Understanding M&A Purchasing Agreements
Components of the Deal
Mergers and acquisitions (M&A) are transactions in which the ownership of companies, other business organizations, or their operating units are transferred or consolidated with other entities. Purchase agreements cover everything from definitions and executive provisions to representatives, warranties and schedules, indemnifications and interim and post-closing covenants. Indemnification provisions help define who should be liable for issues that arise after the deal closes. The closing conditions detail requirements for buyer and seller between the signing of the purchase agreement and the ultimate closing date. Such agreements also have “break-up fees” that detail the circumstances either party will be able to terminate the deal and whether the party terminating the transaction will pay a set fee to the other side.
Advice for Sellers
Negotiating a purchase agreement (as well as the different stages involved in finalizing that agreement) can be both time-consuming and stressful, Daniels warns business sellers.
As any good business broker will tell you, business owners have to be careful not to let their businesses suffer while they are going through the complex process of selling. Selling a business is hard work, and this fact underscores the importance of working with a proven broker.
Likewise, any serious buyer will look quite closely at your business’s financials, yet another reason to work with key professionals during the process. Business sellers risk losing the sale altogether if the financials are off; so don’t wait until the last moment to get your “financial house in order.”
The sooner you begin working on getting your finances together, the better off you’ll be.
Use Trusted Pros
During negotiations to sell a business, tension is inevitable because every party is looking to protect their own best interests, Daniels warns. Having an experienced negotiator in your corner is a must. Make sure your negotiator has bought and sold businesses in the past, and they will understand what pitfalls and potential problems may be lurking on the horizon. The sale price isn’t the only variable of importance, Daniels notes. The terms of the deal matter. Such terms include “how much control will you have, what stake is being transferred, is there any seller financing, (and) what are your liabilities” after the closing?
The bottom line is that there are many reasons to work with a business broker. Brokers who are members of the Georgia Association of Business Brokers have committed to a code of ethics and understand the diverse complexities of an M&A purchase agreement. They also have experience helping business owners organize their financial information and are valuable partners during negotiations. For most business owners, selling their business is the single most important business decision they will ever make. Find someone who understands the process and can act as a guide through the process.
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