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Yiuwin Tsang
Hello and welcome to the Beautiful Business Podcast. Beautiful Business is a community for leaders who believe there's a better way of doing business. We believe beautiful businesses are led with purpose by people who care, guided by a clear strategy, and soulfully grown. Hello, and welcome to this week's episode of the Beautiful Business Podcast. My name is Yiuwin Tsang. And this week, we're joined by Alistair wells. Alistair is the co founder and director of Tend Legal, a law firm on a mission to build a better, more human, less formal legal experience for startups and scale ups. Since Alistair and his wife Shona launched the firm in December 2020, the firm has grown to a team of 10, providing commercial, corporate and employment law support to a range of exciting new ongoing businesses, including amongst others, a sneaker reselling platform, a revolutionary social media app, and fast growing group of food brands. So let's talk about growing a business with an exit in mind, let's start with a little bit of insight in terms of your experience at Tend. When it comes to company exits, what kind of stuff have you worked on and tell us what you're allowed to tell?
Alistair Wells
Okay, so we, we work with a lot of businesses that are either working towards an exit, or, and then we help them through the exit process. So we've come across quite a lot of things, obviously, it's very different, depending on the actual exit is very, can be very different depending on the nature of the business. And so for some of our clients, they're very much in that kind of fast growth model, they've raised capital, they are focused on an exit within five years, there's so share options are a big part of it, making sure everyone is completely focused on getting to an exit, obviously, their investors, that's their main focus as well. And that can be quite a different experience to someone who has run a business for 20 years and decided to hand it over, whether that's to existing members of the team or to sell the business. But yeah, one of the things that always strikes me is that how important it is to actually have an idea of what your exit strategy is, from an early stage. I mean, I say that, probably when it comes to my own business, I don't know if I do, but I think you can see, some people just have never thought about it, they don't really have their house in order, they don't always know what it is they want to achieve. And those companies that are focused on it tend to have everything, everything aligned, aiming at that exit way before it's even on the cards. And it does make life a lot more straightforward. Because they'll have got, you know, they'll know they have to have certain things in place. Often, you know, for more sort of fast growth companies, they will have been around through various rounds of funding for which you're going to have to have you know that we do diligence, so you have your house more or less in order, probably anyway. So it makes it a more simple process. When you get to the exit. I mean, one of the one of the big things that or one of the worst situations I've seen is a company that they were looking to sell, they've been running the business for, I think it was 15 years, and not a huge business. But there were two of them. Two directors and shareholders want to sell the business, they've got an offer, they got heads of terms join up, we were instructed, got ready to go and and realised there were actually three shareholders on the company's house and kind of went to collect it all. You know, here's this other guy. And they said, All right, he left Tend years ago, we just needed to sign that we just need to remove from this shareholder level, did he sign that transfer? And like, no, he left, they left, he's not been involved. And then of course, there was this big process where they contacted him. And he was like, Well, yeah, I own a third of the company still. So if you're selling, I'll have a third of that, please. It completely derailed the sale for well, at least he postponed it for about a year while this was all sorted out, because they had to negotiate something with this guy. But it's one of those reminders that, you know, you have to make sure things like that. Things like your, you know, your cap table, your shareholders agreements, if you don't have them in place, or if there's any sort of anomalies, particularly if somebody left and they're still on there, you need to sort it out. And the sooner you sorted out, the better because of course, when you get to, if you think, Oh, we're going to going to straighten all this out at the time we exit, it's just so much more complicated, then and you're against the clock, you know, if you're having to negotiate something like this, in that situation, you're not in a great place to negotiate for.
Yiuwin Tsang
Sounds horrendous. So is it fair to say then that these businesses, you know, founder owned, haven't taken on investment? You know, they've grown it to, you know, over 1015 years, they've seen as the time is right for them to move on maybe the are selling to the existing team, or they're kind of moving on being acquired or whatever might be, I imagine typically, they're the ones that because they haven't had to do any due diligence previously because they haven't really been in this kind of context before. They're the ones who need perhaps to do a bit more homework.
