Advance preparation is key to a successful Merger & Acquisition (M&A) transaction for a seller. M&A transactions can be time consuming and stressful for a company and its management team. The following are some important things a company can do to maximize the likelihood of a successful sale, in connection with the sale of a privately held company.
The selling company should insist that an appropriate Non-Disclosure Agreement (“NDA”) is fully signed early on in any talks with a potential acquirer. The NDA should also attempt to incorporate an employee non-solicitation provision.
2. Investment Bankers.
The company should consider hiring an investment banker to assist it in the process. Investment bankers can be useful for finding prospective buyers and acting as an intermediary in negotiations. Follow these four tips:
- Make sure the banker has given you a list of who they think the likely buyers could be, with annotations concerning their relationships with those potential buyers.
- Carefully scrutinize and negotiate their “standard” form of engagement letter (most are unreasonably favorable to the banker and can be negotiated).
- Check references from clients.
- The banker should also advise as to market comparables.
It is imperative that knowledgeable, experienced M&A counsel be hired for the selling company. The lawyer hired should be a full-time M&A lawyer. The company’s existing counsel may not be appropriate for the M&A transaction.
4. The Negotiation Process.
It is usually best that the CEO not negotiate the M&A terms, due to the inherent conflict of interest issues. Any negotiations should typically be undertaken by an M&A Committee of the Board. Ideally, the process will be run as an auction to heighten the likelihood of better terms and price. From the seller’s perspective, it is desirable for the first draft of the merger agreement to be drafted by the seller’s counsel (although many buyers will insist otherwise).
5. Letter of Intent.
A buyer will typically want to “lock up” a deal via a letter of intent with an exclusivity period of 30–60 days. These are usually not in the best interests of the seller, unless very detailed terms (price, escrow, scope of representations and warranties, indemnification provisions, etc.) are set forth in the letter of intent and the exclusivity period is short.