 |
 
 |
 
|
 |
|
A few thoughts on Selling Your Business
A substantial portion of our business
practice consists of representing buyers
and sellers of businesses. This article provides a
few pointers for business owners who may be
considering a sale in the foreseeable future.
Involve Professionals Early
Our typical business client has successfully established and
operated a business and learned much along
the way, often through a process of trial and
error, but has never sold a
business. Our business
lawyers have been through
the sale process many times
and had many occasions to
observe the "error" side of
our clients' learning curves.
We can help you avoid serious
mistakes, position your business for
sale, and, in appropriate circumstances,
assist you in engaging an
investment banker or business broker
to bring qualified buyers to the
table. Your accountant should be an
integral part of the early process as well.
Structure Can Be As Important as Price.
Once you have seriously-interested buyers on
the scene, you should understand how to compare
competing offers and develop a framework
of critical terms before you agree on a
price. A few illustrations: (i) in the case of a
manufacturing company with heavily-depreciated
assets, a sale of the corporate stock could
leave almost twice as much after-tax money in
corporate assets at the same price; (ii)
if there is to be an asset sale, the delineation of
assets sold and assets retained, and an accounting
protocol to distinguish between them, is
essential to an understanding of what a nominal
price would actually leave in your pocket;
(iii) if there is to be seller financing, the terms
need to be managed to maximize your chance
of receiving the full price bargained for; and
(iv) the buyer will want the terms of the
purchase agreement to put you at risk for
various unknowable contingencies; these
need to be controlled from the start to
minimize the possibility of giving
money back after the closing.
Due Diligence.
A sophisticated
buyer (or one represented
by sophisticated counsel)
will expend substantial
effort to assure itself that the
presentation made by the seller
is accurate and that there are no
undisclosed legal problems or
other booby traps. This "due diligence" process
typically includes (i) direct inspection of the
seller's facilities, books and records, (ii) specific
representations and warranties contained in the
purchase agreement, and (iii) review of lists
and underlying documents furnished by the
seller pursuant to the purchase agreement. The
buyer negotiates for the right to sue the seller
and its principals, personally, or withhold payments
on account of any seller financing, if any
of the representations or warranties turns out
to be false. We urge our clients to discuss potential
problems with us up front, so that they
can be disclosed at the right time and in the
appropriate context. Improperly managed disclosure
(or complete lack thereof) can result in
substantial delay, friction and additional legal
expense - and, in some cases, a complete collapse
of the sale transaction.
Controlling Legal Expenses.
The legal expenses
involved in selling a business tend to be
significant; you want to use your counsel effectively
so as to control transaction costs and
maximize the value of the services you do pay
for. It is my perception that up-front involvement
of counsel will actually save legal fees in
the long run, because the transaction is more
likely to proceed cleanly and directly to conclusion,
rather than having to be renegotiated
and restructured in response to previously misunderstood
or unaddressed matters. A substantial
portion of the seller's counsel's time will be
taken up with the so-called "due diligence" elements
of the transaction and the corresponding
representations, warranties and schedules included
with the purchase agreement. A modest
amount of time spent with your counsel in understanding
this process, and a commitment on
the part of the rest of your management team
to assist counsel in responding to disclosure
requests, should save significant legal expense.
The use of inexperienced counsel will tend to
drive up expenses as a result of ineffective attempts
to negotiate inconsequential matters,
failure to anticipate problems and the like. In
the end however, legal fees are typically a relatively
small percentage of the transaction (especially
in comparison to the business broker or
investment banker's fees), and it's probably not
productive to focus too much attention on this
element.
Selecting Counsel.
We presume that most
readers of this article are using Levy & Droney
as their counsel and would consider no other
for a sale of their business. For any other readers,
we urge that you entrust this critical process
to experienced corporate counsel, and if
you have any doubts, call us.
|
|
|
|
|
 |
