Delay Kills Deals! Legal Lessons for Business Owners Thinking of Selling

This week, I caught up with Paul Bevington, Partner & General Counsel at EMW Law LLP | B Corp. He's been helping clients buy and sell companies since joining the firm back in the 90s and has seen just about everything when it comes to business sales.

Some of my favourite moments from the chat:

✅ Why sellers underestimate just how long (and emotional) the legal process really is;
✅ What “buyer verification” actually means and why it can feel like Groundhog Day;
✅ Why shareholder alignment is essential before you go to market;
✅ The legal housekeeping you’ll wish you’d done earlier;
✅ And how a 40-year old cricket book can teach you a thing or two about leadership!

Transcript

Adam Cooper (00:01.619)

Okay, hello and welcome to the Fractional CFO show and today I'm joined by Paul Bevington who's the Partner and General Counsel at EMW Law, a commercial law firm offering a full portfolio of legal services to both UK and global clients. Paul, welcome to the Fractional CFO show, how are doing today?

Paul Bevington (00:22.194)

Thank you Adam I'm doing really well thank you and I loved the introduction that was I couldn't have put it better myself.

Adam Cooper (00:27.827)

Excellent, I'm glad I got it right, very good. Thank you very much for joining and really looking forward to this one. And we're gonna dive straight in, looking at the legal realities of the &A process. And it's something that I've had a little bit of experience of, but I'm sure you've had much more. So I'm looking forward to getting your view on this. But before we dive in, could you give us a bit of a short introduction?

about who you are and what you do and how you got to where you got to at EMW.

Paul Bevington (00:59.278)

I'm a partner in the corporate team at EMW so my day job is or has been since I joined in 1999 buying and selling companies.

Yeah, 1999, good heavens, I've been doing it that long.

Adam Cooper (01:20.109)

Very good, I'm sure it's gone a lot quicker than that.

Paul Bevington (01:24.443)

Sometimes.

Adam Cooper (01:26.915)

So tell me a bit more about, I guess let's start with the big one and most owners will dream of selling their business but the reality can be quite different I guess in terms of what you have to deal with. So why is there so much of a difference between the reality and the dream of selling one's business? What are the main things that you would identify?

Paul Bevington (01:51.23)

I think it's that I think so much work goes into the position of finding a buyer for your business and agreeing outline terms for the sale of your business that it's easy to underestimate what actually gets involved in the legal process itself after that and that's the thing that we come across time and time again is that

Clients tend not to know just how time consuming, how long the process will take, how much time it will absorb and how stressful it is actually to get through the legal process. A little bit like reaching the top of a mountain, having agreed the sale of your company and thinking, I just need to pass it over to the lawyers and it will all be dealt with. And then you're at the top of the mountain, you look up and you see another peak. it's a...

Not much fun, Adam, to be honest. It's a process that has to be gone through and it soon becomes a distant memory once the client has gone through it, but it can be a little bit fraught whilst you're doing it.

Adam Cooper (03:02.571)

Yeah, absolutely. And I guess in terms of the area that those peaks that come up, as you say, what are the things that cause the peaks? What is it? Is it around a lack of preparation and awareness of like the time involved or the emotion involved? What is it that causes those peaks and cause that disconnect?

Paul Bevington (03:22.656)

It can be, but the reality is that the legal process of selling a company always pretty much involves the same thing. How long it takes and how stressful it is, is partly dictated by how much, how ready the sellers are for that process. So, and you know, there are too many elements to go into on this podcast, but the one that really stands out is the

process of what I call the buyer verification. What the buyer is looking to do is having agreed to buy your company for the price that they've agreed to buy it for, they want to make sure that they're getting what they think they're getting and they're not actually inheriting something nasty that they weren't anticipating and would have changed their appetite for the deal or the price that they've agreed to pay for your company.

Adam Cooper (04:22.389)

Yeah, absolutely. And I guess that that buyer verification, is that something that can be prepared for as a seller? Or is that just something that, by by doing your due diligence on who you're letting buy the company? Or is there there's no getting around the fact that there's there's a process to go through regardless of who that is.

Paul Bevington (04:41.538)

There's no getting around the pro well, I mean, the process can be different depending on who you're selling to. So if you're selling to, if you're doing something like a management buyout and you're selling to somebody who's already involved in the running of the business and the process might be, might be shortened somewhat because that verification process wouldn't be needed as much for somebody who's already working in the business. But

But there'll always be a degree of this process, is, generally speaking, it's the due diligence and the warranties and the disclosure. That's the process that takes up the processes, these interlinked processes that take up the most of the peak, if you like, that we were talking about earlier.

