Part 1 – The Pros and Cons of components of a business purchase and sale from the Buyer’s and Seller’s perspective.
We have all heard the old adage “What’s good for the goose is good for the gander.” While this is true in many life situations, this wise saying is often times not applicable in the areas of mergers and acquisitions. A more accurate adage when it comes to buyers and sellers of a business would often be be. “What’s good for the Buyer is bad for the Seller… and vice versa” Through the next several monthly blogs, we will be breaking down several key components of a purchase and sale of a business to analyze the pros and cons of these components from both the Buyer’s and Seller’s side. The areas that we will analyze include:
- Type of Transaction Structure – Which is better for Buyer or Seller, a stock (or membership interest) purchase v. asset purchase?
- Payment of Purchase Price
- When to use Seller financing and who it typically benefits.
- How to use hold-back and claw-back provisions in an asset or stock purchase.
- Using earn out provisions in a sale and how that impacts the purchase price.
- Using set-offs against a promissory note or hold-back amount to protect Buyers.
- Conditions Precedent – When to require that items be completed prior to closing v. when to permit post closing matters.
- Purchase Representations and Warranties – Which reps and warrants are pro-Buyer v. which are pro-Seller
- Transition Periods – Utilizing the Seller to assist in the transition of the Buyer into the new business
- Ancillary Agreements to a Purchase and Sale Agreement – utilizing ancillary documents in a stock or asset sale including:
- Consulting Agreement
- Non-Compete Agreement
- Bill of Sale and Assignment Agreement
- Lease Assignment Agreement
- Assignment of Trademark, Trade Name, Entity Name, and Termination of Assumed Names.
As we analyze the above topics over the next several months both Buyers and Sellers of businesses will be able to see how various components of a stock or asset sale can significantly impact their position in the transaction and how, with the right legal guidance and counsel, these provisions and documents can be used to improve or strengthen you negotiating power in the transaction.
Eric R. Thiergood, Sr.
Phone: 866-912-8639
Fax: 281-210-1361