Alistair Wells
Yeah, sometimes there's a bit more preparation to do and it comes out when you when you get into sort of the due diligence financial intersection, you realise that, you know, sometimes their lease is expired or something or, you know, they don't have good contracts in place with their clients, or there's certain things that are from a buyer's perspective, I suppose there'll be willing to take a view. Or they might say, Well look, your terms and conditions aren't great, but we'll remedy that once we bought the business, that's something we'll strike now, there's some things that are like a major red flag. So you know, you're requiring business and you realise they don't own the IP to their product, or, you know, there's a big dispute over something fundamental, those are the kinds of things or, you know, it's not compliant with applicable legislation, those kinds of things that could be completely sort of fundamental and could really screw things up. But other than that, I mean, a lot of the time, the detail of the due diligence will depend on the buyer, you know, how sometimes it's just that they want to know that they have to, or their lawyers will have a checkbox or things, they have to work through checklist, perhaps. And it's just jumping through those hoops, making sure you provided all the information that they understand what they're getting. Because, of course, if you're buying, if you're buying a company, you're not just you know, buying the assets, if it's a share purchase, you are inheriting all the liability of that company as well. So if there's anything lurking in the past, you just really need to be aware of it.
Yiuwin Tsang
Yeah, do and date. And for lots of business owners selling or even buying a business is a really big deal. You know, that isn't, the likelihood is that it's not something that will happen many times. And we did a session on business growth not long ago for beer for business, and one of the routes to growth is through acquisitions. So you could end up being a business has been bought by a larger business as part of their growth, or maybe the your the growing business and you want to grow through acquisition, one of the things that we spoke about was around almost kind of testing the water with potential businesses and through strategic partnerships. So again, if you're thinking about buying a company, or if you are being bought by a company looking at a strategic partnership to test the water, from your experience, well, first of all, do you think this type of approach works? And what would you say are the things to look for in a strategic partnership with the view for acquisition further down the line?
Alistair Wells
I think it can work. I mean, a lot depends on the type of business, of course, and sometimes setting up with strategic partnership can be quite a lot of work. But you know, it depends on it, it's a way of it can be a way of testing the waters to see if there's, you know, that synergy between the two organisations to see if they can work together. And I mean, in terms of things to think about, I suppose firstly, how you structure it, I guess what we're talking about is a joint venture, whether that's a corporate joint venture, where you to do entity setup a new company that they each own in either 5050 or whatever shareholding they agree. And that company is the company that will trade and usually hold the IP or they're not always the alternative is to have a contractual joint venture, where it's just an agreement saying that we're going to do this, you're going to do that. Here's how the money's gonna be split. In whichever you choose, I suppose it's just important to have that clarity on certain things, who is going to contribute? What to this arrangement? Be it staff? Or you know, who's going to actually do the work? Who's going to? Is the IP that is being put into the joint venture? Is it going to be owned by the joint venture company? Or is it going to be licenced? How is that going to be taken care of, I think you need to be very clear on having an exit. Again, it's an exit strategy from the strategic partnership, because you're and I suppose it might be that you're gonna do it for an extended period of time and then provide for the acquisition in the agreement say, Well, look, if we do it for a year, and it works out, then there's an option to buy or whatever it is, if you can get that agreement if people are comfortable to agree that but if not, there's a an exit, if, you know thinking through or what if it doesn't work out, what if should either party be able to terminate it, if they do terminate it, what happens to any assets, any, you know, intellectual property. So that's important. And just, I suppose, as well, making sure that you're not inadvertently giving away your business when you do so. So if you've got a product or something that you're putting into this strategic partnership, just making sure that the person you're going into partnership, you know, it's clear, they don't have ownership of it, that you're properly protecting that and you're protecting your staff as well. So you might want restrictions around the other partner not being able to certainly use your confidential information or to work, you know, employee or staff just to avoid that situation where they come in as a strategic partnership. They get to know your business intimately, and the staff and then just end it and effectively take the visits themselves. And I guess, know, with being a lawyer, you spend a lot of time thinking about worst case scenarios, and you have to think about these things. However excited you are, you have to think, well, what's the worst thing that could happen here? And what can we do about that, at this stage to make sure that doesn't happen?
