The Lavelle Law Guide to a Successful Merger or Acquisition

Are you planning on expanding your business? On the other hand, are you planning on exiting or retiring from your business? Lavelle Law’s Mergers and Acquisitions Team can help you navigate through all of the complex and unexpected hurdles that may arise during a corporate transaction. Below is a breakdown of the 4 important steps for a successful merger or acquisition.

Step 1: Letter of Intent (LOI)

• An LOI sets out the basic economic terms and schedules the due diligence period as well as the tentative closing date. The LOI is executed after preliminary negotiations and introduces certain confidentiality and non-disclosure covenants among the parties. This will allow a potential buyer the opportunity to inspect the books, records, financials, and overall business operations of the target company.
• An LOI may provide for refundable or non-refundable earnest money to be paid by the buyer to the seller (or its attorney to be held in escrow) to show the seriousness of the buyer, an exclusivity clause that states the length of time during which a seller is prevented from pursuing or considering other offers, and should clearly provide for the proposed purchase price of the assets or stock of the target company. 
• The LOI is generally non-binding except for those provisions dealing with exclusivity, confidentiality, and indemnification. 
• It is often worthwhile to spend extra time on the draft of the LOI so that most, if not all, of the important transactional terms are agreed upon before the rest of the deal proceeds. 

Step 2: Due Diligence

• The due diligence process is one of the most important phases for the Buyer who will gain access to the Seller’s business information in order to:
• Verify that the target business is worth the agreed upon purchase price and valuation;
• Verify that the cash flow of the target company can be reproduced in the future;
• Learn more about the operations of the target business; and
• Identify potential liabilities or risks of the target business.
• It is often helpful for the Buyer to create a Due Diligence Checklist to stay organized and efficiently review certain information from the Seller. 
• Depending on the terms of the deal, a Seller may also want to perform its own due diligence on the Buyer and its plans post-closing. For example, the terms of the transaction could include payment of stock back to the seller in exchange for the acquisition of his or her company. 

Step 3: Negotiation of Purchase Agreement and Related Documents

• Throughout the M&A Process, Lavelle Law, Ltd. consistently prepares and utilizes Closing Checklists to keep all parties on schedule and to clearly assign tasks to all parties, including their attorneys. 
• The Purchase Agreement, or the main transaction document of the deal, will be drafted by one attorney and then shared with the other attorney and his or her client. From there, each side prepares proposed changes via “redlines” for the review and approval of the other side. 
• If the steps above are followed correctly, most of the economic terms will already be agreed upon, so most of the time spent on the negotiation of the purchase agreement may center around certain representations and warranties of the parties, as well as indemnification issues. 
• Certain other documents are prepared and negotiated in this phase, including Promissory Notes for any portion of the purchase price being paid after closing, certain security documents according to a Promissory Note, corporate documentation authorizing the transaction, and other transfer documents such as closing statements, assignments of contracts, bills of sale or assignment of stock.

Step 4: Closing

• Closing may occur either in person or remotely, as agreed to by the parties and their attorneys. 
• At closing all documents are signed, delivered and funds are transferred to and from the parties according to the Closing Statement. 
• The Purchase Agreement may provide for certain post-closing items such as the former owner’s consultancy or employment with the Buyer for a certain period of time, or a purchase price adjustment that may be reconciled months or years after the closing. 
• It is important to prepare a final closing book containing each fully-executed transaction document in the event there are any post-closing disputes among the parties. 

If you would like to learn more about mergers and acquisitions, please do not hesitate to contact attorney Frank Portera at 847-705-7555 or fportera@lavellelaw.com.