Five phases of a transaction from the seller’s perspective
By Michael N. Mercurio, Offit Kurman
The M&A marketplace is hot! Why? There are many reasons including the current low tax environment, abundant access to capital, low interest rates, and many buyers looking to deploy their capital. For most sellers, the sale of their business is their largest financial transaction. A good understanding of the sales process is paramount.
The five phases of an M&A transaction are (i) letter of intent (LOI); (ii) due diligence; (iii) contracts; (iv) closing; and (v) post-closing. While there are five distinct phases, at times the phases can overlap or be combined depending on the deal. For each phase, there are distinct considerations of which every seller should be mindful.
The letter of intent is the highwater mark for every seller. A seller should make certain the LOI contains both the relevant key commercial terms as well as legal considerations.
Due diligence for a seller requires the disclosure of confidential information. For a seller, full and complete diligence is paramount. Disclosure is the friend of the seller so that the buyer is fully apprised.
The purchase agreement and related agreements are the legal vehicles to accomplish the sale. Sellers should make certain the documents match the business terms in the LOI and that their trailing liabilities are minimised.
Time is the enemy of every seller. Deals that close quickly are more effcient and cost less. Getting to closing as quickly as possible (or determining the deal will not work) is beneficial for a seller. At times, a seller must meet certain conditions to finalise the transaction after closing. A seller should take carefully note of these conditions.
Sellers are at a disadvantage in a typical transaction because sellers usually sell once. Buyers purchase many businesses. Buyers know the process and the twists and turns involved in a sales transaction, as they are often engaged in the process on a frequent basis. Sellers need to make certain to select good advisors who routinely handle M&A transactions in order to match the mindset of their buyer.
Michael N. Mercurio, Esq.GGI member firm
Offit Kurman, Attorneys at Law
Advisory, Corporate Finance, Fiduciary and Estate Planning, Law Firm Services
More than 10 offices throughout the US
More than 10 offices throughout the US T: +1 240 507 1784
Offit Kurman is a full-service law firm with over 250 attorneys focused on representing privately held businesses. With deep experience and knowledge dealing with the issues that business owners regularly face, Offit Kurman’s team brings value to every relationship.
Michael N. Mercurio, Esq. is counsel on matters of corporate law, M&A, and transactions. Mr. Mercurio counsels entrepreneurs on business and commerce, including structure and ownership, management and control, financing and capital, expansion and acquisition, sale and transfer, and contraction.
Published: M & A Newsletter, No. 01 Autumn 2021 l Photo: Mediteraneo - stock.adobe.com