Most founders begin preparing for a sale at the wrong moment. The LOI is signed, the buyer’s advisors are engaged, and suddenly every gap in the business becomes a negotiating point – because the buyer now controls the clock and every issue discovered after LOI is leverage they didn’t have before.
The founders who achieve the best outcomes – cleaner offers, fewer conditions, less value lost in the final stretch – start earlier. Not years earlier. But deliberately earlier, with a structured view of what a buyer will find and a plan for resolving the issues that matter most before the process begins.
This is what that preparation actually involves.
1) Clarify IP ownership – including the assets you’ve never formally documented
Buyers are not just acquiring a product or a customer base. They are acquiring certainty that the business owns what it thinks it owns and that ownership will survive the transaction.
The IP gaps that surface most consistently in South African due diligence are contractor and developer assignments – situations where software was built, creative work was produced, or proprietary processes were designed by individuals who were never asked to sign an IP assignment agreement. Without a signed assignment, the default position under South African law is that the contractor retains ownership. This is not a theoretical risk. It is a documented fact pattern in a significant proportion of founder-led technology and services businesses, and buyers price it accordingly.
Fix this before the process starts. Identify every contractor or consultant who created something material to the business in the last five years. Obtain signed IP assignment agreements. Where the individual is no longer available or willing, take legal advice on the exposure and be prepared to disclose it proactively rather than have the buyer find it.
2) Resolve the shareholder position before buyers see it
Shareholder friction is one of the most reliable deal-killers in South African transactions and one of the least prepared for. Buyers will review the shareholders agreement, the MOI, and the board structure. What they are looking for is clean authority – no provisions that create post-acquisition complications, no minority rights that could obstruct the transaction, no undocumented arrangements between co-founders about equity, roles, or future remuneration that exist outside the formal documents.
If there are outstanding disputes between shareholders, informal understandings that were never properly recorded, or founders with misaligned expectations about what the exit means for them individually, these need to be resolved before the process opens – not during it. A shareholder dispute that surfaces mid-deal gives the buyer a reason to pause, reprice, or restructure. It also signals to the buyer that the business has governance problems that may extend beyond the shareholder relationship itself.
The Companies Act framework governing share transfers, pre-emptive rights, and tag-along and drag-along provisions also needs to be reviewed against your actual shareholder agreement before a buyer’s lawyers do it. Inconsistencies between the MOI and the shareholders agreement are common and need to be addressed before they become a due diligence finding.
3) Employment hygiene: the gaps that move fastest from finding to discount
Employment documentation is disproportionately impactful in SA due diligence relative to the effort required to fix it. The issues that surface most consistently are unsigned employment contracts, inconsistent treatment of restraint of trade and confidentiality obligations across the workforce, contractor arrangements that carry employee misclassification risk under the Labour Relations Act, and CCMA matters – whether resolved, pending, or settled – that weren’t proactively disclosed.
The B-BBEE position of the business also matters in many SA transactions, both because it affects the buyer’s own compliance position post-acquisition and because it may affect customer contract continuity if key customers have supplier diversity requirements. Understand your verified B-BBEE level, what drives it, and what a change of ownership does to it before a buyer asks the question.
Clean up signed contracts, address restraint and confidentiality gaps for key staff, and prepare a clear summary of any employment disputes – resolved or otherwise. Employment mess is one of the fastest ways for a buyer to push price down because it creates both quantified liability and a broader signal about how the business is run.
4) Fix the financial narrative – not just the numbers
Buyers look for consistency between management accounts, tax filings, and statutory financial statements. Where those don’t reconcile cleanly, the buyer’s financial due diligence team will spend weeks asking questions – and every question extends the timeline and creates another opportunity for the buyer to find something that changes the valuation.
In South Africa specifically, SARS compliance is a material due diligence item. Outstanding VAT, PAYE, or income tax liabilities, unresolved SARS audits or assessments, and transfer pricing positions that haven’t been properly documented all create exposure that buyers will either price into the deal or require to be resolved before closing.
Do a pre-LOI financial reconciliation and prepare a short normalisation note that explains what is non-recurring, what the true run-rate revenue and EBITDA looks like, and how the management accounts connect to the audited financials. If there are SARS issues, deal with them – or at minimum understand them and be prepared to disclose them with a clear narrative about status and resolution.
5) Prepare for warranties by doing your own truth check
Warranties in a South African M&A transaction are not just legal drafting. They are a structured test of how well the founder knows their own business – and the seller’s exposure under them can extend for twelve to twenty-four months post-closing.
The warranties that create the most exposure in SA deals cover regulatory compliance including POPIA data protection obligations, tax compliance and the accuracy of tax returns, the absence of undisclosed litigation or disputes, IP ownership, and the accuracy of the financial information provided to the buyer.
Before the process starts, work through each of these areas with honest answers. Are there POPIA obligations that haven’t been properly implemented – privacy notices, processing agreements with third parties, data breach response procedures? Are there customer or supplier disputes being managed informally that could crystallise into claims? Are there any areas of regulatory non-compliance that you’ve been aware of and haven’t addressed?
Issues you find and fix before the process starts protect value. Issues you find and disclose proactively give you control of the narrative. Issues the buyer finds that you didn’t disclose become warranty claims, price adjustments, and in the worst cases, deal conditions that you have no leverage to resist.
6) Simplify key contracts before the buyer has to ask about them
A data room is not a strategy. Uploading contracts and waiting for the buyer’s lawyers to work through them is the slowest and most expensive version of due diligence for everyone involved – including the seller.
Before the process begins, produce a one-page top contracts summary covering your ten most significant customer and supplier agreements: term, termination rights, renewal mechanics, change-of-control provisions, and any consent requirements triggered by a sale. This single document prevents weeks of Q&A, signals that the business is well-organised, and – critically – gives you advance visibility of any change-of-control issues that need to be managed before the buyer finds them.
The founder’s advantage
Founders who clean up early control the tone of the process. Buyers feel the difference between a business that is prepared and one that is discovering its own gaps under diligence pressure. Prepared businesses get cleaner offers, faster timelines, fewer conditions, and less value lost to last-minute renegotiations. The preparation work is not complicated. But it requires doing it before the LOI — not after.
Once the buyer is in the room, the rules change. The time to prepare is before they arrive.
Caveat Legal works with founders and shareholders to prepare businesses for exit and navigate transactions from initial preparation through to closing. If you are thinking about a sale in the next one to three years, get in touch.
