Whether you are looking to grow your business by acquiring a competitor, start a business by buying an existing company, or sell your business, Gutwein Law can help you through all aspects of the sale or purchase. We work closely with you and your other advisors including accountants and investment bankers throughout the purchase or sale process. It is especially important at the beginning of a transaction to determine how to structure the deal to maximize the value of your assets, including an evaluation of asset versus stock purchases/sales. This table describes the differences in stock and asset purchases.
Gutwein Law has experience representing buyers and sellers of all sizes in the acquisition and sale of target companies. The process of purchasing or selling an ongoing business enterprise typically consists of the following steps:
- Identification of the target company for acquisitions;
- Negotiation of a letter of intent;
- Negotiation and signing of a definitive agreement whether an asset purchase agreement, a stock purchase agreement or an agreement of merger;
- Due diligence;
- Arranging the capital structure;
- Handling employment matters, such as contracting with key employees and termination issues; and
Identification of Target
Buyers and investment bankers or business brokers often identify companies that are targets for purchase. Also, because of the broad reach we have in the many industries and practice areas we serve, we often know of companies that are actively looking to purchase or sell their business. As long as everyone is clear legal representation, we are happy to make introductions to buyers and sellers interested in consummating a purchase or sale. After the target is identified, we can assist you in the review of the offering material provided by the seller.
Letter of Intent
For sales and purchases, a letter of intent is typically a non-binding document, with the exceptions of dealing exclusively with the other party and a confidentiality provision, which sets forth the parties agreement on the major terms of a transaction. A letter of intent will generally cover the following items:
- Identification of the parties. Who is the buyer? Who is the seller? Are there any guarantors? In a stock sale, the shareholders will be parties to the definitive agreement for purposes of representations and warranties, indemnification obligations and noncompetition covenants.
- Deal Structure. Will the deal be an asset purchase, stock purchase or merger? We assist in structuring transactions considering the unique aspects of each transaction including tax implications.
- Price and Payment Terms. What is the total purchase price and terms for payment? Options for payment include all cash at the time of closing, a seller financed promissory note, or an earn out structure based on the future performance of the business.
- Contingencies. What conditions must be satisfied before either party is obligated to close on the transaction? Examples include a due diligence investigation by the buyer or the buyer’s ability to secure the equity and debt to close the transaction.
- Working Capital Adjustment. Will certain items be included or excluded from the standard working capital calculation of current assets minus current liabilities?
- Representations and Warranties of the Seller and Buyer. What types of representations will the buyer and seller make in the definitive agreement? Are there any special representations and warranties that either party wants included due to the nature of the business?
- Indemnification Obligations. Who will bear the risk for breach of the representations and warranties, and what is the extent to which the parties have the obligations? For example, if the deal includes a certain amount of payment for the accounts receivable of the business and the seller represents that the accounts receivable are collectible and one account receivable is not collectible, the indemnification section will provide if the seller must reimburse the buyer.
- Timeline. What is the timeline for the entire transaction from entering the definitive agreement (the asset purchase agreement, stock purchase agreement or merger agreement) through closing and post-closing adjustments?
The definitive agreement is the binding purchase and sale document. Our experienced attorneys have experience drafting and negotiating asset purchase agreements, stock purchase agreements, and merger agreements.
Depending on whether Gutwein Law is representing the buyer or the seller, we tailor our comments and negotiation points to those that favor our client’s role. As an example, in a recent asset sale for our software and service company client, we focused our negotiation strategy on trying to limit the seller’s indemnification obligation and the conditions for future earn outs. These strategies give a seller assurances of keeping their hard earned profit.
During the due diligence phase of an acquisition, Gutwein Law can assist buyers by preparing a due diligence memorandum containing an analysis of the target company in the areas addressed in our Due Diligence Checklist . For sellers, Gutwein Law can gather and respond to due diligence requests as well as obtain and track requested information from the government and other third parties. In our recent representation of a software and service company, our attorneys compiled and reviewed due diligence information to send to the seller.
The purchase price of any acquisition must be funded in some way. In representing buyers, Gutwein Law can help structure the debt and equity portions of the purchase price through purchaser funds, private equity and venture capital, management and key employee equity participation, senior secured lenders, seller financing or earn out payments and other debt sources. We can deal with transactions from simple cash purchases to complex capital structures. In representing sellers, our attorneys will work with your accountant to determine how to allocate the purchase price for valuation and tax purposes.
Often buyers of a business want to keep at least a few of the key employees in place. Gutwein Law can help prepare employment agreements for these key employees, which typically include noncompetition and non-solicitation provisions. These agreements help assure buyers that the business continuity is interrupted as minimally as possible and the buyer is able to retain some of the most valuable assets in the company – the key employees.
For sellers, our attorneys can review proposed employment agreements for key employees and provide counsel on termination of other employees. In the recent asset sale for our software and service client, we negotiated changes to the owner’s employment agreement to limit the buyer’s ability to terminate the employee, and therefore give the employee more comfort in the stability of his future earn outs, which were based on his employment with the buyer.
For more information on our employment law services, please see our employment law page.
Closing a transaction is the culmination of the work and negotiation over a long period of time. The closing is when title to the assets is actually transferred from the seller to the buyer.
If it is an asset purchase agreement, this is the transfer by the buyer of cash, a promissory note or a contractual obligation to pay an earn out amount to the seller. The seller provides to the buyer a bill of sale, assignment of contracts, assignment of intellectual property, deeds and other conveyance documents as necessary.
If it is a stock purchase agreement, the seller signs the shares of the company over to the buyer and the buyer transfers cash, a promissory note or a contractual obligation to pay an earn out amount to the seller.
Gutwein Law can host in-person closings or monitor and administer electronic closings.
After the Purchase
After the purchase closes, our attorneys typically stay very involved with the business and remain involved as described in Business Law & General Corporate Counseling.
Also, the closing of a purchase of a business is typically the beginning of the process of either reinvesting or estate planning for sellers. Gutwein Law can assist you in reinvestment of your sale proceeds as a buyer of a business or we can assist you in the planning for distribution to your heirs. Please see our Estate Planning & Estate Administration section for more information.
Gutwein Law can take care of all of the details of buying or selling your business. Let us advocate on your behalf to maximize the value of your company. That’s Legal Strategies with Business Perspective.