Tips and Thoughts About Selling Your Business
Thinking about expanding your business through an acquisition - or selling it because of retirement, market conditions or to reach the next stage of growth - can feel overwhelming. As a business and finance attorney, over the years I’ve worked as both general counsel and M&A counsel for companies of all shapes and sizes, and I’ve seen firsthand what helps an owner get ready for a successful sale (and what can unintentionally get in the way). Through this Q&A series, I will share practical, real‑world advice from those experiences, so whether you are buying or selling, you can navigate the process with fewer surprises, and greater clarity and confidence.
Q: I have heard from many of my peers that certain lawyers are better equipped to handle business sales and purchases. What type of experience should I look for to identify the best attorney for my transaction?
A: Attorneys with experience in business sales and purchases are more familiar with how transactions are accomplished these days and understand how private equity (financial) buyers approach transactions and how industry specific (strategic) buyers view transactions. A good merger and acquisitions attorney will help you prepare your company records, internal governance processes and will point out if your material contracts with suppliers and customers are in order. Good, experienced counsel can be a terrific resource as you plan the ultimate sale transaction.
Attorneys who have in-depth experience with mergers and acquisitions understand that a purchase agreement will be structured to compel a seller to provide great detail about the target business involving numerous pages of representations and warranties and very detailed attached exhibits and schedules. Many sellers react to these requests and the due diligence disclosures by complaining that the process is overwhelming. But it has become the standard approach for dealmakers, whether they are financial, or strategic buyers building out industry consolidating platforms.
Sellers need to understand that buyers rely on the disclosure process and deal documentation to educate themselves about a target. This process also protects buyers: they will typically require a covenant obligating the seller to indemnify the buyer if the seller’s statements prove untrue and ultimately cause damage or losses after the deal has closed.
Ultimately, buyers will require a process for recovering any losses resulting from a seller’s misrepresentations and will typically require that a portion of the purchase price be held in escrow to secure this indemnity obligation.
A skilled mergers and acquisition attorney will be able to negotiate a fair process for this indemnity obligation that will be memorialized in the purchase agreement and will include the ground rules for a party making an indemnity claim. If done right, the resulting agreement will include establishing deductibles before claims can be brought, caps which limit a seller’s total risk exposure under indemnity provisions, and time limitations for survival of the indemnification obligation.
There are numerous rating services such as Chambers, Legal 500 and Best Lawyers, that identify skilled M&A practitioners and the firms that specialize in corporate deals. Once you have identified some firms, look for specific examples of experience on their websites. Any reputable law firm should be willing to have substantive discussions detailing their capabilities. Good questions to ask include:
- What is your experience with transactions similar to mine?
- Can you walk me through some recent deals that you have closed?
- How do you approach negotiating indemnification provisions?
- Who specifically will be working on my deal, and what is their experience?
- How do you help sellers prepare before going to market?
The right counsel will not only protect your interests, but also help you maximize the value of your business. The earlier you engage an M&A attorney, the better positioned you will be for a successful outcome.
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Read other installments in the series: