Mergers & Acquisitions: How to Negotiate the Purchase or Sale of a Business

Rhys T. Wilson

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Mergers / Acquisitions Attorney

Contributor Level 6

Posted almost 6 years ago. 6 helpful votes

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1

Build Your Team

Your Team of Advisers Should Include: Accountant, Tax Adviser, Valuation Expert, Investment Banker/Broker and an Experienced M&A Lawyer

2

Gather Information about Your Company and Potential Buyers or Sellers

Sources: Trade Publications, Trade Shows, Industry Organizations, Networking, Internet (Websites; Filings; Analysis) and Talk to Your Team of Advisers

3

Know Thyself

Sellers: What is your company worth? If you don't know, then Go Back to Step 2! How much do you need from a sale? Financial and Estate Planning are an essential part of this process. Are you ready to sell? Is you Company ready? Are you mentally and emotionally ready to let go? Buyers: What are your Acquisition Criteria? Target criteria and Deal criteria. Stick to your criteria! Do you have an Acquisition Integration Plan? It is critical to the success of any M&A deal.

4

Identify Targets

Sellers: Who Are the Potential Buyers? (Strategic and Private Equity Groups). Research their Plans -- How do You Fit into those Plans? Contact Potential Buyers (sales call) Get on their Target List Buyers: Who Are Your Potential Targets? Research Them; Screen Against Acquisition Criteria; Make Contact (sales call); then perform Due Diligence and Screen Again. Feedback loop.

5

Negotiate the Terms

Focal Point: Letter of Intent ("LOI") -- Buyer's Goals: Lock up the Deal; Cap the Purchase Price; Open the Door to Due Diligence; and Introduce "Other Concepts." Seller's Goals: Identify Price and Terms; Control Due Diligence; Flush out "Other Concepts"; and Cap Post-Closing Exposure (Indemnification). Negotiating Tip: Seller's Leverage Is Greatest at LOI, because The Buyer wants your company and wants to lock you up to eliminate competition for the deal. You are negotiating with Buyer's Management, who is motivated to get deals done. After the LOI, the lawyers take over, and you know how they are!

6

Close the Deal

Buyers: Keep Selling! Due Diligence + Documentation = Corporate Root Canal. Set tight deadlines -- push the ball to Force Seller Errors. After Due Diligence, Recheck: Target criteria and Deal criteria. Are Price/Term Concessions Needed? Discipline, not Sharp Dealing. Focus on Integration Plan. Sellers: The deal may never close, so Plan accordingly. Keep your "walk away" power. Keep talking to the Buyer -- Multiple Lines of Communication, but Unified Message. Mind Your Business! You cannot afford a hiccup; it Kills your price (or the deal). Remember, Strong Business = Strong Negotiating Position. Good Luck with Your Negotiations! (C) 2008 Rhys T. Wilson, Esq. All Rights Reserved.

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