Yiuwin Tsang
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Is there like any advantage or disadvantage to doing the JV on a shared basis or setting up joint venture company versus the joint venture agreement? As you mentioned? Are there any? First of all, it sounds like it's quite an undertaking, and probably more costly as well, to set up a company to do it. Why would you do that? Or the advantages?
Alistair Wells
So I suppose the advantage in doing it, is that why having a separate company, you have an asset, if you wanted to then sell that business, rather than it being acquired by the two owners, you could sell the business as a separate thing. So that's one advantage. I mean, the way to corporate joint ventures work, you have the rules about who's going to do what kind of baked into the constitution. So you have the articles of association that will I suppose, does that give more protection? It may do but I suppose is when it's it might be if it's more of a permanent thing, you set up the company, because you say, it is a bit more work to set up a company, it's and then to liquidate the company as well, at the end, is something you'd have to think about as well. So if it's a sort of testing the water thing, I think a lot of times it would be a contractual joint venture, just for simplicity, and being able to sort of terminate it relatively quickly and easily if need be.
Yiuwin Tsang
And when we spoke before, we talked about key relationships, both were in strategic partnerships, but also within acquisitions. What do you mean when you say this, what business owners and leaders need to think about first?
Alistair Wells
So I guess the key relationships, I mean, it's partly you advisors. So of course, I'm gonna say, your lawyers, you know, making sure you have the right people on board who can handle that transaction, or whatever it is you're dealing with. It's the accountants, and generally people have accountants before they have lawyers, but making sure that the accountants are the right ones for that particular transaction, they've got experience in dealing with transactions of that nature, that they can give you tax advice. And sometimes you have separate tax advisers, if the accountants don't offer that sometimes there'll be sort of commercial broker, if it's a business sale, who will be going out there to find a buyer for you. And obviously, they will be instrumental in negotiating the deal. Anyone else? Those are the I suppose the key things, the key people relating to the transaction itself, usually, I mean, within the sort of broader context, you've then got HR advisors, sometimes that's dealt with by lawyers, sometimes it's you have separate HR advisors, particularly if there's going to be if there's a sale, where it sits out of assets, and you've got the employees need to transfer across. So the whole GP consultation is important to get right. I guess, funders as well, if you're, well, it's more for buyers, really, but yeah, how you're financing the transaction comes into it.
Yiuwin Tsang
And then just to touch on a bit around the teams as well. What advice would you give to business owners who are looking to sell who are going through the process of selling valuation, things like this? From your experience of working with clients who've gone through this journey who've gone through this journey? How would you advise in terms of how they manage their teams through this process? So I guess there's a degree of kind of confidentiality that needs to be seen at the beginning of stuff. But it's always really tricky. And it's obviously big, especially if you've got a close knit team who are really engaged, it's quite a journey for them to go on as well. So with that in mind, what advice would you give there?
Alistair Wells
I think you've kind of touched on it there is that there's probably going to be different advice, depending on what stage you're at with the transaction processing initially, of course, you probably don't want to, it's going to be confidential, you probably because it can be disruptive to a team to know we're looking to sell the business and they're thinking, why are you selling it what's going to happen to us, and if, until such time as you have more concrete information, it's probably best to keep it to as few people as possible. And that might be the founders that might be as it goes on. And you get into, you know, perhaps you've negotiated terms, in principle, and you're getting into due diligence, then you might need to involve more of the team that might be you know, your finance person or your HR person to provide relevant information. So you have to think carefully about well, who needs to know at what stage and then as it goes along, of course, the wider team are going to have to know and it's just communicating it in good time. And in a good way. And sometimes, you know, there are situations where owners feel they can't tell the team until we've exchanged contracts. So it's not actually long before the sale. But it's so important that that's handled well. Even if it is kind of last minute, then that might be just thinking through what are they going to be the questions that they are going to want answered, what are their concerns is going to be sitting down with them and explaining explain the reason for the transaction. Explain how that's going to impact on them. And yeah, as I mentioned, if it's an asset sale, then there might be legal requirements around GP. So basically, GP says that employees, their employment will automatically transfer to the new owners in a nutshell, but you have to consult with them before and they have an option not to do they have an option to opt out essentially. So making sure that's complied with but it's yeah, it's that real kind of careful handling and we've seen it handled well know the buyer has come in and met with the new employees and explain what's going to happen as well and it just got to know them and I suppose yeah, that opportunity to reassure them and to answer their questions. And even if there's not a legal obligation to consult, you know, recognising that just sending everyone an email saying, Oh, by the way, on Monday, you're going to be employed by this company instead, or I've sold the company. But, you know, we've got a new new team of directors coming in it is going to be disruptive. And it's not in anyone's interest. I mean, often? Well, it depends on the terms of the deal. But often, the selling founder will have that with some sort of retention or like an earner or something like that. Yeah. So where if they if there's problems, then they can suffer financially. So it's in their interests? To make sure it's a smooth handover. Of course, the buyer wants it to be a smooth handover. And for the employees, it makes sense for them as well.
