Buying a brand out of an indebted company: a new company, an asset purchase and the founder kept on board
A buyer taking over a charcoal and biochar brand through a new company, leaving the old company's borrowing behind and keeping the founder as a minority shareholder
By Malcolm ZoppiRetail and e-commerce
Key facts
- Deal type
- Asset purchase
- Acting for
- Buyer (an individual investing through a new company)
- Business
- Charcoal and biochar brand
- Sector
- Retail and e-commerce
- Deal value
- Low six figures
- Structure
- Asset purchase of the brand, stock and trade marks by a new company; founder issued redeemable minority shares and a service agreement; investor repaid first under a revenue priority agreement
- Timescale
- Heads of terms in autumn 2022; restructured and completed in early 2023
- Completed
- Early 2023
- Lead solicitor
- Malcolm Zoppi
At a glance
Our client wanted to buy a charcoal and biochar brand whose trading company was carrying an overdraft, a government-backed loan and finance debt. Buying the company would have meant buying those debts. Instead, the brand, stock and trade marks were bought by a new company, the debts stayed with the old one, and the founder came across as a minority shareholder with a service agreement so the business kept his knowledge. The deal completed in early 2023.
The client and the objective
The client was investing his own money to grow the brand. He wanted the assets that made the business valuable and none of the borrowing, his investment protected, and the founder still involved in running the business.
The deal
- A new company formed to buy the business.
- Asset purchase of the brand, stock and related assets from the old company, with the trade marks assigned to the new company.
- The founder issued redeemable minority shares in the new company and given a service agreement.
- A revenue priority agreement under which the investor's money is repaid first.
Key legal issues and how we solved them
Leaving the debts behind
The original heads of terms combined a share purchase with an asset purchase. Once the scale of the old company's borrowing was clear, the structure was changed so that only assets moved. The overdraft, the government-backed loan and the finance debt stayed with the old company, which was later closed.
Protecting the investor
The investor was putting in the money the new company needed. A revenue priority agreement ensured he was repaid before any other distributions, and the shareholders' agreement reserved key decisions to him, set borrowing limits and gave him drag rights on a future sale.
Keeping the founder without losing control
The founder's minority shares were redeemable if he left the business, so ownership would come back to the company rather than staying with someone no longer involved. His service agreement set out his role and pay.
Transferring the brand properly
A brand is only owned if its trade marks are. The trade mark assignments were documented and recorded at the UK Intellectual Property Office.
Outcome
The deal completed in early 2023. The new company owns the brand, stock and trade marks without the old company's borrowing, the investor's money is protected, and the founder remains involved.
What this deal shows
- If the target company has debts you do not want, buy the assets, not the shares.
- An investor bringing in new money should be repaid first and keep control of the key decisions.
- Keeping the founder through redeemable shares preserves know-how without giving away control.
“The brand was worth buying; the company's debts were not. A new company, an asset purchase and the founder kept on board got the client the business he actually wanted.”