The M&A process can be daunting for first-timers. The basic steps to buy and sell a business are as follows:
- Retain professional advisors. In most cases, the parties to a business sale will want to have legal and tax advisors. The buyer may also wish to have financial, accounting, HR, environmental, and other advisors, depending on the type and scale of the business involved.
- Sign a non-disclosure agreement. It is ideal to have legal advisors review the non-disclosure agreement to avoid common pitfalls. For more information on how NDAs work, see this article.
- Conduct due diligence. This allows the potential purchaser to examine the details of the business from a financial and legal perspective, to ensure that their valuation assumptions are correct. For more information on the due diligence process, see this article.
- Sign a letter of intent (LOI). This is often required before or during due diligence in order to ensure that the buyer is legitimately interested in purchasing the business. Frequently, in exchange for manifesting their intent to purchase the business at a certain target price, the buyer will get a period of exclusivity during which the seller cannot negotiate with other potential buyers.
- Negotiate an acquisition agreement. Depending on how the transaction is structured, this may be called a share purchase agreement, merger agreement, or asset purchase agreement. For more information on the key provisions, see this article.
- Negotiate ancillary agreements. These may include a shareholder agreement (if there will be multiple owners after the sale), a transitional services agreement (if the seller will need to provide some services after the sale), or executive employment agreements (if managers will need to be retained after the sale).
- Sign agreements and close the sale. Closing may happen upon signing if the transaction is very simple, but in many cases, there is a need to have some time between signing and closing for regulatory procedures and remediation of issues.
- Post-closing formalities. Depending on the terms of the sale and purchase agreement, the buyer may have the opportunity to adjust the purchase price or claim indemnification for issues found in the business after the closing, so it can be helpful to do further due diligence once the buyer is in control of the business.