An important stage during any business transaction, due diligence ensures that any decision regarding the acquisition is an informed one.
Due Diligence, the process of information gathering, reviewing and reporting undertaken at the start of a share or asset sale, has four main purposes:
1. To enable accurate valuation;
2. To identify risks;
3. To prepare for the running the business post completion; and
4. To help decide whether to buy at all.
The process of due diligence will depend on the type of transaction, namely whether it is a share or asset sale.
During a share sale, the identity of the employer is unlikely to change, and so the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) are unlikely to apply. However, in the event of an asset transfer TUPE be relevant as the employees will transfer to the buyer.
Either way, it will be important to understand exactly what the buyer wants to achieve from the process.
Assuming the buyer has some control over the due diligence process, the buyer's advisors will usually prepare a request specifying what information about the business that the buyer would like to look at.
If the seller has already prepared a Vendor (Reverse) Due Diligence report, the buyer should review the employment detail included, and whether it is sufficient.
How both parties navigate the due diligence process will depend on the transaction. Virtual data rooms are now the norm, but in some limited cases the seller will prepare a data room that prospective buyers can access for a limited time. In either case, copying or the downloading of documents is usually restricted.
After this initial information has been considered, there is usually a limited opportunity for the buyer's advisors to make follow up enquiries.
Then, if the transaction proceeds following the due diligence exercise, the information gathered throughout will have an effect on the rest of the transaction.
TUPE requires the seller to provide the buyer with certain information about the transferring employees, or those who ought to transfer, known as the "employee liability information" (ELI). In an outsourcing, the ELI must be provided by either the client or the outgoing supplier.
The ELI must be provided not less than 28 days before the transfer and be correct not more than 14 days before the date on which it is provided. It must also be shared in writing or other forms that are "readily accessible" to the buyer - it can be a combination of more than one instrument. Written notification of any changes must be provided by the seller once the information has been shared.
While the ELI is useful to the buyer, it is unlikely to comprise all the information that it needs in relation to the transferring; further information may be required as part of the due diligence exercise.
The ELI could be provided at the same time as the due diligence information. However, as it will be necessary to anonymise the due diligence information, it is likely that the ELI would be provided simultaneously, but separately.
The retention of senior and/or key staff members of the target business post completion (whether on a short 'hand over' basis or as part of long term planning) can be of paramount importance in an acquisition. Current terms and conditions of such employees should be reviewed in detail as part of the due diligence exercise. It is then usual to negotiate and implement new service agreements with the identified staff members as part of the acquisition process.
At GS Verde, we can offer support in respect of the whole TUPE process, including preparing ELI and responding to the due diligence questionnaire. We can also prepare and negotiate tailored service agreements for key members of staff.
If you have any queries about this or would like to assistance with any of the information set out above, please contact our Employment and HR Team. For a no-obligation quote, use our online 'Get a Quote' service on https://www.gsverde.law/get-a-quote