Andrew Gazdecki is the founder of MicroAcquire, former CEO and founder of Bizness Apps and Altcoin (both acquired).
Imagine this, for a moment:
A is interested in your startup.
You spent days chatting by email.
You’ve even met in person.
Now your client is able to send you a letter of intent (LOI) to buy your business.
It’s a time when you’ve spent the last five years running and, despite everything, you can see the final line.
Your smartphone vibrates. A buyer landed in his inbox.
Open the email, which is courteous and enthusiastic, and draft the letter of intent.
Wait a minute, you think. Your smile fades. The terms of the letter of intent are what you expected, as the maximum of parts is skewed in favor of the buyer.
This is a typical example of what can happen when a letter of intent is denied.The letter of intent is the first sign of serious interest, but it is also an invitation to the nepasstiar table.Delaying difficult conversations can speed up an acquisition, but not nepasstite early puts you at a disadvantage.
And I, everything related to a letter of intent is negotiable, regardless of what the client might argue.
When you enter the exclusivity period, the force moves from you to the buyer, it is essential that you negotiate everything in advance and have a strong legal framework from which you can continue with the sale with confidence.
For you, here are some things to consider.
Put your space in order
Complete the pre-sale check as much as possible.A little hard work will now pay additional dividends throughout the acquisition process, leaving fewer surprises or disorders to resolve later.Yes, it would possibly take longer to close the transaction, but if your customer is talking about a letter of intent, you know it’s serious and it makes sense to locate your home so that the sale runs smoothly.
Lawyer at the top
Preparation is a tough best friend in the procurement process.You may not be the buyer’s first or last purchase, so do not underestimate it.They will review it for weaknesses, and unless you are familiar with the M&A law, it will be legal.The buyers will have an M lawyer.
Hire a lawyer to accompany you to those legally scrambled waters.Not all buyers will use the law to exploit it, however, there will be a negotiation, the definition of the company’s debt, for example, which will be open to interpretation.will push his performance above yours.
Negotiate a schedule and period of exclusivity
Deadlines manage your and the buyer’s expectations, but you don’t have to set your time through the buyer’s watch.
For example, your customer may need rapid due diligence, but also a long era of exclusivity so you can review your business without the strain of competing offerings.They can also even demolish through negotiations to pressure him to accept the terms in their favor.
Set an appropriate schedule that includes an era of exclusivity of 30 days or less (seven days if you can get it!) And enough time to do due diligence and other negotiations.
What is the value purchased and how will they pay?
Once you have agreed on a moderate number, a monetary agreement is preferable for you and the client, unless your client is a business.In this case, you may need to trade shares for interests in this new entity (the client would possibly resist).
For ambiguity, industrialize an unconditional final number, such as financing, conditional pricing, or inventory swaps, when you have no interest in the new entity.You don’t need to waste time on an agreement if the customer can’t give you what you need..
If the value is a friction point, a value supplement to close the gap, a customer would possibly settle for the acquired value plus a percentage of the revenue source in long-term sales for a restricted time, for example.value add-ons because they create uncertainty and restrict what they can do with the business.
If you want a supplement, apply it only to the source of income. Earnings will likely be affected in the short term due to prices of transitioning to a new owner. To waste on anything that is no longer under your control, calculate the source of Income Supplement on anything more stable, such as the source of income.
Minimize representatives and warranties
Be careful with your client who assembles fundamental representations and warranties.
Your client needs to avoid unpleasant surprises such as misrepresentations or frauds, in this case, you will have to go back one hundred percent of the purchase price.But they also don’t need to protect high-level assets or other vital assets that may be just the price of the business after the sale, and that’s a trading point.
For SaaS companies, for example, their IP is everything, but competing products, cyber threats, regulatory or market situations can thwart even the most productive intentions. To overexpose after acquisition, restrict the survival era of your representatives and warranties to 10% or less during an era that does not exceed 12 months.
Of course, the more physically powerful your IP address, the greater the position you have to negotiate, so it is so important to do due diligence before signing the letter of intent.
Decide how you’ll leave out
Most buyers expect you to leave the business without money or debt, which also affects current capital.Positive current capital will attract the buyer, but a negative figure is not a bad thing.However, buyers will not forget the constant negative capital, which may involve a deeper problem.
You may want to negotiate working capital before the sale is complete.Remember that this is a trading point and not a judgment about the long-term prospects of your business.
Think of the letter of intent negotiations as if you were doing some tricks in the ring.You’ll get hit here and there, but if you’ve prepared and studied your opponent and can resist punishment, you’ll come out harder and able to conclude on their terms.
Forbes Technology Council is an invitation only to CIO, CTO and world-class generation executives.
Andrew Gazdecki is the founder of MicroAcquire.Former CEO and founder of Bizness Apps and Altcoin (both acquired).Read Andrew Gazdecki’s full profile here.
Andrew Gazdecki is the founder of MicroAcquire.Former CEO and founder of Bizness Apps and Altcoin (both acquired).Read Andrew Gazdecki’s full profile here.