While there are many types of acquisition transactions, a business typically includes one of two main types of acquisition agreements – a business purchase agreement or an asset purchase agreement. Companies may also request a merger rather than an acquisition, depending on the circumstances. Often, selling a business can be a lucrative decision for owners, and buying a business can help expand a company`s reach in the market or diversify its industries. A purchase agreement is a critical contract when a company decides to buy another company. Each M&A transaction has unique terms and can vary widely. It is important to have a valid acquisition agreement that fully represents the terms of your particular business. David A. Lipkin is an M&A partner in the Silicon Valley office of the law firm McDermott, Will and Emery. He represents public and private acquirers, target companies and corporate founders in large, complex and challenging M&A transactions, including SoftBank`s acquisition of a $21.6 billion majority stake in Sprint and Avago`s $37 billion acquisition of Broadcom. David was a leading M&A practitioner in Silicon Valley for 19 years, before serving for five years as Associate General Counsel (and Chief Information Officer) of a Xerox subsidiary and practiced general corporate law in San Francisco for 12 years. He was awarded for several years for his M&A work in The Best Lawyers in America.
He is a board member of the Giffords Law Center to Prevent Gun Violence and has served on other educational and charitable boards. He has been involved in more than 200 mergers and acquisitions. In this article, we provide advice on 12 important points to consider in mergers and acquisitions (M&A) related to the sale of private companies from the perspective of the seller and its management. If you and the potential buyer can`t agree on a purchase price, consider an earnout to bridge that disagreement. An earnout is a contractual provision of the M&A agreement that allows a seller to receive additional consideration in the future when the sold company reaches certain financial parameters, such as gross revenue milestones or EBITDA. While an earnout presents significant risks to a selling company and its shareholders, it also creates a way for selling shareholders to ultimately get the return they seek on the sale of the company based on the company`s continued performance after the transaction closes. The total price to be paid, the currency used, the time taken to fulfil the condition and the conditions of acceptance must all be clearly stated in the purchase contract. A key to a successful sale of a business is a well-formulated purchase agreement that protects the seller as much as possible. Whenever possible and depending on the leverage available to the seller, your lawyer (and not the buyer`s lawyer) should prepare the first draft of the purchase contract. Some of the key provisions addressed in the purchase agreement include: If a buyer could only require the representation of a selling company in a purchase agreement, it is likely that the buyer would need assurance that the closing of the selling company will be prepared in accordance with generally accepted accounting principles (GAAP).
and that the selling company adequately discloses its results of operations, financial condition and cash flows for the specified periods. The preparation of a declaration of intent creates a non-binding agreement. The letter describes the intention of both parties to reach an agreement, sets a purchase price and clarifies the exchange of information. It may also include a period within which the seller is prevented from trying to make the business available to other buyers or from selling it to another person or company. Mergers and acquisitions typically involve significant due diligence on the part of the buyer. Before deciding on the transaction, the buyer must ensure that they know what they are buying and what obligations they are assuming, the nature and scope of the selling company`s contingent liabilities, problematic contracts, litigation risks and intellectual property issues, and much more. This applies in particular to the acquisition of private enterprises where the selling enterprise has not been subject to public procurement control and the buyer is unable to obtain the information he needs from public sources. Mergers and acquisitions involving private companies raise a number of important legal, commercial, human, intellectual and financial issues. To successfully manage a sale of your business, it helps to understand the dynamics and issues that often arise.
Contacting the owner of the business you want to buy is the first step if you`re looking for a merger. After making contact, you will know if the owner is interested in the sale. There are several ways for a buyer to target a target or potential acquisition. This includes communicating with the owner and requesting a meeting to discuss options. Richard D. Harroch is a Managing Director and Global Head of Mergers and Acquisitions at VantagePoint Capital Partners, a leading venture capital fund in the San Francisco area. He focuses on the Internet, digital media and software companies and has been the founder of several Internet companies. His articles have been published online in Forbes, Fortune, MSN, Yahoo, FoxBusiness and AllBusiness.com.
Richard is the author of several books on startups and entrepreneurship, as well as co-author of Poker for Dummies and a Wall Street Journal bestseller on small business. He is co-author of Bloomberg`s recent 1,500-page book, Mergers and Acquisitions of Private Holding Companies: Analysis, Forms and Agreements. He was also a partner in corporate law and mergers and acquisitions at the law firm Orrick, Herrington & Sutcliffe, with experience in startups, mergers and acquisitions and venture capital. He has participated in more than 200 mergers and acquisitions and 250 startup financings. He can be reached via LinkedIn. A merger and acquisition agreement is the paperwork that describes and regulates the merger of two companies. Read 3 min Often, a buyer submits a letter of intent or non-binding term sheet to the selling company that lacks details about key terms and conditions. . .
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