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July 9, 2020
“Everyone wants some magical solution for their problem and everyone refuses to believe in magic.” The Mad Hatter, Alice in Wonderland
Alright, I confess: the headline is shameless click bait. But who would look twice at an article titled “Managing the Risk of Closing the Sale of Your Business”?
So you’ve signed a non-binding letter of intent to sell your business. All that is left is for the lawyers to work out the definitive agreement and for you to exchange your shares for cash (or your assets if you’re doing one of those) at the closing. What could go wrong? Lots.
The first question that every seller should ask is: Can this buyer simply walk away from the deal? Don’t laugh. It happens more often than you think. You spend 60 or 90 days working on the sale of your business, you’ve provided reams of information, crunched the numbers, and the buyer changes his mind at the last minute. Unless you anticipated that issue and negotiated a binding breakup fee in the otherwise non-binding letter of intent, there isn’t much recourse except to lick your wounds, pay your attorneys for their time, and move on to the next opportunity.
Even if you set aside the possibility that a buyer might have a change of heart, there are still a lot of things that can get in the way of closing the sale of a business. Based on my 40+ years of experience negotiating and closing mergers and acquisitions, here are some things to keep in mind:
- Does the buyer have the financial and legal ability to close?
- What surprises might come up during due diligence?
- Have things changed since you started talking about selling your business?
- Are third party consents a problem (e.g., do major service agreements, software licenses, real property leases, or other contracts require that you obtain the consent of another person)?
- Will the transaction require government approval?
If you intend to sign a binding Stock Purchase or Asset Purchase Agreement at the closing table, these questions need to be addressed before you get there. If you have signed an agreement with a deferred closing date, these issues will usually appear as conditions to the obligation of the buyer to close. In either case, anticipating and managing these issues will make a big difference as to whether you “get some ink” on the closing documents (and some green in your bank account).