Yiuwin Tsang
But guess it's almost kind of like, as you say, it's just thinking about the process, and almost matter now, and imagine this happens a lot of businesses anyway, if there's been some kind of, you know, significant change, or something's happening, there's a lever in the company or whatever, like a senior member, the team leaving or something, you choreograph, don't you choreograph the communication so that people aren't left in the dark? They don't feel like they've been left out, you know, you're telling them at the earliest appropriate kind of opportunity. And I think that's what people appreciate, isn't it, you know, to be told at the earliest appropriately put opportunity. So as you say, there'll be a point in the deal, where it might not happen. So there's no point in causing that disruption until you have a level of expectation that the deal will go through, I guess, yeah. And it's just, I guess, it's your own judgement, as a founder as to what that point is. And then, as I say, almost kind of choreographing the communications across a team so that they don't feel like they're having the rug pulled out from underneath them.
Alistair Wells
Yeah, completely, and making sure that that communication is going out to either everybody at the same time, or you know, thinking about who you're telling when and so it's not that people hear about it from each other, rather than it coming from the founder.
Yiuwin Tsang
That's really important. Yeah. So that is so important. I think that's really important. And it means that you don't undermine the trust that you work so hard to build and suffer. So again, it comes back to that love, you've got to live with your values. And the last question on this selling a business can be quite a roller coaster for founders. If you could give one piece of advice to a founder, who's selling that business? Who's going to be navigating them, you know, themselves and their teams and their businesses through this process? What would it be? What would you tell them? Okay,
Alistair Wells
I would say be ready for it to be quite an emotional experience. And I think, for a lot of founders, you know, they've worked so hard for so long to build up this business to create the culture, they want to know when a product with the builders, client relationships, whatever it is, even if they've been completely focused on an exit from day one, I think it can be quite an emotional thing. And you work so hard through the whole process, you work even harder through the sale process, because there's a lot to organise, and to navigate and negotiate. And sometimes you don't have time for that emotion, you're just focused on the deal. And what I've seen a few times is probably happens quite a lot, is where, you know, the exit goes through. And there's almost this feeling of loss that, you know, if the founder is completely out of the business, particularly, there's that feeling of Well, I haven't even thought about, I haven't had time to think about what to do next. This thing I've been completely focused on for five years, 10 years, however long is gone. I've got some money, but I don't really know what to do with it yet. And that can be that feeling of loss. And I suppose it's just taking the time to decompress and to reflect and then think about what else you're going to do. And of course, you know, invariably, people who are have that kind of entrepreneurial mindset will find something to do. It's very rare unless they're at that age where they're kind of retiring. It's very rare that they say, Oh, that's it. There's often a new project in the wings. But yeah, I think sometimes it takes them by surprise by how actually emotionally drained they can be after it. So just taking that time to sort of recover, I guess, is the advice I'd give.
Yiuwin Tsang
Thank you for listening to this week's podcast. And a massive thank you to Alistair from Tend Legal for sharing his stories, his advice and his insights. Thank you for joining us for this week's Beautiful Business Podcast. Beautiful Business is a community for leaders who believe there's a better way to do business. Join us next time for more interesting discussion on how businesses can bring about change, helping communities, building a fairer society and safeguarding the planet. You can also join in the discussion at www.beautifulbusiness.uk