MERGERS & ACQUISITIONS

Sell-Side Advisory

Sell your company with The Aust Group

Buy-Side Advisory

Buy a company with The Aust Group

THE DEAL PROCESS

A step by step look into the transaction

  • 1. Non-Disclosure Agreement
  • 2. Management Meeting
  • 3. Letter of Intent
  • 4. Due Diligence
  • 5. Purchase Agreement
  • 6. The Closing

The Non-Disclosure Agreement (NDA) also referred to as the Confidentiality Agreement (CA), is executed by the buyer and seller before any confidential information is shared between parties regarding a potential sale. The purpose of the NDA is to maintain that the parties will not disclose any information regarding a potential sale to anyone outside of the agreement. This is to protect both sides, but is especially important for the seller. Rumors that an owner is selling their business could result in customers cancelling service or employees leaving the company. The NDA is a legally binding document that establishes and secures confidentiality between buying and selling parties. If the agreement is terminated, both parties will often be required to return or destroy the confidential information that was exchanged.

Management meetings occur when the buyer and seller first meet each other. The management meeting is typically before the initial offer is made by the purchaser. These meetings happen in person but can also take place over the phone or video conference. The management meeting is the ideal time for the buyer and seller to get to know each other and determine if there is a natural fit or chemistry between the two parties. This meeting provides sellers with an opportunity to learn about the acquiring company and what their business would look like after a potential sale.

When a purchaser decides to make an offer, they will submit a Letter of Intent (LOI). The LOI sets the framework for the transaction and defines the purchase price, payment terms, deal structure, details for closing the transaction, and all items that have been negotiated between parties. However, the LOI does not guarantee a completed transaction as the purchaser still needs to perform their due diligence of the seller and a purchase agreement needs to be agreed upon. The only condition in the LOI that is binding is an exclusivity clause or "no-shop provision". This means that once a seller signs an LOI with one party, they agree to stop their negotiations with all other potential suitors for a determined period of time.

Once the buyer and the seller execute the LOI, the due diligence of the seller begins. Due diligence is a detailed examination of the seller’s business conducted by the purchasing company and related parties or advisors. The purpose of due diligence is for the buyer to review and validate the seller’s business. The due diligence typically looks at the specific business from a legal, tax, financial, and operational perspective. All information is stored in a confidential and secure online data room. It is the responsibility of the M&A advisory firm to act as an intermediary between parties when information is requested from the buyer.

After concluding due diligence or towards the end of the due diligence, the purchase agreement is drafted. There are two types of purchase agreements. The first is called a Stock Purchase Agreement (SPA) if the transaction is structured as a stock purchase. The other is called the Asset Purchase Agreement (APA) if the transaction is structured as an asset purchase. The purchase agreement is final and legally binding, so the seller must confirm that all the terms agreed upon previously are included in this document. The purchase agreement and supporting documents contain the purchase price, terms, guarantees the seller makes regarding their business, promises the buyer makes regarding their business, covenants such as a non-compete, and the indemnification between parties if there are any breaches of contract.

The Closing is when the purchase agreement and supporting documentation is finally agreed upon and executed between parties. With the help of technology, not everyone is required to attend the Closing like in the past and parties involved in the acquisition can now be in separate places. Once everything is signed, the seller is paid in the form of a check or wire transfer from the buyer. If the buyer and seller are together for the Closing, this is a time for celebration between parties to commemorate the completed transaction.

More Information

If you’re exploring the idea of growing through mergers and acquisitions, fill out the form or contact us via the information provided below: