How to Successfully Navigate the Sale of Your Business – But How?
There are many reasons to sell your own business—securing succession, enjoying a well-deserved retirement, wanting to focus on other projects, or “cashing in.” For many, the sales process is uncharted territory. We frequently observe the following mistakes that should be avoided:
It starts with unfamiliar technical terms and abbreviations, mostly in English
First the NDA, then the LOI, due diligence (DD), possibly a binding offer, and finally signing the SPA or APA. Anyone unfamiliar with the sales process will quickly be overwhelmed by technical terms from the M&A world, peppered with legal jargon that’s hard to understand. To conduct optimal negotiations, you need to know what is being discussed and at which stage of the sales process you are. If anything is unclear, always ask for clarification so that you can ultimately sign the purchase agreement with a clear conscience.
When you sell your company, you disclose sensitive information to strangers that competitors could use to harm you:
During sales negotiations, prospective buyers often request access to documents containing trade secrets or other sensitive data. To protect your company’s assets from being probed by a prospective buyer and to avoid losing your negotiating leverage, you should therefore enter into a confidentiality agreement with prospective buyers, requiring them to keep your data and the sales process confidential and prohibiting any use of this information outside the sales process.
If you have multiple bidders for your company, can you determine the purchase price?
But what if the bidders collude with one another:
Who negotiates with whom about what is a matter solely between the seller and the interested parties. It is also advantageous for the seller if multiple prospective buyers do not exchange information among themselves regarding the status of their negotiations, thereby preventing them from coordinating their purchase price offers and driving down the price. This can be achieved by entering into a confidentiality agreement.
The prospective buyer offers to “take care of everything”:
If the prospective buyer is represented by an attorney, they often insist on “assisting” you in the sales process, for example, in drafting the confidentiality agreement and purchase contract. However, this means you are relinquishing control, and the prospective buyer can steer the sales process in their favor. Take control of the drafting process.
Suddenly, time is running out:
A business sale rarely goes smoothly. Whether it’s because a key player suddenly falls ill or a financier pulls out. And maybe you’d like to take a week’s vacation in the middle of it all? Good time management with sufficient buffer time for unforeseen events is a key factor in a successful transaction.
Prevention over cure:
No company is perfect. However, you can have the company “vetted” by competent legal advisors before approaching potential buyers to address risks and hidden issues, ensuring your company makes a better impression during the sales process. Furthermore, an external valuation of the company can help determine a reasonable purchase price. Sales can easily fail due to an inflated perception of the company’s value.
As expert M&A and legal advisors, we can help you navigate many of the issues and questions raised here to ensure your company sale is a success. Please feel free to contact us.