Selling a business can be a complex and challenging process, requiring careful planning and preparation to maximize value and ensure a smooth and successful transaction.  As mergers and acquisitions (M&A) lawyers, we regularly counsel clients on how to be adequately prepared from a legal perspective for an anticipated sale process.  In this article, we share our insights on preliminary steps that help avoid unnecessary complexities, delays and/or roadblocks.

1. Define Your Objectives and Timing

Before embarking on a sale process, you should define your objectives and determine the desired timing.  For instance, consider whether you want a complete or partial sale of your business, whether you want to continue to be involved in the business following the sale, and whether there are particular types of buyers you want to focus on or avoid (e.g., there may be heightened sensitivity to sharing confidential information with competitors that are potential buyers, even under the protection of a confidentiality agreement).  It may also be helpful to consult with financial and tax advisors to determine if there is a particular transaction structure that is financially advantageous to you as the seller.  Once you have made these determinations, you can create a realistic timeline and milestones to keep the process on track.

2. Assess Necessary Approvals

In order to ensure there are no last minute impediments to closing the transaction, you should assess what approvals, if any, are required in connection with the sale.  This could include approvals from other owners of your company, consent requirements in key customer and supplier agreements and/or approvals from government or regulatory authorities.  Note that this assessment may be useful to do in conjunction with defining your objectives and timing, as different transaction structures may trigger different approval requirements and the need to obtain consents may impact overall timing.

3. Clean Up Messes

You should anticipate that prospective buyers will closely examine your business.  Taking the time to identify anything that might be viewed by buyers as “messy” and addressing those issues ahead of time will lead to a more efficient and timely due diligence process and can prevent negative impacts on valuation.  This task may include ensuring that your corporate organizational documents are up to date and fully executed, confirming that all licenses and permits are up to date, ensuring that all company assets (including patents, trademarks, domain names) and key agreements are in the company’s name (and not in the name of an owner), making sure employees have signed confidentiality agreements (and, if applicable, invention assignment agreements), considering whether to settle any outstanding disputes, and otherwise dealing with any skeletons in the closet.

4. Create a Deal Team

A deal team includes those individuals that are aware of and/or involved in the potential sale transaction, and can include owners and employees, as well as external advisors (legal, tax, accounting).  With respect to the internal deal team, it is usually best to keep the team small, as news of a potential sale may cause employee angst and disruption in your business as well as increase the chances of an information leak.  In terms of external advisors, rather than using the same attorneys and other advisors you use in the ordinary course of business, you should consider engaging professionals that have expertise in the M&A context, who can best guide you through the process.  Note that you should strongly consider engaging these teams at the outset of the process and in connection with the steps outlined above, as their guidance early on can prove vital to starting the sale process with a strong foundation.

5. Gather Information

There is an old adage that “time kills all deals.”  Prospective buyers will request a vast amount of information in connection with their due diligence, and if information has not been gathered, organized and ready to be made available ahead of time, the momentum of the deal will slow.  Moreover, the information provided during due diligence informs many aspects of the deal, from valuation to documentation. Delays in diligence could delay finalizing a sale transaction.  Therefore, preparing a robust data room as you approach the launch of the sale process and go through your “clean up” is an important step in ensuring a successful transaction.  Diligence will likely cover all aspects of your business, including finance, operations, corporate organization and governance, tax, intellectual property, human resources and employee benefits, environmental, compliance, insurance and other topics.  Your experienced M&A counsel can provide you with a list of information to be gathered and can advise you on how to best organize this information to streamline the due diligence process as much as possible.

Conclusion

While selling all or part of a business can be a complex and challenging process, for many owners, it is a worthwhile path to explore and the above insights can help prepare sellers who are considering or embarking on a sale process.

To learn more or to discuss with an M&A attorney, please contact a member of Hinckley Allen’s M&A group.