About DWP&M
Our Founders
Our Practice
- Public Service
- Litigation
- Corporate
- Municipal
- Intellectual Property
- Trusts & Estates
- Real Estate
- Environmental
- Employment
Members of the Firm
Your Resources
- Quarterly Newsletter
- Appellate Tax Report
- Litigation Newsletter
- Firm News and Information
Request Info
Employment Opps.
Contact Us
|
Point of View
Quarterly Newsletter
Buying or Selling a Business
by Paul S. Doherty, Esq.
| | Over the past few years, we have represented many clients in the sale or purchase of their business or a portion of their business. As part of that process we have advised clients, in collaboration with their accountant, with respect to tax considerations and the structure of the transaction. The form or structure of a transaction is typically one or more of the following: merger, consolidation, sale of stock, sale of assets, or leveraged buyout. Most of those transactions followed a pattern. The following represents components of such a transaction. Confidentiality Agreement When a company decides it wants to sell its business, it should obtain a Confidentiality Agreement for any potential buyer who wishes to review confidential information relating to the business. The typical agreement contains a commitment by the seller to disclose confidential information about its business; in turn, the potential buyer agrees to maintain the confidentiality of that information and not to disclose it to any party other than its agents or advisors. In addition, the potential buyer frequently will agree not to solicit the employment of any of the Seller's employees, nor to make any public statement or other disclosure of the discussions. Preliminary Information Once the Confidentiality Agreement has been signed, the seller will furnish preliminary information about its business. The information may be in the form of an offering memorandum or in a more informal format. It typically will contain several years of the seller's financial statements, as well as other pertinent information. The exchange of information may be handled by the seller's advisors, such as the accountant, attorney, or broker. In order to keep the preliminary discussions confidential, the seller will often request that a buyer not make a site visit until a Letter of Intent or a Purchase and Sale Agreement is signed. Letter of Intent (or Term Sheet) Most sales of any size are preceded by a Letter of Intent, or a Term Sheet. This document lays the foundation for a purchase and sale agreement. It sets forth the economic terms, as well as any collateral matters such as employment agreements, non-competition agreements, consulting agreements, leases, and the like. It is typically not binding on either of the parties, with the exception of two or three clauses such as nondisclosure, confidentiality, and exclusivity. The buyer often desires a provision that gives the buyer the exclusive right to negotiate for the business for a specified period. It relieves the buyer from any concern that his offer will be "shopped" during that time period. It also gives the buyer comfort to engage professional advisors to commence an investigation of the business know as "due diligence." next column | Purchase and Sale Agreement The Purchase and Sale Agreement will contain all the specifics of the purchase - such as the economic terms, representations and warranties, indemnifications, due diligence provisions, and preconditions to closing (such as completion of satisfactory investigations and securing financing). Once this agreement is signed, the buyer will then engage in more extensive due diligence by looking at all aspects of the seller's business, such as the seller's financial records, employee benefits, environmental considerations, outstanding tax, obligations, product liability claims, the quality and title of the seller's assets, and the like. In addition, the parties will pursue any required permits or licenses related to the transfer of the business. Larger transactions may require a filing with the Federal Trade Commission under the HART-SCOTT-RODINO ANTITRUST IMPROVEMENT ACT. Normally, the buyer makes a deposit upon signing the Purchase and Sale Agreement, to be applied toward the purchase price at closing. If the sale is not closed because one or more of the buyer's conditions of sale is not satisfied, the buyer is entitled to cancel the agreement and receive back its deposit. Closing After the buyer has satisfactorily completed due diligence, arranged for financing, and taken all other steps contemplated by the Purchase and Sale Agreement, the parties are ready to close. Closing tends to be a more mechanical function in which the seller transfers either the assets or the stock of the business and the buyer pays the purchase price in the form indicated in the agreement. At closing, the various collateral agreements - such as employment agreements, consulting agreements, non-competition agreements, leases, and the like - are executed. Frequently, a closing is a three-way transaction in which the third party is the buyer's financing institution. Timetable It is difficult to estimate the time necessary for all of the foregoing to transpire. A best estimate for a typical sale of a business is three to six months. The duration is determined by the complexity of the transaction, as well as the desire of the parties to consummate the transaction as quickly as possible. It is always advisable to establish a timetable early so the process will go forward expeditiously. Otherwise, the transaction may linger, and lingering transactions are not desirable for either party. | "It is always advisable to establish a timetable early so the process will go forward expeditiously. Lingering transactions are not desirable for either party." | | Paul S. Doherty is a shareholder with Doherty, Wallace, Pillsbury and Murphy, P.C. in Springfield. He has significant experience in the area of business sales, mergers, and acquisitions. |
|
ONE MONARCH PLACE, SUITE 1900
1414 MAIN STREET
SPRINGFIELD, MA 01144-1900
TELEPHONE | 413-733-3111
FAX | 413-734-3910
 Advertising |
|