Solutions for Entrepreneurs

Closing the deal

Arranger » Thoughts » M&A » Selling-your-business » Closing the deal

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.