How to Buy a Business in NZ

29 September, 2023 | Chantal Laidler

The process of selling or purchasing a business can be both exciting and daunting. The process involves several important steps that require preparation, careful attention to detail and expert guidance.

Step 1: Conduct Due Diligence

Before proceeding with a business transaction, it’s crucial to conduct thorough due diligence. As a buyer, this involves assessing the business’s financials, day-to-day running of the business, and legal compliance. Sellers should also prepare all necessary documents for the buyer’s review and make sure aspects of the business are in a position to be assigned, such as ensuring Deeds of Lease are in place and checking notice periods in employment agreements.

Even if you’ve completed due diligence before entering into an Agreement, it is still important that a due diligence condition is included within the Agreement – as discussed further at step 3 below.

Step 2: Negotiate the Terms

The next step is to engage in negotiations to determine the terms of the sale. This includes agreeing on the purchase price, payment structure, asset allocation, and any conditions that must be met before the sale or purchase becomes unconditional. It is important to work closely with legal and financial advisors at this stage to ensure fair and favourable terms for both parties. It is also vitally important that you understand, and make sure you or your Company is covered for any warranties, representations, and post-sale obligations.

At Smith and Partners, we work closely with a number of accountants and can suggest an accountant to assist on the transaction, as necessary.

Once a suitable Agreement for Sale and Purchase has been drafted, you can then sign the same and begin working towards satisfaction of the conditions contained therein.

Step 3: Secure Financing and Conduct Further Due Diligence

Often an Agreement for Sale and Purchase will be subject to finance and due diligence conditions.

At this stage in large business transactions, a ‘data room’ will often become available. This will include key details and legal documentation for review. Even if a ‘data room’ is not applicable in circumstances, a due diligence period following the signing of an Agreement will allow a potential Purchaser and their advisors to carefully look at various aspects of the business. Often, this process goes hand in hand with securing financing.

Step 4: Obtain Necessary Consents

Depending on the transaction, specific consents may need to be obtained either as a condition of the Agreement or to ensure a smooth ownership transfer. This could involve obtaining consents from landlords, regulatory bodies, or business partners and offering employment to employees of the business. It is essential to ensure this stage is completed in a comprehensive manner to avoid any disruptions to the transaction process.

Step 5: Settle the Transaction

Settlement is the final stage where the purchase price is paid, and ownership transfers to the buyer. At this stage, depending on the terms of the Agreement, a retention amount may also be held in a solicitor’s Trust Account.

Both parties may then have post-sale obligations to fulfill (such as post-settlement training in the business, or warranties and indemnities outlined in the Agreement).

Conclusion

Selling or purchasing a business in New Zealand involves a step-by-step process that demands careful planning, due diligence, and expert guidance. Don’t navigate the complexities of this important transaction alone. Whether you’re a buyer or a seller, each stage is critical for a successful transaction.

Chantal Laidler and the commercial team at Smith and Partners specialise in helping buyers like you make informed decisions and protect their interests throughout the entire process. From conducting thorough due diligence and negotiating favourable terms to securing financing and ensuring all necessary consents are obtained, Chantal will be your trusted partner every step of the way.

Take the first step towards your business ownership dreams – reach out to experienced commercial lawyer Chantal Laidler today.

Chantal Laidler
Chantal.laidler@smithpartners.co.nz
09 837 6833