You have planned the sale of your SME and found the right buyer? You are now in the negotiation phase of the selling process. To start the negotiations in the best possible conditions and thus reach your objectives, follow our tips below.
1. Prepare your negotiation strategy
Taking the time to prepare your negotiation strategy is crucial and will increase your chances of achieving a successful sale. This preparation will help you throughout the process. The following are some important elements to consider:
- Know your file in order to avoid improvisation during the negotiations;
- Know your stakeholders, their needs and goals;
- persevere, be creative and propose hypothetical solutions to be developed later;
- Know when to step back to better move forward;
- Identify the non-negotiable elements as well as the ones you may want to let go;
- Avoid discussions that reference to personalities and stick to your arguments.
2. Negotiate the letter of intent
While it would be ideal to receive a complete and formal offer of purchase, in most cases, buyers will prefer to issue a letter of intent in order to avoid incurring significant legal fees and to be reassured on the particular terms of the transaction and the seller’s good faith.
The main purpose of the letter of intent is to provide a bridge between the parties. It is therefore to both the seller’s and the buyer’s advantage that its content includes the most critical elements related to the outcome of the transaction. Elements that are usually negotiated at this stage include:
- Price and provisions related to adjustments;
- Payment terms;
- The timeline of events;
- The non-competition agreement;
- The seller’s involvement following the change of ownership;
- The assurance that the activities will take place in the normal course of business until the closing of the transaction.
3. Collaborate in the due diligence process
Due diligence is an essential step in a transaction. At this point, the buyer will be able to validate the information already provided and examine other aspect of the company very closely. Without being exhaustive, here are the elements that you must take into account during this procedure:
- Provide access to the information requested in the buyer’s checklist;
- Maintain the confidentiality of the due diligence process and minimize contact between the buyer and the company’s personnel;
- Organize and control the flow of documents in the virtual data room;
- Schedule, towards the end, the buyer’s meeting requests with key employees, non-shareholder executives, customers and suppliers in order to preserve the confidentiality of the discussions and negotiations.
4. Negotiate a detailed contract
In addition to the elements already outlined in the letter of intent, which could be the subject of further discussions, the following topics could trigger new exchanges between the parties:
- Price adjustments and/or payment terms based on future objectives (also known as earn-out clauses);
- Differences between pro forma closing financial statements and actual financial statements, and compensation clauses;
- Nature and extent of the seller’s representations and warranties;
- Commitments after closing;
- Seller’s attendance at meetings of the Board of Directors or at other committees following the sale of the business;
- Negotiation of a lease;
- Obligations according to the terms of employment or consultant contracts related to the seller’s role after the sale.
Remember that any business sale negotiation takes time and planning. The process can be complex and challenging. Take the right approach by following the advice of qualified professionals with experience in the field of corporate selling. This will enable you to attain the desired results.
Patrick Whalen, MBA, Vice President – Financial Advisory Services
Note: The masculine form is used throughout this article solely in order to simplify the text.