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Buying and Selling Businesses
If you are thinking about selling your business, you are likely feeling overwhelmed with information about what the process is. If you are buying a business, you may have similar feelings. Even those that have been through the process before, can get lost at times. These transactions are complex and often time-consuming. There is even a whole different language that surrounds these transactions with professionals talking about stock sale, asset purchase, business brokers, investment bankers, LOI's, bidding, EBITA, strategic acquisition, financial acquisition, synergies, teasers, enterprise valuation, multiples, due diligence, integrations, earn-out, liability basket, indemnifications and more. Where do you even start if you buyer or a seller?
M&A Attorneys
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Of course The Business Law Group is going to suggest that you start with hiring our great firm to help advise you throughout your transaction. While that is one place to start (and we can talk forever about all the help our clients receive from us), it is really important to get professional M&A help in any transaction.
While you could hire a M&A attorney, really any adviser that works in mergers and acquisitions in Michigan is a good place to start. This could be a mergers and acquisition firm, an investment banker, a CPA, a financial adviser or a business coach (and a lawyer fits too, of course). The important aspect to consider is that whoever you work with has the experience necessary to guide you through the transaction process. While there are many folks out there that will claim they can help you, that does not mean they can actually help you. You have to assume that the party that is on the other side has experienced M&A advisers on their side. You do not want someone that thinks they can handle your deal. You want to make sure to have someone that can handle it. |
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Mergers and Acquisition Basics
If you are thinking about selling your business, you are likely feeling overwhelmed with information about what the process is. If you are buying a business, you may have similar feelings. Even those that have been through the process before, can get lost at times. These transactions are complex and often times lengthy. Here are some basics about M&A transactions.
Pre-Transaction
Many Michigan business owners work extremely hard on ensuring that their business venture is a success. Many of these business owners believe that they are growing the value of their businesses in hopes that they will be able to sell what they have built. The problem that arises is most business owners put very little to no planning in place for how they are going to get the most value out of their business. Years and years of focusing on the day-to-day operations of the business has left them blind to the bigger picture. Buyers do not want to buy a business in which they are just buying a job. This adds an incredible amount of risk to the success of the business post-transaction so even if a buyer and seller are able to agree on terms, those terms are likely going to heavily favor the buyer. Sellers should take steps to prepare their business for the change in ownership. Buyers should make sure they can fully assess the business before committing time and money to push a deal to close.
Confidentiality
Confidentiality in business is essential. The reason your business is successful is because of the proprietary information you have developed over time. So how do you start the process of buying or selling a business without disclosing too much information? The most obvious safeguard is to have a non-disclosure agreement or NDA in place early in the process. This agreement will outline what information is confidential, how the non-disclosing party will treat that information and the ramifications of violating the NDA. Even with an NDA in place there is a bit of a balancing act on when to disclose certain information. As a buyer you want to have access to as much information as possible to ensure their are no surprises. Sometimes creative solutions can be put in place including a disclosure schedule where information goes from generic in nature to more specific as the deal gets closer to being finalized.
Letter of Intent
A letter of intent or LOI can be deceiving. They seem informal and relatively benign. In reality this is a document that should not be drafted or executed without careful consideration. This document really lays out the major terms of the M&A transaction. While these terms can adjust as more information comes to light, generally they remain pretty consistent. It is important to negotiate good terms in the LOI to avoid tense negotiations later in the deal.
The terms of the LOI are generally not enforceable but there are often terms that can be binding. The signing of a letter of intent is not going to bind the buyer into paying the purchase price listed in the LOI. Those types of terms are not binding until the purchase agreement is executed. At the same time, exclusivity terms and other restrictive covenants might be binding after the LOI is signed. If there is an agreement that there will be a 6 month exclusive dealing between the buyer and the seller, that can severely impact either party if they see that the deal is not going to get done. You have to treat the LOI like a binding agreement and not just as a mere formality to get the transaction going.
The terms of the LOI are generally not enforceable but there are often terms that can be binding. The signing of a letter of intent is not going to bind the buyer into paying the purchase price listed in the LOI. Those types of terms are not binding until the purchase agreement is executed. At the same time, exclusivity terms and other restrictive covenants might be binding after the LOI is signed. If there is an agreement that there will be a 6 month exclusive dealing between the buyer and the seller, that can severely impact either party if they see that the deal is not going to get done. You have to treat the LOI like a binding agreement and not just as a mere formality to get the transaction going.
Due Diligence
The due diligence period of the sale or the purchase of a business is a critical time for all parties involved. Know what things need to be disclosed, how to disclose them, organizing the disclosures and understanding what all that information means towards the transaction can greatly influence the sale. It is very easy for a buyer to overlook certain details or a seller to believe certain disclosures are not necessary. These details in the sale of a business can lead to disputes after the transaction has already been completed. These disputes can be very expensive to resolve. It is vital that due diligence is thorough and complete.
Purchase Agreements
Purchase agreements agreements are complex documents that stand at the center of a transaction. These extensive documents lay out all the details and particulars of the sale. While a purchase agreement can often be quite lengthy alone, they are often supported by additional agreements, exhibits and schedules. Even in small transactions purchase price, payment terms, what is being acquired, representations and warranties of the seller, representations and warranties of the buyer, dispute resolution terms and more are packed into one document that is supplemented by other agreements such as a lease, a non-competition agreement, a consulting agreement, an assignment and assumption agreement and more.
Each purchase agreement is unique to each transaction. There are even two different types of transactions that are common in M&A deals. Generally there is either a stock sale or an asset sale. Which ever type of deal you and the other party agree to can greatly impact the contents of the purchase agreement.
The terms in the purchase agreement are binding and often replace any previous agreements between the parties. It is incredibly important that these agreements are well drafted because there are plenty of potential mistakes to be made in any number of areas. These mistakes can become huge issues after you believe the deal to be done.
Each purchase agreement is unique to each transaction. There are even two different types of transactions that are common in M&A deals. Generally there is either a stock sale or an asset sale. Which ever type of deal you and the other party agree to can greatly impact the contents of the purchase agreement.
The terms in the purchase agreement are binding and often replace any previous agreements between the parties. It is incredibly important that these agreements are well drafted because there are plenty of potential mistakes to be made in any number of areas. These mistakes can become huge issues after you believe the deal to be done.
Post Transaction
Often one of the most overlooked portion of M&A transactions is the time period after the transaction has taken place. There is such a great effort and build up to make the deal come together that the parties can forget that there is a lot of work that has to be done post-transaction to make sure the terms of the agreements are complied with, federal, state and local statutes are complied with and that the business is successful as an ongoing operation. Very few deals are straight cash deals where the seller can walk away from the closing table and have no other obligations. Buyers have even more on their plate because they have to comply with the requirements of the deal but also have a new business to run. It is important that the closing table isn't seen as the finish line, but rather, it is seen a milestone for either the buyer or seller in getting to the true finish line of the deal.
The Business Law Group is ready to partner with you in your merger or acquisition. We have worked with some of the best business brokers in Michigan and they have all applauded us on the services we provide our clients. We want to talk to you. Contact the us by clicking HERE or give us a call at (616) 528-0007.