out why the buyer is interested in the business, and his future plans for it (i.e., how it will be integrated into the buyer's life/business activities). What price range is the buyer willing to pay? Does the buyer have the financial ability to complete the deal? Evaluate, Evaluate, Evaluate will need to do their homework. This not only means completing due diligence on the potential acquisition, but also re- searching other businesses on the market versus the kind of business they are look- ing for, what financing will be required to complete a sale, and an analysis of how the business will integrate with the buyer's other assets. For each available option, a buyer's team of advisors can assist with evaluat- ing the advantages and disadvantages. contemplating the purchase of a business: shares? To take advantage of capital gains treatment and exemptions, if available, a seller will usually want to sell the shares of the business. If buy- ing shares, buyers need to understand that they are assuming the liabilities of the business, including existing contracts and employees as well as the corporate history. To minimize the risk, buyers will need to focus on actual or potential liabilities as part of the due diligence. If buying assets, buyers need to determine which assets they need to run the business successfully. determine the best way to structure the purchase. Should this business be merged with an existing business? Will it be a subsidiary of an existing entity? Consultation with its team of advisors will help answer this question. how he intends to finance the pur- chase. Is he purchasing it alone or with other investors? If the buyer intends to obtain traditional bank financing, he should discuss this aspect with his financial advisors well in advance. A buyer will also need to determine how he will finance the operations of the business. Will he be funding the operations directly or will he require access to an operating line of credit? due diligence is one of the most important steps in the acquisition process. Completing due diligence on a prospective company, takes time and money. To protect this investment, a buyer should ask the seller for a promise that the seller will deal exclusively with the buyer for a certain period of time. This needs to be agreed at the outset. involves risk. The goal of a buyer's due diligence is to determine the extent of the risks involved and to decide whether to accept those risks and proceed with the purchase. Certain risks can be minimized by the seller's representations and warranties in the Agreement of Purchase and Sale. A buyer's team of advisors can help him understand and, where possible, minimize the risks involved. can cause the seller's employees unease and uncertainty. After the acquisition, key employees may be a necessary and valuable resource for the buyer. It is important for buyers to put a plan in place to deal with this transition and to be aware that the relationship between the buyer and the seller's employees may or may not be successful. If this is the case, this will need to be negotiated with the seller. Employee terminations can be costly, espe- cially for long term employees, and the seller will want the buyer to be responsible for these costs. Buyers should discuss the future plans of the seller to ensure that the seller and its principals are restricted from competing with the business or soliciting employees or customers of the business after the sale. These restrictions can be included in the Agreement of Purchase and Sale. problems with the target business or risks that the buyer is unwilling to assume, or if the seller is less than trustworthy, a buyer should be prepared to walk away from the deal. Because due diligence can be a lengthy and expensive process, it can be tempting to push forward because of the time and money already spent. Keep a clear head. Consult with your advisors and if you don't feel comfortable proceeding, don't move forward. The key to a successful purchase or sale is to start the planning process early, even if there are no current plans in place for either. Regular maintenance of com- pany records and operations can ensure the business is in a strong position for whatever future plans are implemented. Both parties should invest in a trusted advisory team to work with them through the process, to a successful completion of the deal. content pertains to buying and selling a business in Ontario, Canada. |