If you are contemplating the sale of your business, there are several steps you should take before engaging with potential buyers that can maximize your net sales proceeds, make the sale transaction process smoother, and avoid potential concerns on the part of the buyer.
First, you should consult with your company’s accountant and attorney (or with an experienced mergers and acquisitions (“M&A”) accountant and attorney if your company’s advisors are not versed in such matters), to understand the various ways in which the sale transaction may be structured (asset sale, stock sale, merger, etc.) and how such structures can impact your net after-tax proceeds from the transaction and your post-closing liability.
You should also consult with these professional advisors before you hire a business broker and before you sign a letter of intent (“LOI”). An M&A attorney can help you negotiate the terms of your agreement with a business broker (as brokerage fees and commissions are often negotiable) and ensure that the agreement clearly sets forth the obligations of the broker, the duration of the agreement, any exclusivity, the consideration that is subject to brokerage fees and that which should be excluded, and the amount and timing of payment of any fees and commissions (which should be paid as and when the seller receives the sales proceeds, with payment deferred on contingent consideration such as an earn out).
It is likewise important to have an M&A attorney represent you in negotiating an LOI. Although most LOI’s are non-binding, the terms of the LOI set the parties’ expectations and it is often difficult to alter these material terms in negotiating the definitive purchase and sale documents. For example, the purchase price should often be subject to adjustments (such as adjustments for actual versus a target net working capital, or prorations for taxes and other expenses). The LOI should also limit any period of exclusive dealings for the benefit of the buyer and include restrictions against soliciting or hiring the seller’s employees and limitations on the term of the seller’s representations and warranties and on the amount of its indemnification obligations.
Sellers should also have prospective buyers sign a non-disclosure agreement (“NDA”) before engaging in any sale discussions or negotiations with them.
Before dealing with prospective buyers, it is also advisable for a seller to undertake the following steps:
If you have questions about selling or buying a business, Goodell DeVries can help. Contact Donna Thomas, Esq. at 410-783-3522 or dthomas@gdldlaw.com.