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Closing the deal

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Daniel Bruellmann
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Selling a business, Part IV

After Mar­ket­ing the busi­ness, bind­ing offers terms will be analysed on the way to a suc­cess­ful Deal Closing.

If a com­pet­i­tive bidding/auction process is main­tained, final bids will fol­low fur­ther due dili­gence and there might often be no let­ter of intent. How­ev­er, at a cer­tain point of the process buy­ers might insist on exclu­siv­i­ty / pre­ferred bid­der sta­tus for a cer­tain peri­od or cost cov­er­age before engag­ing in inten­sive due dili­gence and bilat­er­al­ly agree terms on a detailed and nego­ti­at­ed let­ter of intent LOI / Term Sheet. This is rea­son­able but locks in the sell­er for a peri­od relat­ed to the time to com­plete due dili­gence, which will be much short­er, if a ven­dor or sell-side due dili­gence has been made in advance, reduc­ing thus the risk of a hic­cup and increas­ing the chance of main­tain­ing alter­na­tive bid­ders’ interest.

Less uncer­tain­ties and ready con­fir­ma­tion about the accu­ra­cy and reli­a­bil­i­ty of pro­vid­ed infor­ma­tion should also pos­i­tive­ly affect a poten­tial buyer’s readi­ness to pay a high­er price.

The nego­ti­a­tion phase will typ­i­cal­ly start from the SPA draft pro­vid­ed by the sell­er and the terms of the final bids or the care­ful­ly agreed LOI. The most con­ve­nient deal struc­ture will be addressed con­sid­er­ing many fac­tors such as law, tax­a­tion or reg­u­la­tions: asset deal vs. share deal vs. merg­er, acqui­si­tion vehi­cles, carve-outs, etc.

Deal Closing

Terms will address not only the shares or assets to be trans­ferred, but many addi­tion­al points such as clos­ing con­di­tions, rep­re­sen­ta­tions and war­ranties to assure such as com­pli­ance of data pro­vid­ed dur­ing due dili­gence with real­i­ty or assur­ing that no work­ing cap­i­tal is divert­ed or pre­vent­ing leak­age of oth­er assets before deal clos­ing date (locked box), defects reme­dies and not least the terms of payment.

Pay­ment terms lead to impor­tant con­se­quences after deal closing:

  • Cash — with no strings attached.
  • Debt to be raised – you’ll have to sup­port that step
  • Ven­dor finance
  • Instal­ments
  • Earn out – you’ll still depend from the fate of the company
  • Exchang­ing Shares – you might have to keep them for some time

Once all terms are agreed and the con­tract signed, clos­ing con­di­tions will have to be ful­filled and pay­ments terms might affect you, but your com­pa­ny and its inte­gra­tion or restruc­tur­ing is now some­body else’s business.

If you would like to sell a com­pa­ny, con­sult us, we’ll be glad to help.