Selling your Business? Now or in the future? – What you need to know! - PowerPoint Presentation

1. Selling your Business? Now or in the future? – What you need to know! George A Smith, IIgsmith@babc.comApril 2, 2015

2. What is the Process?Some amount of disclosureNeed a Confidentiality Agreement in place at all times.Letter of Intent or Term SheetVery important step because you can frame some of the issuesDue DiligenceThis can be frustrating to the SellerDefinitive Agreements negotiated and executedNotifying the customers and other shareholdersClosing Conditions must be metOften required to obtain consents from third partiesGovernmental Approvals (i.e., Hart-Scott-Rodino Approval)Closing

3. Important to have a team that can work togetherThere are several different areas that require specialized knowledge and understanding (i.e., ERISA, environmental, taxes).Confidentiality is crucialSpeed can be importantTeam should consist of persons inside the companyShould the Board of Directors be made aware of the possible transaction?Normally the chief financial officer will be involved.Team should consist of persons outside the companyInvestment BankersOutside accounting firmLegalWho Should Be Involved?

4. An Investment Banker can help with the process.Often help with pricing the deal and Fairness OpinionEngagement LetterOften has a tail periodNeed to get Board of Directors approvalFee often based on sales priceInvestment Bankers

5. Confidentiality of InformationThis issue can easily be overlooked.Information that is disclosed in the process could be proprietary.Do not forget to immediately have a confidentiality agreement executed if you are disclosing any company information.May want to try to include non-solicit of employees or customers

6. Important stepBest to get the issues out on the tableNon-binding except as to certain provisions:Expenses and costsNo Shop ProvisionConfidentialityShould set out the structure of the acquisition:Tax IssuesImportant to make sure Legal and Tax Advisors are involved whenever the structure is discussed and decided.Need Board Approval of LOIBreak-up FeeLetter of Intent / Term Sheet

7. Due DiligenceNot the best time to be doing corporate cleanup. This step is crucial.Issues that often arise during this period:Stock/Equity Compensation Issues409A IssuesLack of Minutes of meetingsLack of other corporate documentation on actions takenERISA IssuesAssignability / Novation of important contractsChange of Control Provisions vs. Assignment Provisions

8. Letter of Intent should give the framework for the Definitive AgreementsExamples of Definitive Agreements:Purchase AgreementEmployment and Non-Compete AgreementsEscrow AgreementBill of SaleAssumption of Liabilities AgreementReal Estate and Equipment LeasesDefinitive Agreements

9. Additional terms the Definitive Purchase Agreement contains: Representations and Warranties - look to the past and the currentSets out the liability for the sellerNeed for good disclosure schedulesCovenants - look to the futureIndemnification process and detailsNeed to be very clear and detailedTime period for indemnification (statute of limitations)Caps on liability and possible basketDefinitive Agreements

10. Definitive AgreementDefinitive Purchase Agreement will set out certain conditions for closing.Consent required for transactionNovation IssuesAssignment Issues (ex. Leases)Acquirer has meeting with certain customersRelease of Bank or other financing liensAppropriate corporate governance approvalsEmployment issues

11. In general, as to the Target, the Definitive Agreements will need to be approved by the Board of Directors and the Shareholders.Dissenters Rights (a/k/a appraisal rights)In general, as to the Acquirer, the Definitive Agreements will need only Board approval.Approval of Definitive Agreement

12. Unrealistic expectationsPoor Communication leads to misunderstandingsOne reason for a good team and a good LOITarget is not preparedPoor corporate recordsPoor financial information/recordsTakes too much time – things changeOne side believes it has the upper handNon-compete issues for employees/retentionDifferent culturesFinancing issuesWhy Transactions Do Not Close?

13. Basic Items to ConsiderHave a good Board of Directors and Advisors.Have an organizational chart.Put in place appropriate controls.Have accurate financial statements and data.Look for Assignment / Novation Issues.Look for Change of Control provision in agreements.Incentives for employees and management team.Consider non-competition issues.Better to find your problems now.Think of the end game now.