This time, Joe and Ayesha sit down with Paul Rajput, Partner and Head of the Corporate team. With over 20 years of experience handling transactions in the creative sector, Paul specialises in helping advertising and marketing holding companies through successful acquisitions. He shares his insights on the buyer's perspective in creative sector deals.

Key takeaways:

• Don’t expect the whole purchase price upfront: creative businesses are people focussed, so buyers will want to structure the transaction to ensure that the right people are incentivised to stay and grow the business following the acquisition. In most transactions involving creative businesses, there is an “earnout” (or similar structure) where a portion of the purchase price is deferred and is dependent on future financial performance. In other cases, sellers are required to “re-invest” some of their proceeds into the buyer, so that they become a stakeholder in the overall future performance of the buyer’s group.
• Start thinking about structure: when preparing to sell, creative business owners should consider their company or group structure, both from a shareholder perspective and in terms of subsidiary entities. As far as possible, sellers should seek to simplify and streamline their entity or group structure ahead of the transaction. This reduces the likelihood of delays, indicates to buyers that they are well organised and that the business is managed efficiently.
• Be prepared for legal due diligence: buyers will conduct thorough legal due diligence to assess any potential risks in the target business. Given the nature of creative businesses, legal due diligence tends to be focused on people, client contracts and intellectual property.
• Negotiations, especially around earnout protections can be tricky: the “earnout protections”, generally being the buyer not agreeing to do certain things without the sellers’ consent while the sellers work to achieve their earnout, are often a focus of negotiations. The buyer will need to ensure that it has sufficient control of the acquired business. Similarly, the sellers will want to have comfort that they will be free to do what’s necessary to achieve their earnout.
• Expect weighty non-compete clauses: buyers generally expect key managers to stay in the business post-completion. Therefore, they often require key management sellers to agree not to work for competing businesses for two to four years without their consent.
• Importance of post-acquisition integration: integration discussions around how the acquired company is going to integrate into the buyer's group, where it will sit and what the reporting lines might be are important for both buyers and sellers. Acquired companies tend to remain as standalone businesses within the buyer’s group, but in some cases, they might be absorbed by an existing part of the group. This will have an impact on deal structuring and should be considered at the outset.

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