Just as no vintner wants to sell a corked bottle of wine, no purchaser of a vineyard or winery wants to buy a tainted business. If the structuring of your purchase dictates that, instead of buying the specific assets, you buy the company that owns the assets required to run the business, such as the land, crops, machinery and brand, you will be undertaking a share or corporate purchase. This means that you (and any other purchaser involved) will become the shareholders of the target company.
The purchase structure requires consideration and will likely depend on your circumstances and long-term goals. For example, are you acquiring the business as an individual or with others, possibly as a family investment company? If the latter, consider how to split the shares between the owners and whether all shareholders have the same rights or not. If one shareholder runs the business, while others are passive investors, different rights to profits or decision-making may be required. To achieve this, you may need to create and issue different classes of share. On the other hand, if all shareholders have equal rights, could this result in deadlock and how should this be resolved? What happens if a shareholder wishes to sell their shares? Are there restrictions on who they can sell to and the price? All these questions and more can be addressed in a shareholders’ agreement and company constitution, but it is imperative that you document the ownership structure and the shareholder rights carefully to avoid disagreements in the future.
In relation to the purchase of the target company, you need to consider and understand the company and business that you intend to acquire. Remember that under English law, the rule of caveat emptor (let the buyer beware) applies and so you must do your homework (and instruct trusted legal advisors who can do thorough, yet efficient, due diligence) before signing on the dotted line.
To reduce the risks of any headaches post-completion, consider:
- What assets does the target company own and what does it lease?
- What protection (if any) is there for the Intellectual Property (“IP”)? Is the IP adequately protected, for example, have trademarks and patents been properly registered and are domain names held correctly?
- Does the target company have any debt and if so, will this be repaid on or before purchase? There may be security in place, which will need to be released.
- Are there contracts governing business relationships? There might be historic “Gentlemens’ agreements” or contracts may have expired and not been formally extended. Check that any contracts have been properly executed and whether the change of control of the company will trigger any obligations or termination rights.
- Are the statutory books of the target company up-to-date and correct? Has the Seller made all the requisite filings?
- Are there inherent liabilities in the target company or is there ongoing or likely litigation? If so, you need adequate protection, for example, through indemnity or insurance in case the company has to pay-out at some point.
Following completion, think about the daily commercial arrangements of the company. If contracts are to be terminated or amended or new arrangements entered into, doing this correctly will protect you from any nasty surprises and ensure that the parties agree what the contract tries to do and their obligations. We suggest putting in place efficient record-keeping and filing processes to make running the business simpler and aiding the exit process when you get to that point. For example, if you decide to sell the business, potential purchasers will consider the due diligence mentioned above. The paperwork and correct processes already in place will make your life, as the seller, much easier.
Additionally, as the life-cycle of the company continues, you may decide to restructure, perhaps to give a family member a greater share of the profits or decision-making rights. Thinking about potential exit strategies early. Your strategy may change but giving thought to passing the company and business onto the next generation or selling it to a third party may affect your decisions while in ownership.
Acquiring and running a business is challenging, but it can be vastly rewarding, both financially and personally. The key is to understand what you are purchasing, to structure the purchase and ongoing ownership correctly and manage the business efficiently day-to-day. The correct advisors are critical. Ensure that any such advisors are not only experts in their field, but are also practical, commercial and understand the industry.
Buying a vineyard or a winery involves acquiring a bundle of assets. Land is at heart of the transaction, but you may also be buying crops, buildings, subsidies, goodwill, and intellectual property. Overlaid with that is how you are buying them – trading businesses may be sold as corporate transactions or “share sales” rather than a direct purchase of the underlying assets. This article focuses on the assets you are acquiring and what terms your purchase contract might need to address.
A great bottle of wine is a wonderfully elegant, simple thing. But the process of making it is complicated. Small variables in soil, climate, management and markets can make the difference between a great year and an average one.