both UK and US transactions to use insurance to cover warranties and indemnities but policies in the US tend to be more comprehensive than those used in the UK. What is important is that the parties are clear from the start about which jurisdiction's documentation is to be used and, in particular, any UK seller should be aware what the nature of those documents mean for them as compared to using UK documentation. 

Choice of law / jurisdiction

When selling a UK target company it is generally preferable to have English or Scots law (as relevant) apply as the governing law for the transaction, but this may not always be possible if an overseas buyer insists on using their own local law as the governing law. Having an overseas law apply to the acquisition could impact on potential liabilities and risks for the seller. To help ensure that a UK seller is aware of the implications of having an overseas governing law, legal advice may need to be sought from lawyers in the appropriate jurisdiction which can lead to additional costs. It may not be a deal breaker, but the choice of law is another factor to consider as part of the overall negotiation. 

Timing

In addition to the time zone differences which can impact cross border deals, relations on a deal can be strained due to misunderstandings around the timetable of the transaction. Companies across different jurisdictions are likely to have different compliance and review processes as well as national regulatory systems e.g. competition and merger regulations, which can dictate the timing of transactions. Good communication around timing and an understanding of the buyer's regulatory requirements will avoid unnecessary tensions during the deal. 

UK regulatory considerations

If, as part of the acquisition of a UK business, an overseas buyer becomes an owner or long-lease tenant of property in the UK it will be required to register in the Register of Overseas Entities (RoE). The RoE is administered by Companies House and holds details of beneficial ownership of the overseas entity or details of the managing officers if beneficial ownership cannot be established.

In addition to the RoE, an overseas buyer may also be required to register in the Scottish Register of Persons Holding a Controlling Interest in Land (RCI) if it becomes an owner or long-lease tenant of Scottish property. Registration in the ROE does not exempt an overseas entity from the RCI registration requirement.

If an overseas buyer is required to comply with the requirements of the RoE and/or the RCI this should be considered by both parties when agreeing the timetable for the transaction.

For more information on the RoE and the RCI please see Brodies blogs on these topics here and here.

Cultural differences

Cultural differences may also have an impact on cross border deals - whether it is understanding when certain holidays, festivals or religious events occur, or having an appreciation of differing social customs. If both parties have cultural awareness and sensitivity of the other this will help ensure the transaction runs smoothly.

Good practice

As with any UK domestic sale there are ways to prepare for a cross border disposal to help ensure that overseas buyers have confidence in you and your business. See our blog here for five tips on selling your business which apply whether you are selling it domestically or overseas.

How can Brodies help?

The above details some of the main considerations to think about when selling a UK company to an overseas buyer but there will likely be others depending on the nature and location of the buyer.

Brodies Corporate Team has extensive experience of working on international transactions, including cross border acquisitions - if you have any queries relating to the acquisition or sale of an overseas company or business, please contact a member of our Corporate Team, our International Team or your usual Brodies contact.