Getting the Business Acquisition Deal Done

by | April 30, 2009

I attended a great program entitled “Getting the Deal Done” yesterday hosted by John Martinka of Partner On Call with a focus on closing business purchase/sale transactions in a down economy. The program included input from an accountant, attorney and banker plus John, as a consultant who works with individuals/companies looking to acquire a business. I have seen two transactions fail to close after much investment by both parties so I was very interested in the topic. Some key points of value I wanted to share:

1) Selling a business is not like selling a house. With a home sale, just before listing the house, the owners spent time and effort sprucing it up and then invite the world in to see it. With the sale of a business, the seller *should* prepare for the sale 3-5 years in advance, not at the point where they are ready to sell. Also, sales of businesses are often quietly positioned, not advertised for the world to see.

2) Seller financing. In this market, Sellers must be willing to finance part of the transaction. Seller’s need to be very careful to protect their interests with collateral (stock or assets of teh company) and/or personal guarantees by the buyers.

3) Letters of Intent. Most carefully drafted LOIs are non-binding but buyers must be very careful in how they draft and present them. Generally, certain terms such as confidentiality and indemnification are binding despite the fact that the buyer or seller can exit the transaction without penalty. It must be clear that the closing is contingent on a definitive purchase and sale agreement executed by the parties.

4) Most errors in purchase and sale transactions are “errors of omission.” Sellers either do not have their documents in order to present a solid package to prospective buyers. Buyers fail to perform adequate due diligence prior to purchasing. Both limit the potential success of the transaction.

5) Relationships rule. A major element in successful purchase and sale transactions is a solid relationship between buyer and seller. The trust factor really does play into whether or not the deal will close.

The insights of the panel offered valuable advice for advising business owners on all aspects of purchase and sale transactions.