Steps in Selling Your Business
Before the Letter of Intent
- Early preparation--one to three years prior to sale (see due diligence review)
- How to find buyers
- Early Interest (“Kick the tires”)
- Be careful not to reveal too much
- Some competitors may use this stage to gather information
- Confidential with financial information.
- Non-Disclosure Agreement
- Prohibit use and disclosure of information
- Watch for “tie-up” clause
- Negotiate terms of Letter of Intent
Letter of Intent
- Basic terms (Price, Payment)
- Asset sale, stock sale, merger
- “No shop” clause/disclosure of interest by others
- Due diligence period
- “Usual” reps, warranties, conditions, indemnification
- Is there an escrow?
- Non-binding/cannot force a close
Between LOI and Closing
- Due diligence review
- Legal compliance
- Ownership of assets
- Ownership of stock
- Intellectual property rights
- Contracts of all types
- Information about customers
- Information about vendors/suppliers
- Tax compliance
- Employee/independent contractor issues
- Real property
- Liabilities/claims
- Government investigations
- Environmental
Negotiate terms of merger/sale agreement
- Conditions to close—financing in place, e.g.
- Enter into contracts with key employees
- Consent to assign/transfer contracts, permits, leases
- Non-competes for those leaving
- “Fix” problems from due diligence
- Representations, warranties and schedules
- Indemnification
- Working capital targets
- Earn-outs
Other Agreements
- Employment agreements
- Non-compete agreements
- Escrow agreement
- Note, Guaranty, Security agreements
- Assignments and Bills of Sale
Closing
- Money paid
- Documents exchanged
- Celebration dinner