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Closing the deal

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Latest posts by Daniel Bruellmann (see all)

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.