Buyer’s Goals vs Seller’s Goals M&A Basics Series – Article 11
Buyers and Sellers have different goals in pursuing an M&A transaction. Understanding the goals of the other party to the transaction will allow you to more effectively and efficiently negotiate and successfully close your transaction. While every deal is different, and thus the primary motivations of the participants in every transaction will be different, this article highlights some of the more common goals of Buyers and Sellers in M&A transaction.
Confirm Value - The Buyer wants to confirm that the quality of the business/assets being acquired is as anticipated, that the acquired business will be a strategic fit for the Buyer, and that Buyer is not over-paying for the acquired business/assets. Consequently, the Buyer will want to conduct appropriate due diligence AND receive a full suite of representations and warranties from the Seller regarding the business and assets being acquired.
Minimize Risk - The Buyer wants to minimize its risk associated with completing the acquisition. Again, the Buyer will want to conduct appropriate due diligence AND receive a full suite of representations and warranties from the Seller regarding the business and assets being acquired. The Buyer will also want an appropriate indemnification from the Seller for breaches of the Seller’s representations, warranties and covenants as well as for any losses arising from liabilities that the Buyer did not agree to assume. The Buyer may require certain post-closing restrictive covenants from the Seller including agreements to not compete with the Buyer and to not solicit its customers and employees for specified periods of time. And the Buyer may insist upon certain conditions precedent being satisfied prior to closing (i.e. no material adverse change in the business, receipt of regulatory approvals, receipt of lender approvals, etc.).
Plan for Integration – The Buyer will want to integrate the acquired business into the Buyer’s business as quickly as possible following closing of the transaction. For this the Buyer will want access to not only the books and records of the seller, but to the premises and key employees of the Seller. The Buyer will also want a fulsome disclosure letter from the Seller to supplement the representations and warranties and provide the Buyer will full insight into the material aspects of the business being acquired.
Optimizing Consideration – Buyers want to maximize their returns on the acquisition and pay the least amount possible. They also want to use their own resources to finance the acquisition in the most efficient means possible. And they want to minimize the risk associated with the acquisition itself. With respect to the payment of the purchase price, the Buyer may suggest full payment in cash or payment in a combination of cash, shares, vendor take-back financing and even earn-outs. And as mentioned above, Buyers will want a full suite of representations and warranties from Sellers as well as appropriate indemnities.
Maximize Consideration - The Seller wants to receive the maximum amount possible for the sale of the business/assets. Sellers also typically want cash and want to limit the forms of non-cash consideration (and the risks associated with such non-cash forms of payment).
Preserve Consideration – The Seller also wants to ensure that it will be able to keep the consideration it has received for the sale of its business/assets. Therefore the Seller will want to limit both the representations and warranties it is providing and the indemnity it is providing to the Buyer.
Certainty of Closing – The Seller also wants to minimize the disruption to its business and the potential harm that a failed sale transaction could create. Therefore, before a Seller will agree to sell its business/assets, it wants a high level of certainty that the transaction will close. Therefore the Seller will want to limit the conditions precedent in favour of the Buyer. It will also want to be comfortable that the Buyer has adequate resources to close (i.e. cash on hand or approved financing from its lender on conditions capable of satisfaction, etc.).
Invitation for Discussion:
At Shea Nerland LLP, we have a wealth of experience as legal advisors on M&A transactions, both large and small, and can help you successfully achieve your goals. If you are contemplating buying or selling a business, please do not hesitate to contact one of the lawyers in our business law group. We would be happy to assist you on this exciting journey.
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.