Buying or selling a manufacturing business

• Key customer and supplier contracts, including change of control and exclusivity terms.
• Plant and machinery: who owns it, and any hire purchase, lease or asset finance against it.
• Premises: the lease or freehold, environmental permits and any contamination risk.
• Health and safety record and any claims.
• Product liability and the warranties the business gives its own customers.
• Intellectual property: designs, drawings, tooling, know-how and trade marks, and whether the company really owns them.
• Key employees and what happens to them after completion.

Manufacturers carry stock, work in progress and trade debtors, so the price usually needs to be adjusted for the working capital actually in the business at completion. That is done through completion accounts or a locked box, and the mechanism needs to be agreed in the heads of terms, not left to the purchase agreement.

Manufacturing acquisitions are often funded with invoice finance or asset-based lending secured on the target’s own debtors and equipment, alongside deferred payments to the seller. I have acted on deals using an SPV, a holding company and a separate company to hold the intellectual property, and on the purchase of a loss-making manufacturer for a nominal sum where indemnities, rather than the price, protected the buyer.

If you are selling, expect the buyer to focus on customer concentration, equipment, premises and environmental points. Getting those documents in order before going to market shortens due diligence and protects the price. See selling a business.