Adam Cooper (05:35.619)

Yeah, absolutely. And I'd like to dive into the due diligence a little bit, because that's obviously where the fractional CFO show and so there is financial due diligence that the people will have to deal with. What is it that in your experiences, businesses sort of misunderstand about the due diligence process? You know, they get to that stage, they're engaging lawyers, the buyers want to have a look through their books. What are the sort of the two or three?

Paul Bevington (05:40.599)

Yeah.

Adam Cooper (06:04.781)

points that you think that sellers are not so aware of around the due diligence that they could be better prepared for.

Paul Bevington (06:12.526)

I think it's just understanding the breadth of it really. It's difficult to prepare for quite how all-inclusive the process is. The buyers really do take a no-stone unturned approach. They will look at everything in your company and

The due diligence process itself from the seller's perspective can sometimes feel a little bit like Groundhog Day. You get all these questions on legal, financial, tax, some of them overlap, which is really frustrating. And then you answer the first set of questions and you think, okay, I'm finished. And then the next set come, which are the questions on your answers to the first set of questions that were raised. And it can just feel like it goes on and on, but it's just a process that has to

has to take place. the buyer will agree to buy when they're comfortable, they've got answers to all the questions they've got on your business. I think the key from the seller's perspective, I suppose, is to just try and be aware of what those... Get yourself in a business...

in a position where you are able to answer those questions in a timely manner and I know that's difficult to say when you don't actually know what those questions will be but you can talk to a friendly lawyer if you can if you can find one who will give you a sort of a set of legal due diligence inquiries and ask yourself if you were

answering those questions now, how easy would you find it to gather that information together? And the same with the financial and the accounting and the tax due diligence requires. How easy would you find it to pull that information together? Because one of the sort of problems with the, or one of the complications that can arise on a sale process is delay. And I always say that delay is the enemy of the corporate transaction. And if you're not prepared,

Paul Bevington (08:21.902)

If you don't have the information that you need to provide to the buyer at your fingertips and you have to go away and prepare it, it's just going to cause delay and delay just invites problems. I think about all those businesses that were in a sale process that was running late, it was overdue from when they were expecting for the sale process to complete at the time that Covid hit. I wonder how many of those then just died overnight and if they had been

If the process had been going according to plan and they had been prepared for it, it would have happened before Covid hit.

Adam Cooper (09:01.025)

Yeah, absolutely. And I love that expression, delay is the enemy of the corporate transaction. I think that's so true. It's so important to get things ready. in terms of that kind of, I guess, housekeeping, you know, what are the must haves? You mentioned getting a friendly lawyer or a checklist. But what are are those things that you think, you know, the top tips you could give the audience, people thinking about selling their business at some point in terms of that legal housekeeping? What are those key elements that you'd recommend?

Paul Bevington (09:30.638)

Well, mean, again, I go back to the questionnaire, go through the questionnaire, have a look, go through a precedent questionnaire, have a look at the questions that being asked. But it's things like the material contracts of the business. Do you have them to hand? Are they current? Are you operating on contracts that expired five years ago? Is your IP protected? Are you data protection compliant? Have you thought about modern slavery? Have you thought about anti-bribery? Do you have all the

bit licenses and permits that you need to run your business. Are you complying with the pension, the pensions auto enrollment rules, health and safety, working time regulations. There's just, there's so many different legal aspects to compliance aspects to a running a business. And all those things are going to come up when you get into a sale process. So you can ignore them, park them, but

The impact that might have on your sale is difficult to quantify in terms of what it might do to how long it takes the process to take place and what ultimately the sale ends up looking like.

Adam Cooper (10:43.083)

Yeah, absolutely. So many things to think about. as you say, it's kind of, if you haven't been through it, it's that lack of awareness of what those things are. So critical to get a friendly lawyer if you can find one. One thing that you didn't mention there, but I'd love to hear your experience on is about shareholders and where you've got a number of shareholders who were involved in the sale. How important is that internal alignment?

Paul Bevington (10:57.006)

You

Adam Cooper (11:12.823)

having all those shareholders on the same page before you enter the process, rather than trying to become aligned during the process.

