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.
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
- 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.