DMJ Services

 

We deliver each of our services through a team of financial professionals who adhere to the highest standards of our industry. And when you become a DMJ & Co., PLLC client, everyone on our team works for you.

 

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DMJ Services

 

We deliver each of our services through a team of financial professionals who adhere to the highest standards of our industry. And when you become a DMJ & Co., PLLC client, everyone on our team works for you.

 

Typical Merger & Acquisition Process

Some of the typical steps in the sale of a privately held company are as follows:

  1. Valuation.

    While this may not involve the full valuation procedures and report, it is important to reach some preliminarily value before the process begins.  This will allow the owners to project the proceeds, income tax, and determine if their projected after-tax proceeds accomplish their financial planning goals of selling the business.

  2. Timing.

    There is certainly a “right” time to sell a business and the worst time to sell is when you have to sell.  What is the status of the economic cycle of your industry?  Are you coming off a bad year or successive bad years?  What would the sales prospect be like in 12 or 24 months compared to now?

  3. Determine prospective buyers.

    Usually the business owner has some very good ideas who the prospective buyers may be.  Do some research on these prospective buyers. Have they made any acquisitions lately?

  4. Think outside the box.

    Are the key employees the prospective buyers?  What about an Employee Stock Ownership Plan (ESOP)?  Think about using long-term installment notes on sales to key employees who may not have the capital to purchase up front.

  5. Can you separate the real estate and the operations of the entity?

    Often times a buyer will purchase the operations entity but does not have the capital to purchase the real estate initially.  This could provide a good long-term tenant and income stream by retaining the ownership in the real estate while selling the business.

  6. Evaluate if a business broker or investment banker should be engaged on your side of the transaction.

    Certainly these professionals can add value to the process.

  7. Structure and tax planning.

    Typically, the sale of privately held companies is structured as an assets sale.  This is where by the seller maintains their old corporate entity and sells all the assets, name, and goodwill to the buyer.  This will involve very important tax planning so the seller is not double taxed on the sale proceeds.  This tax planning should be done from the beginning, since what is good for the seller is often bad for the buyer and the tax structure has to be negotiated all along the process.

  8. Enter into confidential non-disclosure agreements with the prospective sellers.

    Typically, no information is given to a prospective buyer until the parties enter into an agreement that they will keep all information completely confidential and will not disclose any of the information to anyone else.

  9. Provide preliminary information to prospective buyers.

    A package of preliminary information can be assembled to provide to prospective buyers.  While it is important that prospective buyers have enough information to make a preliminary evaluation of the deal, you have to be careful not to divulge too much information until the letter of intent is signed.

  10. Enter into a letter of intent.

    Once a handshake deal is reached, the parties outline their deal in a letter of intent.  This brief letter outlines the intent of the parties and outlines the agreed upon deal.

  11. Buyer’s due diligence process.

    This is where the buyer typically “uncovers every stone” and looks in every corner. This is the buyer’s opportunity to really look deep into the seller’s corporate soul and learn everything they deem necessary to make sure they want to move forward with the transaction.

  12. Seller’s due diligence.

    If the seller is carrying any seller financing or will continue to own the real estate and lease to the new owners, then the seller needs to do enough due diligence on the financial wherewithal of the buyer to feel secure.

  13. Business as usual.

    During the due diligence process, it is very important that the seller maintain business as usual, assuming the transaction will not go through.  Many times these deal fall apart in the due diligence process and the seller has to be prepared to carry on their business if the sale does not go through.  The due diligence process can be very disruptive to a seller’s business, as the seller must maintain and carry on the typical business dealings.  During this time, as much as you try to avoid it, the key employees and even customers can often become aware that a deal is in process and communication from a management prospective is critical to maintaining the management structure of the company.

  14. Purchase agreement.

    The purchase agreement takes the letter of intent and explodes it into the actual purchase agreement.  The buyer’s attorneys typically draft the purchase agreement and the seller’s attorneys will typically review and redline the agreement.  The drafts can go back and forth between the law firms many times before a final agreement is reached.  Usually there are little things that come up that were not previously thought of that will have to be negotiated in this process.

  15. Employment contracts.

    The buyer will often want employment contracts with key employees of the seller.

  16. Non-competition agreement.

    The buyer will typically want the seller to enter into a non-competition agreement that prohibits the seller from competing with the buyer in a certain geographical area.

  17. Closing.

    The process is never done and the deal is never complete until the parties walk away from the closing table.  Even then, there is typically some continuing obligation from both parties to the other.