Paul Bevington (11:22.638)

are really important. mean, to an extent, it depends on how many shareholders you've got. If you've got two or three or five shareholders, it's going to be very different to having a hundred shareholders where it could quite easily become an extremely complicated process. But you

you absolutely the sellers have to be they have to be aligned on what they're looking to achieve out of the out of the sale process. The most complicated sales are ones where different sellers are actually getting a different something different out of the transaction. So you might have some sellers who are or exiting and going off and retiring and you can have some sellers who are who selling but they're reinvesting part of their sale proceeds and the buyer and they're going to continue working in the

the business. Now the sellers who are retiring and heading off into the sunset I've got no interest in the terms that the sellers who are rolling over are going to have with the buyer and that can potentially cause some tension.

Adam Cooper (12:31.395)

Yeah, that's really interesting. was going to ask you actually about the earn outs. Would that be affected by, you you'd have different earn out clauses and terms for different shareholders or do they have, they in your experience typically standardised regardless of what the future plans are for the sellers?

Paul Bevington (12:50.478)

I think they're typically standardized. think, mean, the earn outs are, in my experience, are generally there to bridge the gap between what the sellers think the company's worth and what the buyer thinks the company's worth. And ultimately that's going to be, that gap is going to be the same whichever type of seller you are. I suppose you are, I'm coming back to that conflict point.

You might be more concerned about the earn out if you're somebody who is selling and exiting than if somebody who's going to be carried on being involved in the running of the business. But I take a healthily skeptical view of placing too much reliance on earn outs. always say to, I wouldn't be surprised if you said the same thing Adam, but I always say to clients that...

If you are relying on achieving the earn out for agreeing to sell your company in terms of I wouldn't be doing this deal unless I got the earn out, don't do it because in my experience more often than not earn outs don't get paid or certainly don't get paid in full.

Adam Cooper (14:03.523)

Interesting, interesting. Yeah, no, I've seen that as well. But could we dive into that? What in your experience, what causes the the earn out to not be paid in full? What are those sort of elements that typically sort of carve that way?

Paul Bevington (14:18.184)

I mean there are different aspects to that. I'd say the first of all I think it's really common for there to be a post-completion dip in performance in the target business and that's largely caused by if we come back to what we were talking about earlier this

these pressures that are put on the sellers. We're talking particularly here about owner managed businesses. The sale process is very demanding and if I had a pound for every time a client had said to me I'm trying to run a business and sell it at the same time and they're both full-time jobs and something's got to give and inevitably because of the immediacy of the sale process what gives is the business and so it's not unusual for

for there to be a post-completion dip in the performance of the company just because the owner manager has had their eye taken off the running of the business whilst the sale process has absorbed them. Other aspects of the reasons why the earn out doesn't get paid I suppose is because

Well, nobody knows how the businesses are going to integrate after the sale process. What a seller might think they can get out of the business post-completion might be influenced by how the buyer runs the business post-completion. even if you build protections around that kind of thing in the share purchase agreement, you still

You still got to look at the sort of the stuff that's a little bit more difficult to define. A lot of mergers fail not because of any particular problems in the deal that was struck, but how the businesses get integrated post-completion. And it just can be a little bit different to what people were possibly expecting beforehand.

Paul Bevington (16:26.894)

As a seller you're looking at earn out thinking this is what my business does now and this is what I believe it can do in the three year period going forward. But that three year period they don't earn it anymore. there just could be other factors that come into play during that period.

Adam Cooper (16:27.094)

Mm-hmm.

Adam Cooper (16:45.495)

That's fascinating. And I mean, that takes us on nicely to one of the areas that I wanted to talk about, which is succession planning. And obviously your ability to plan the succession as the seller is impacted by what you just mentioned, right? In terms of the integration and what the buyer's plans are for the business post-sale. How do you mitigate for that? Is there a way that you can plan to ensure

And I guess there's that second tier of management putting that in place and ensuring that's robust and that they're involved in the sales process to an extent. I'd love to hear your thoughts on how succession planning can best mitigate that post-completion dip.

Paul Bevington (17:28.366)

Yeah I think all those things that you've just said, mean succession planning is a huge subject in its own right and it's... you can mitigate it to an extent I suppose if you've got...

junior managers who are trained up in the business and are going to carry on working in the business post-completion, but ultimately you don't know what direction the buyer is going to try and take the business after you've sold it. I don't know, I'm sort of changing my mind as I'm sat here talking to you Adam. I'm sort of thinking there's a limited amount you can do to mitigate that risk. If there was then I think more earn outs would actually get paid out than

than generally in my experience do.

