Originally posted 3/26/2021, no content changes.
M&A can be complex. For most sellers, it is a one-time event and likely their most significant financial transaction in life. Given the complexity and the stakes, many sellers can be confused as to what is essential and where to focus. I understand. To help, I created the below infographic as a cheat sheet for sellers to organize the various advisors involved, the different phases of their transaction, and what the seller should be focused on.
Most importantly, sellers need to keep their eyes on their business during the sale transaction. As obvious as it sounds, a seller has not sold his/her business until the deal closes (and the money hits their account!). Deals can be exhausting, and deal fatigue can set in. Plus, buyers can lure sellers into a sense of combination that is not yet legally transacted. Don’t make this mistake. If the deal does not close (for whatever reason), the seller needs to be able to move forward with the business. Don’t lose sight of your prize.
Further, sellers should weigh the transaction details through two lenses. First, the seller needs to understand the purchase price and how the price will be paid. Second, the seller needs to understand trailing liabilities. This is a big item as most sellers do not need to worry about personal liability for their business during the operational phase. However, most buyers make a seller guarantee all aspects of their business in a transaction. Again, M&A can be complex. Make certain to hire good advisors to provide practical advice.
ANATOMY OF THE DEAL
5 Phases of a Deal from a SELL-SIDE PERSPECTIVE: The Players and Their Involvement
Pre- Transaction Planning
- Phase Rule: Find and eliminate skeletons; create multiple options
Phase I: Letter of Intent
- Phase Rule: Know what you want and get it in writing as the LOI may be your high water mark
Phase II: Due Diligence
- Phase Rule: Disclosure is your friend
Phase III: Contracts
- Phase Rule: Confirm Business terms and
Phase IV: Closing
- Phase Rule: Time is your enemy
Phase V: Post Closing
- Phase Rule: Remember to dot the I’s and cross the t’s to meet all conditions
- Phase Rule: Enjoy your new status in life; make sure you’ve considered life without the business
Sell Side M&A: Three Rules of Thumb for the Transaction
Rule #1: You haven’t sold your business until you’ve sold your business
Rule #2: Get your money upfront (as soon and as much as possible)
Rule #3: Reduce and eliminate your trailing liabilities
ABOUT MIKE MERCURIO
Michael N. Mercurio is a leading attorney in the field of mergers and acquisitions (M&A). He serves as outside general counsel in buy-side and sell-side M&A, as well as in all business law and real estate law matters. As a strategic partner to firm clients, Mr. Mercurio regularly counsels entrepreneurial individuals and assorted entities on the many challenges, issues, and opportunities companies face throughout the business lifecycle—from start-up to eventual exit.