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Considerations in Selling Your Business –- Part 8: Sale Negotiations

by Patrick B. Mathis, Shareholder at Mathis, Marifian and Richter, Ltd.

Sale Negotiations

Discussions and negotiations regarding the sale of a business may be initiated and conducted in various ways.

In some cases an interested party may approach another business expressing an interest in an acquisition. This may be a direct approach by the buyer, or through an agent such as a business broker or attorney. In other instances, sellers may initiate sale discussions with an identified likely buyer, or multiple potential buyers, either by direct contact or again through an agent such as a broker or attorney.

part8Careful preparation to understand the value and market for the business, alternative pricing structures, potential liability issues, and similar matters (as discussed in other blogs in this series) are critical elements of preparation for both the seller and a buyer.

In addition, preliminary due diligence by a buyer, which frequently includes a review of financial statements, information regarding major customers and key personnel, and assets of the company, is important to a buyer’s evaluation of the business, analysis of value, and consequent purchase discussions with a seller. While subsequent, more detailed due diligence may develop additional issues, this preliminary review is essential to constructive and realistic negotiations.

In some cases, the owner or key management personnel of the buyer and seller will conduct negotiations with advisors such as accountants, attorneys or brokers serving as resources for analysis during discussions between the parties. In other cases, these advisors may be directly involved with the owners or key employees in the negotiations, or conduct those negotiations without the parties having direct discussions.

Regardless of the approach taken, the involvement of professionals in the early stages or preparation and negotiations is often critical in identifying issues, negotiating favorable terms, and addressing the allocation of the price and potential tax impacts in the structuring of the transaction. Nothing is more detrimental to maximizing the benefits of a transaction than waiting to bring these advisors in until after the terms of the deal have been struck.

In some cases a seller may only be in negotiations with one party, while in other instances a seller may be negotiating with several potential buyers until the general terms of the deal, i.e. the total purchase price, an asset or a stock sale, the allocation of payments, key employee issues, etc. may be resolved. At that point, generally a seller will move forward with one buyer with a letter of intent in anticipation of a final deal.

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