Once the owners of a business have made the commitment to pursue a sale or merger of their company, a great deal of time and attention must be expended on coordinating site visits with prospective buyers, due diligence, and finally, closing. The business broker will work with the owners’ other advisors so that they do not spend time on marketing the business and negotiating to the detriment of running the business. The business broker and the owners initially must ensure that preliminary legal work is in order and that the company’s most recent annual and interim financial statements (or tax returns) are made available by their accounting firm.
After prospective buyers have been pre-screened and have expressed sufficient interest in pursuing an acquisition of the company, preliminary due diligence begins. Preliminary due diligence is a basic analysis of the company, its financial position, etc. to whatever extent permitted by time and the willingness of the owners to divulge information at this stage. Typically, the business broker is able to answer many general questions that may arise. For those questions needing more detailed or technical answers, the business broker conveys the questions to the owners and delivers their responses to the prospective buyer. As part of the preliminary due diligence, the business broker will arrange a discreet site visit to allow the prospective buyer the opportunity to meet with the owners and/or management and see the operations of the business first-hand. Discretion is important so as not to alarm the employees.
Should the prospective buyer proceed to send a letter of intent (LOI), the business broker conveys this information to the owners. It is important that the owners understand the basics of the LOI. The business broker will review the LOI to address some of the following issues—stock purchase or asset purchase and amount/form of consideration, employment and other agreements that will need to be executed before closing, expected closing date, refundable deposit or “good faith money”, expectations for confidentiality as the process proceeds, and other issues as necessary.
It is rare that the owners of a business will accept the first offer and the conditions set forth in the initial LOI. Rather, this is a starting point for further negotiations centered on the price, terms, closing date, etc. The business broker will discuss the initial LOI with the client and make recommendations regarding the future course of action based on the specifics set forth in the LOI. Typically, at this point, the business broker will discuss with the client their expectations and desire to continue discussions with the potential acquirer.
Once an agreement has been reached on price and terms, due diligence begins. At this point, recall, the potential acquirer has had limited access to the target company’s financial information, operations, legal documents, management, etc. The due diligence phase is where the acquirer delves deeply into the financial information of the company and other aspects to ensure that the information presented thus far correctly and fairly represents the actual financial, competitive, and operational position of the company. In this phase, the business broker remains as the middleman in coordinating access to information, overseeing the collection and delivery of the requested information in a timely manner, and moving the process forward.
Once the acquirer has completed the due diligence phase, the business broker coordinates a closing with legal counsel. This typically includes a review of the purchase agreement, which incorporates the terms and conditions provided in the LOI with any changes or modifications stemming from matters arising in due diligence.
The business broker will typically consult with the client’s accountants and attorneys to ensure that the purchase agreement is structured in accordance with the interests of the client. Any recommended changes are conveyed to the acquirer by the business broker and the client’s attorney. Once the final purchase agreement has met the satisfaction of all parties, the final closing date is scheduled for the signing of the appropriate documents and disbursement of the necessary funds.