Adam Cooper (18:28.019)

So, no, definitely. And so I guess, you warn against earn outs per se, like for those owner managers who are looking to sell their businesses? Is that something you'll try and steer them away from at the outset or do you just warn, you know, it's a must have, you've got to do it, but just be prepared that it's not going to fully pay out.

Paul Bevington (18:49.046)

I the latter. I don't say don't do a deal with an earn out but I say that don't do a deal relying on the payment of the earn out. So if it's icing on the cake then that's fine. If it is the cake then you need to be a bit more careful about whether that's the kind of deal that you want to do.

Adam Cooper (18:56.739)

Hmm.

Adam Cooper (19:07.979)

Yeah, no, absolutely. So wouldn't in and of itself be a red flag. It's just making sure that you're mentally prepared for it.

Paul Bevington (19:14.498)

Yeah, I think so.

Adam Cooper (19:16.373)

Okay, perfect. So you mentioned there just about, not a red flag, but an amber flag. And you mentioned earlier about time being the enemy of, and delay being the enemy of the transaction. Are there any other kind of deal killers or big legal red flags that you would warn the audience about? Again, typically the audience of this podcast are smaller business owners.

What is it that they should be wary of that causes deals to collapse from your experience?

Paul Bevington (19:56.778)

Look, I don't think there are, in my experience, once you get through to the legal process of selling your company, not that many deals fall over. The deal has been commercially agreed and most problems that come out of due diligence, there's a solution to them. There's a way, there's some kind of a way around the problem.

Deals fall over not because the solution can't be found to a problem. They fall over because the buyer and the seller disagree over who's going to bear responsibility for what's cropped up, I suppose. So if it means a reduction to the price because there's a liability in there that the buyer didn't expect and doesn't want to assume.

then the seller might actually take the view that they don't want to sell the company for that price and they'd rather trade through that problem and come back to market in a couple of years time, for example.

Adam Cooper (21:06.146)

Yeah, interesting. And in terms of your role as the lawyer, because obviously, I guess you want to get involved earlier in the process and therefore, how much of your in your experience role is advising your clients around what some of those red flags are and educating them so that by the time they get to the actual legal negotiations, you've been involved, you've educated and those red flags fall away.

How much of your role is that advisory stage? And how much of your role is, or your expectation is that education around those things is done by the buyer and seller before you get involved as the lawyer?

Paul Bevington (21:51.662)

In terms of the things that a seller would need to know and what they're going to come across in the sale process, mean?

Adam Cooper (22:03.019)

Yeah exactly.

Paul Bevington (22:04.662)

Yeah, well, yeah, mean, we will, our role, we accept and fully understand, and it's actually part of the joy of working for owner managed businesses, is that they're not likely to have gone through that process before, and outside of the marriage and the birth of their children, it might be the most important thing they ever do. And we completely understand that,

Adam Cooper (22:24.259)

Hmm.

Paul Bevington (22:35.454)

it's important as lawyers not to treat it just like another sale that we've done time and time again. The importance of that sale to that individual client is never lost on us and we will hold their hand and walk them through what they're likely to encounter as best we can. But some of the stuff that we've been talking about today in terms of

how ready the business is for a sale process. We don't get involved in that as much as I would like to because ultimately the business doesn't really, the businesses often don't address those points until too late to do anything about them. They'd start thinking about them at the time that they've decided they want to sell rather than treating it as part of their ongoing business planning. And we,

We just tend not to get engaged around those points by our clients. We tend to get engaged when they ring up and say, either we're thinking of selling or even more likely we're selling, we found a buyer and we want you to do the legals. to an extent, some of these points we've been discussing, it's too late by that.

Adam Cooper (23:58.627)

And obviously if they call you up and say we're selling, we found a buyer, here you go, presumably from your point of view that's not ideal because it's a bit later than you would like to be engaged or I'm sure you can deal with it and you can handle it but what are the downsides of being sort of called up out the blue and asked to just jump on onto a deal like that?

Paul Bevington (24:21.71)

Well look I mean it's is it ideal? Probably not. It would be better I think if we got involved a little bit earlier in the process but it's not uncommon. I mean what you've just described there is probably a large proportion of the transactions that we work on.

