Strictly Business

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Acquisition Archives

Selling Your Business – Practical Tips for Sellers – Part 4: Letters of Intent

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This is the fourth in a series of posts discussing the sale of a business from the seller’s perspective. In the first three posts, we provided an introduction to this series and discussed asset versus stock sales, seller financing, and earn-outs. In this fourth post, we’re moving away from deal structure issues and into the deal process itself, starting with letters of intent, or “LOIs” (also known as “term sheets”).

We’ve previously written about LOIs from the point of view a buyer of a business and recommended that a lawyer be engaged at the LOI stage. However, in this post we want to discuss some of the important points from the perspective of a seller of a business. Here are four tips for sellers in negotiating the LOI followed by a list of items sellers might consider including in the LOI. [Read more…]

Selling Your Business – Practical Tips for Sellers – Part 3: Earn-outs

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This is the third in a series of posts discussing the sale of a business from the seller’s perspective. In the first and second posts, we provided an introduction to this series and discussed the difference between asset and stock sales and some of the considerations and pitfalls when providing seller financing. In this third post, we’ll discuss another common deal structure issue, earn-outs. [Read more…]

Selling Your Business – Practical Tips for Sellers – Part 1: Introduction and Deal Structure

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Introduction

It’s time to cash out. You’ve reached retirement age or some other point in your life where you want to sell your business. Or perhaps your business has reached a point where you can’t take it any farther on your own and a sale makes sense. Or maybe you’ve simply received a great offer. In any event, the sale of your business is probably one of the most significant events in your life, and you should understand the process before you jump in so you’re well positioned to get the best deal you can with the least amount of risk. [Read more…]

Drafting Nondisclosure Agreements in the M&A Context: Consider What Will Happen When the Deal Goes South

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Let’s say you’re buying a business. As a condition to receiving more information, you are required to sign a nondisclosure agreement that contains all of the usual blather. You then start to sift through the mountains of information provided (and have your accountants and lawyers do the same, at considerable expense) to decide whether the company is worth purchasing, and on what terms. You like what you see, so you negotiate a letter of intent, and continue your due diligence investigation. You spend five or six months in negotiations and due diligence to the tune of many thousands of dollars (or more). [Read more…]

Due Diligence for Buying a Business 101 – Part 4: Operational Due Diligence

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Previously, I wrote about the need for the purchaser of a business to conduct due diligence on its prospective acquisition target.  As I discussed, due diligence on a business can be split into three sections: legal, financial, and operational.  This post will explore what is involved with the operational portion of due diligence.

The operational portion of due diligence involves ensuring that the business will be able to function as the purchaser expects after it has been acquired.  The business, in the hands of the seller, may be generating a handsome profit; however, upon transfer that profitability may be impaired due to a whole host of reasons.  Key employees may quit or key contracts may be non-assignable and thus end up being terminated upon the sale of the business, or worse yet, may even go into default. This is especially true in the context of leases and existing indebtedness.  Leases and loan documents often prohibit the transfer of the agreement, even indirectly through a stock purchase.  In addition, if applicable, the buyer will also need to make an inquiry into the ownership of the IP of the company, including the company’s trade names. [Read more…]

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