Legal issues for buyers and sellers in the plumbing and drainage sector

Mergers and acquisitions in the plumbing and drainage sector will always require extensive due diligence. In particular, buyers will want to establish how the target business meets its regulatory obligations. These range from compliance with relevant parts of the Building Regulations, specifically Part G, dealing with sanitation, hot water safety, and water efficiency, and Part H, relating to drainage and waste disposal. In addition, products manufactured or used by the business must meet water regulations standards. Strict health and safety protocols should also be in place to protect employees, contactors, and consumers.

Sellers should be ready to produce documentation relating to risk assessments, employee training, and provide details of any historical issues that have arisen with water authorities and other regulators. Transparency on all these issues ensures the deal will proceed smoothly, keeps indemnities to a minimum, and reduces the potential for post-sale disputes.

Plumbing and drainage companies, with their provision of services to residential and commercial customers, are heavily dependent on their workforce. Typically, it will include a mix of self-employed workers, subcontractors, PAYE employees, and agency staff. Because of this, employment law issues will be to the fore in any negotiations leading to a sale or purchase of a business in this sector.

Self employed staff who commit a significant part of their working time to a target company will be a concern to buyers. If there is a risk of self employed staff being ruled as (in reality) part-time employees, there is a significant risk of PAYE and NI liability going back several years.  As this is potentially deal-ending, sellers should conduct an audit before going to market.

Sellers have strict obligations under the TUPE transfer legislation towards existing employees, often where deals are forced as a result of re-tendering contracts. These must be adhered to. From a buyer’s perspective, the manner in which transfers under TUPE will impact their plans for future growth and any possible restructuring of the business must be established clearly. In addition, the skills shortage across the plumbing and drainage sector means the retention of key staff will often be a priority for buyers. They should satisfy themselves that effective contractual arrangements are in place to guard against the loss of valuable personnel.

Vehicles and equipment used in day-to-day plumbing and draining operations are integral to businesses in the sector. For buyers, a detailed analysis must be carried out of how the entire fleet is owned, whether vehicles are leased, subject to HP agreements, or owned outright. Contracts should be checked to ensure ownership can be assigned on completion. This audit applies to the entire fleet, including company work vans, vacuum tankers, excavation equipment, and CCTV survey/jetting vehicles. Additionally, the status of any licences required to operate specialist vehicles or equipment should be checked to avoid post-completion sanctions from local authorities or other bodies.

Plumbers and drainage companies in the UK are subject to extensive environmental and waste management regulations. Plumbers must ensure their work is compliant with Building Regulations and meets current Energy Efficiency requirements. Drainage businesses must have comprehensive waste carrier licences in place as well as valid permits from relevant water companies. These will confirm the business is allowed to handle contaminated or waste water and that it can carry out sewer connection and infrastructure improvement works. These are crucial work streams for any company in the sector.

When it comes to the sale of a plumbing and drainage business, buyers must check the compliance history of the target business. Where historic environmental breaches are revealed, indemnities must be obtained from the seller. As part of general due diligence, buyers should also satisfy themselves that all licenses are valid and will be transferred on sale. It is in the seller’s interest to demonstrate compliance as this removes any requirement for onerous indemnities and reduces the possibility of post completion litigation.

Plumbing and drainage businesses generate revenue from both the commercial sector, carrying out work for local authorities, commercial estates and utility companies, and from the consumer market through, for example, residential emergency call outs. A wide range of contracts will be associated with the business.

Buyers must ensure these are fit for purpose and comply with all relevant consumer protection laws and other regulations. It is essential that, if desired, key, large-scale contracts will be assigned to the buyer on completion with all termination rights and pricing structures intact. Any legal exposure from existing contracts, whether from commercial work or consumer-facing operations, should be categorised and, if necessary, mitigated by appropriate indemnities from the seller.

At DMH Stallard, we help family businesses, entrepreneurs, SMEs, and larger national businesses entering or exiting the plumbing and drainage sector. For buyers, we assist with all aspects of the acquisition from ensuring financing is in place to overseeing the entire due diligence process, ensuring the deal proceeds on time, and on budget. We also oversee the sensitive phase of transition to new ownership. For sellers, we work with you once you have made the decision to sell, helping you identify potential buyers and negotiating the best possible terms.

The value of plumbing and drainage businesses in the UK tends to be associated more with the services provided and the value of existing large-scale contracts with local authorities and others. M&A transactions in the sector, therefore, often focus less on the transfer of land and property than is the case with deals in other industries. As we have seen, transactions in the sector are not without risk. Environmental considerations, the make-up of the workforce, and ownership of equipment and vehicles will all affect the marketability of the business. 

We have outlined just a selection of the legal and regulatory issues that can arise in the context of M&As in the plumbing and drainage sector. We can advise on these matters, as well as other issues as they arise, including questions around branding and intellectual property, insurance coverage, and health and safety obligations. Our team of expert Sales, Acquisitions and Mergers lawyers is backed up by others working in areas such as Environmental Law, Commercial Real Estate, Employment, and Business Tax law. Clients can be assured that we have the resources and expertise to manage their transaction to a successful conclusion, dealing with legal and other obstacles as they arise. For an initial conversation get in touch.