Adam Cooper (24:49.047)

Yeah, okay, interesting. And how are you seeing the market at the moment in terms of the sales that you're seeing come through and across your desk? How is the market, it up or down? Is it being affected by the of the wider geopolitical uncertainty of people rapidly trying to exit? How are you seeing the market as we speak?

Paul Bevington (25:10.398)

That's an interesting question. It's probably a little bit too early into the geopolitical chaos that we've got at the moment to see an impact on the market. mean, we as a corporate team have been really busy, really busy for about the last 18 months and there aren't any immediate signs of that slowing down, to be honest. It's a very hot market at the moment.

Adam Cooper (25:41.444)

And is that in any particular sector or are you finding that across the board?

Paul Bevington (25:45.91)

the board.

Adam Cooper (25:48.693)

Okay, great. It was a good time to be buying, I guess, in terms of if the market's hot like that. Are you finding in terms of the sort of access to financing, because obviously I presume you're involved in that to an extent, are you finding that is equally accessible at the moment with the market being hot as it is?

Paul Bevington (25:55.65)

Yeah.

Paul Bevington (26:13.198)

Er, yeah I'm not... To be honest Adam, I haven't really got anything much to contribute on that. I don't really deal with the acquisition finance side of things. That would be our banking team.

Adam Cooper (26:27.623)

Mm hmm. Okay. Okay. Cool. So I guess is there in terms of moving on to what I call our final section, which is our business book bonus section. So we typically like to end up with a book or a podcast or website or some piece of content that has helped you in your career and that you'd like to recommend to the audience. So is there anything that you'd really recommend to the audience as being particularly insightful?

Paul Bevington (26:39.179)

Okay.

Adam Cooper (26:57.664)

that could help them on their journey potentially as they're looking to sell or buy in the legal space.

Paul Bevington (27:06.542)

No.

Adam Cooper (27:09.315)

That was short and sweet Paul, thank you for that. Anything that's non-leak or not.

Paul Bevington (27:10.446)

I'm probably not the best person to ask this question to. So much of my time involves looking at reading stuff that when I have spare time I'm not as committed as perhaps other people would be and I spend very little of it looking at looking at business books. Look I would give people one piece of advice is that surround yourself

Adam Cooper (27:35.628)

Yes please.

Paul Bevington (27:38.702)

with motivated, intelligent people who are desperate to learn. And if you do that, can't go far, you can't go far wrong. Don't make yourself the smartest person in the room or in your business. I don't think that's a great move. to that end, I would say that your ability to motivate and man management people, your man management skills are absolutely key. So I will give one book, but it's not a business book as such. And that is,

The Art of Captaincy by ex-England cricket captain Mike Brearley. If it wasn't for his ability to get the best out of his team at that time, there were probably times where he just wasn't a good enough cricketer to make the side. And by modern day standards that is incredible that somebody was actually playing in the England cricket team because of the effect they had on other players rather than the contribution they were making with the bat and ball.

Adam Cooper (28:39.475)

That is interesting. So Mike Brearley won because that's going back a few years, even for me. I like that. I like that a lot. But you're right. I mean, was just listening to something the other day about someone saying that the captaincy of a football team from the context of football is so unimportant these days. know cricket, there are more decisions being made on the field, on the fly. But as you say, that's quite...

Paul Bevington (28:45.486)

It is for me too to be fair!

Adam Cooper (29:07.373)

quite a different concept of someone being there for his captaining or her captaining ability rather than their ability with the bat and ball. So no, that's a really good one. I'll definitely put a link to that in the show notes. The art of captaincy by Mike Brearley. And so yeah, just to wrap up, Paul, can you tell us where listeners can connect with you and learn more about what you're doing, what EMW is doing if they so desire?

Paul Bevington (29:23.0)

That's it.

Paul Bevington (29:35.502)

Absolutely you can follow us on LinkedIn or you can have a look on our website www.emwlaw.com and you'll find our contact details in there if anybody ever wants to have a chat then I'm always free for a call.

Adam Cooper (29:50.901)

Amazing, amazing. Okay, good stuff. Thank you very much, Paul, for joining me today on the Fractional CFO Show. I really appreciate your insight, your perspective, and your time. Thank you.

Paul Bevington (29:59.682)

Thanks Adam, it's been fun.