The Anatomy of a Transaction

• Members of management/key employees
• Key sales people / brokers
• Vendors / suppliers
• Customers
• Lease for each facility
• Product Warranties/Limitations

• Deal with them directly
• Investigate insurance products

• Minutes / Consents
• By-laws and Articles
• Employee Manual / Policies
• Shareholder and related agreements 

• Every company has proprietary or confidential information
• Send book to select buyers approved by owner
• Buyer visits / information gathering
• M&A attorney and advisors prepare bid packages

• Roadmap and Timetables for Transaction
• An experienced M&A attorney should negotiate final letter of intent, and include comments from company advisors

• Data Room is created (Virtual or Off-Site)
• Buyer will attempt to learn everything about business from document review and interviews

Description of Transaction 

• Asset or Stock Deal
• Be specific about Acquired Assets and Liabilities
• List Excluded Assets and Liabilities

Payment of Purchase Price – Be very specific about adjustments, if any.

• Cash
• Securities of buyer

Some consideration paid following Closing  

• Payments relating to a covenant not-to compete or a consulting arrangement (typically 1 to 3 years after closing)
• Note provided to facilitate buyer’s acquisition of business (often providing payment over 3 to 5 years following closing)
• Earn out arrangement based upon post closing performance of business 
• Holdback – part of purchase price held by third party escrow agent

Representations and Warranties

• Seller representations should be carefully negotiated and qualified (materiality, knowledge, etc.).
  • detailed statements about the business being sold
  • limit survival period (6 months, 1 year etc.) but avoid Seller being on the hook forever
• Buyer representations are a must.
  • financial capacity to do the deal
  • has had an unlimited opportunity to conduct due diligence, ask questions and review financial statements

Disclosure Schedules -- Don't Leave Until Closing

• A significant component of Purchase Agreement, but they are often prepared last minute and ignored.

Indemnification -- Limit Liability and Post-Closing Exposure

• The extent to which seller defends and holds harmless the buyer if a problem from the past operations surfaces after the business is sold.
• Skip – after what amount is Seller liable
• Cap – maximum exposure of Seller for breach of representations or warranties

• Payments -- Create schedule of payments, earn-out, and adjustments
• Transition- the owner’s willingness to stay with the business, if required, will affect the value he receives for it.
• Further Assurances, Cooperation

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