Deal Structuring - Final Stage

If you are able to reach this stage of the process, then your company is likely to be bought. However, there is one last important step for you to go through.

After the completion of the audit of the company (due diligence), the buyer is fully aware of the real situation at the selling company. This negates the initial advantage of the sellers. The cost of the proper due diligence procedure is generally relatively high, so the buyer is more interested than ever in closing the deal.

 At this stage, the buyer’s representatives that played the role of the “good cops” leave the scene under the pretext that there are only small things left to be hashed out by the lawyers. Suddenly, the sellers face a completely new negotiation team that could be characterized as the “bad cop”. This is a common psychological ploy and the sellers must not be surprised.

We strongly recommend at this stage hiring a skilled lawyer with experience in these types of negotiations. This is a moment when not having a qualified lawyer will leave you unable to protect your rights. If the sellers are employing investment bankers, the bankers should be able to suggest lawyers for you to hire. In no case should you hire lawyers that do not specialize in these types of transactions! Usually general lawyers with no experience in this type of transactions do more hard then good, esp in M&A deals. Additionally, we suggest to hire the lawyers on a fixed fee basis and avoid hourly rate charge.

Final Set of Documention for the Purchase of the Company

In most cases, the buyer side prepares the final draft of the agreement to purchase the company. Large corporations almost never cede legal initiative.

The conditions described in the first version of the drafted final documents will usually give the seller a slight shock. Almost always, all the concessions of the seller are accurately documented, but the concessions of the buyer are conveniently “forgotten”. As the buyer’s representative team has completely changed, sellers feel deceived. This situation is sometimes exacerbated by the fact that the sellers may have already “dismissed” their advisors as “unnecessary”, or their advisors, feeling the rapid completion of the sales process, push the sellers to sign the documents (unfortunately the nasty reality of investment banking business).  In many large and medium sized investment banks, the investment bankers often deliberately try to accommodate the buyer’s lawyers since the bankers representing the seller already counts on the success fee and have limited incentives to stay tough with the buyer.

It is important to remember that verbal agreements not specifically mentioned in the final version of the documents do in fact exist, no matter how others are trying to convince you otherwise. No oral assurances, emails, or phone calls on this matter should be taken as sufficient. Take a hard line and insist that on a change of conditions that is suitable and profitable for you. Often, sellers are put under time pressure; for example, buyers will say that “it is necessary to close the deal by the end of the financial year or not at all”. This is unlikely. It is important to show that your party is willing to take a break, or ever considering getting out of the negotiations.

Because the moment of valuation (see the section on Letters of Intent) often takes place more than six months before the signing of the final documents, you must address the adjustments related to the change of the financial position of the company that may have happed since the LOI. If the transaction is structured with some sort of transitional period, the final version must carefully prescribe the rights of former owners during the transition period. If the former owners continue to run the company as employees, it is important to agree on the terms of the employment contracts.

Please feel free to contact us at +12024137187 or by email if you have questions about this part.