Selling a Company: Negotiating the Best Deal

Article written by Croke Fairchild Duarte & Beres Partner Andrew Gilbert and Associate Meredith Christianson .

Selling a company can be a daunting, complex, and lengthy process. However, with the right preparation and guidance, it can also be incredibly rewarding. One of the most important aspects of selling a company is negotiating a deal that maximizes the value of the company and meets the needs of all parties involved. In this article, we will provide tips on how to negotiate the best deal, and delve into some of the common pitfalls that can undermine a seller’s position.

Tip #1: Understand the Value of Your Company

Before entering into any negotiations, it is important to have a clear understanding of the value of your company. This includes both tangible assets such as property, equipment, and inventory, as well as intangible assets such as patents, trademarks, and brand reputation. Engaging a professional valuation company (which may include accountants or investment bankers) to assess your company’s financials and other key metrics is the best way to ensure an accurate estimate.

Tip #2: Identify Your Priorities

When negotiating a deal, it is important to identify your priorities and what you hope to achieve from the sale. For example, you may prioritize a high sale price, a quick sale, or ensuring the continued success of your company after the sale. By identifying your priorities early on, you can focus on negotiating a deal that meets your specific needs. Our team has navigated hundreds of M&A transactions, so we can help you think through what a successful transaction would look like from your perspective.

Tip #3: Prepare for Due Diligence

Due diligence is a process in which the buyer examines the company’s financials, operations, and other key metrics to ensure that there are no surprises after the sale. Our team can assist and guide you through the robust due diligence review process. We have example request lists that can help you start to think about the various documents and materials that will need to be provided to the potential buyer. We can also discuss when materials should be provided, including which documents should only be provided toward the end of the process (i.e., usually the more sensitive the material, the later we want to disclose that full information to protect it in case the deal does not go forward).

Tip #4: Hire an Experienced M&A Attorney

Negotiating a deal is one of the most important and also complex and challenging parts of selling a company. It is recommended that you hire an experienced M&A attorney, like those here at CFDB, who can provide guidance and support throughout the negotiation process. Our M&A attorneys can help you understand the legal and financial implications of various deal structures, and can negotiate on your behalf to ensure that your interests are protected.

Tip #5: Be Flexible

Negotiating a deal requires a certain level of flexibility. It is important to be willing to compromise on certain aspects of the deal in order to reach a mutually beneficial agreement (especially if you plan on continuing to work with the ultimate buyer!). This does not mean you have to give on every issue. But by being flexible and working with the potential buyer rather than against them, you can create a more collaborative negotiation process and increase the likelihood of a successful sale.

Pitfall #1: Focusing Solely on Price

While price is an important aspect of any deal, it should not be the only factor that you consider. It is important to consider less tangible aspects of the deal such as the buyer’s reputation, their plans for the company after the sale, and the potential impact on your employees. Your interests should also be taken into account. For example, do you want to close the transaction and retire, or would you rather stick around and continue to be affiliated with the company going forward? To achieve the best deal, you should focus on the high-level transaction structure as a whole and how it aligns with your priorities and expectations for the company.

Pitfall #2: Lack of Communication

Communication is key when negotiating a deal. It is important to be transparent and honest with the buyer about the state of your company and your goals for the sale. At the same time, our M&A attorneys can help you decide when is best to strategically provide information to the buyer during the due diligence review process. Ultimately, lack of communication can lead to misunderstandings that can kill a deal, but the strategic release of information can soften the impact of the information and can be timed in accordance with the level of competitiveness of your sale process.

Pitfall #3: Not Seeking Professional Guidance

Selling a company is a complex process that requires professional guidance. It is important to seek the advice of an experienced M&A attorney as early in the process as possible. An experienced M&A attorney will provide additional industry knowledge, guidance, and support throughout the deal process. Failure to hire knowledgeable counsel can lead to costly mistakes that will ultimately impact the value of the sale.

By understanding the value of your company, identifying your priorities, preparing for due diligence, hiring an experienced M&A attorney, and being flexible, you can increase the likelihood of a successful sale. Being proacting and following these tips will set you and your company up for a successful sale process and put your business in the best position possible to maximize value and likelihood of closing the transaction. Our team has many years of experience closing successful transactions, and we are happy to use those years of experience in your favor.

Our team here at CFDB is always ready to help guide you through negotiations, focusing on your interests and protecting your business to make sure that you maximize the value of your sale transaction. Feel free to reach out to us any time to set up an initial consultation call.