Preparing for a sale of a care business

6th February 2024

This article looks into the preliminary steps a care business owner should take, once they have decided they want to sell their business.

It’s important to note that the structure of each transaction will be different and will depend on a number of factors but the below covers certain key documents you should consider having in place at the outset of the transaction and some practical steps to take in order for the process to run as smoothly and efficiently as possible.

Preparing for due diligence

A potential buyer will want to carry out a certain level of due diligence on the business before it makes a formal offer, this is normally followed with a more thorough investigation once an offer to acquire the business has been made and accepted – or heads of terms have been entered into.

A full due diligence process is typically split into legal, commercial, financial and tax with the legal due diligence covering a number of areas such as business ownership, commercial contracts, employees, property matters, IT and IP.

Where a risk is identified by a buyer as part of their investigations, a buyer may seek extensive protection from the seller(s) by way of indemnity, action to be taken prior to completion or in extreme circumstances, a price re-negotiation.

At HCR, we are hands on with helping clients prepare for the due diligence process and will work with a seller to identify potential risks and address these ahead of time to try and avoid a buyer taking any action as noted above. Given the experience we have in the sector, we have a good understanding of what will be important for someone acquiring a care home business and where any pre-sale action is required.

Protecting business information

Confidentiality agreements

It’s crucial to protect the business’s confidential and commercially sensitive information at all times throughout the transaction; no information should be released regarding the business without the recipient first entering into a confidentiality agreement (also known as an NDA).

This agreement is a short, legally binding document where the recipient agrees not to disclose or use any information it receives regarding the business. Albeit a relatively standard form document, it’s important that you ensure it’s drafted correctly and would be fully enforceable should the recipient breach the terms as such a breach could have severe consequences on the business.

Data protection

In addition to commercially sensitive information, you are also likely to be sharing personal data of employees, service users and suppliers as part of the process – and most likely without the relevant person’s consent to share their information. We will work with you to ensure that you do not fall foul of your obligations under data protection laws in relation to such personal data.

Knowledge of key members of staff

You may also want to consider whether you let key members of staff – for example, the business’s registered manager– know about the proposed transaction; in certain cases, their level of knowledge will be key in the due diligence and / or disclosure process.

If you do decide to let certain members of staff know about the proposed transaction, it’s important to ensure that they keep all information regarding the proposed transaction and the buyer confidential. If members of staff find out about the transaction through hearsay or word of mouth, rather than from the business owners, morale and staff turnover can be adversely affected.

Heads of terms

Heads of terms are commonly prepared by the buyer and set out the terms on which they are willing to acquire the business. The heads of terms will usually cover the following key aspects:

  • Structure of the deal (i.e. assets sale or share sale)
  • Whether the transaction is to be exchanged and completed simultaneously or if there is a split exchange and completion (and if so, what are the conditions to completion)
  • Price to be paid and terms connected with such payment (i.e. are there any deferred payments)
  • Timetable to completion
  • Other key terms (for example, a new lease being negotiated, transitional arrangements).

Whilst the above terms will not generally be legally binding, they do set out the intention of the parties and it can be difficult to re-negotiate certain parts if they were set out in the heads of terms. You should take advice (legal, accounting and tax) prior to entering into the heads of terms so you are clear on the commercial agreement between parties and any implications of the same.

There can also be significant consequences of a transaction being structured in a certain way, particularly with regard to the tax treatment. Whilst we don’t advise on taxation matters, we work closely with a number of specialist tax advisors to ensure the structure of the deal works from a tax perspective.

If you would like any further information on preparing for a sale, please do not hesitate to contact a member of our Health and Social Care team.

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