The M&A marketplace is hot! Why? There are many reasons including the current low tax environment, abundant access to capital, low interest rates, and many buyers looking to deploy their capital. For most sellers, the sale of their business is their largest financial transaction. A good understanding of the sales process is paramount.
The five phases of an M&A transaction are (i) letter of intent (LOI); (ii) due diligence; (iii) contracts; (iv) closing; and (v) post-closing. While there are five distinct phases, at times the phases can overlap or be combined depending on the deal. For each phase, there are distinct considerations of which every seller should be mindful. The letter of intent is the highwater mark for every seller. A seller should make certain the LOI contains both the relevant key commercial terms
as well as legal considerations. Due diligence for a seller requires the disclosure of confidential information. For a seller, full and complete diligence is paramount.
Disclosure is the friend of the seller so that the buyer is fully apprised. The purchase agreement and related agreements are the legal vehicles to accomplish the sale.
Sellers should make certain the documents match the business terms in the LOI and that their trailing liabilities are minimised. Time is the enemy of every seller.
Deals that close quickly are more efficient and cost less. Getting to closing as quickly as posible (or determining the deal will not work) is beneficial for a seller.
At times, a seller must meet certain conditions to finalise the transaction after closing. A seller should take carefully note of these conditions. Sellers are at a disadvantage in a typical transaction because Sellers usually sell once. Buyers purchase many businesses. Buyers know the process and the twists and turns
involved in a sales transaction, as they are often engaged in the process on a frequent basis. Sellers need to make certain to select good advisors who routinely handle M&A transactions in order to match the mindset of their buyer.
Knowing the steps of a transaction to sell a company is the role of an expert consulting firm, such as OCH Group, to give a fundamental support to the seller to make its transaction as smooth and convenient as possible.
- Michael N Mercurio, FYI–GGI News Nr1 Autumn 2021