Expensive Mistakes When Buying & Selling Companies
Richard G. Stieglitz PhD, Stuart H. Sorkin JD LL.M CPA
Selling or buying a business can be a lucrative but risky transaction. It's all too easy to sell yourself short or to overpay as the buyer. If you want to avoid the costly mistakes that many business owners make in M&A transactions, this book is for you. It provides valuable guidance on how to prepare for and negotiate your deal, and how to leave the bargaining table with more money in your pocket!
transaction, a strategic buyer proposed an asset sale in the LOI but, as is typical, the seller wanted a stock sale. The real issue was that the buyer intended to merge operations with his existing company and lay-off most of the seller’s staff. The buyer was concerned about potential legal problems with the layoffs (several employees were in protected groups which could subject the buyer to costly litigation), and wanted the seller to underwrite that liability and establish a substantial escrow
seller in your transaction, ask your attorney and CPA: “Have you done a deal with them?” If they have successfully closed previous transactions, you can be sure that they will probably close yours too. On the other hand, if they lack respect for the other side, be prepared to pay for extra hours to reach an agreement. Since they work for you, don’t hesitate to establish guidelines for the roles your attorney and CPA will play in the transaction versus how you and your senior staff will
the IRS relative to the current deductibility of the payments. Mistake #46 SKIMMING OVER THE AGREEMENTS Negotiations require knowledge, thoroughness, and skill. If your negotiators are inexperienced, you’re likely to pay for their on-the-job education - the expensive way. The buyer and seller concluded negotiations and signed the Purchase & Sale Agreement but, because the price exceeded $50 million, closing was delayed pursuant to the Hart-Scott-Rodino Act. That act requires a
annually to employees for their past performance. Bonuses amounts are often determined by management based on subjective criteria. • Incentive Pay is variable compensation usually paid on an annual basis to selected employees if they meet pre-specified individual, team, and/or company goals. The incentives can be paid in cash or stock (either grants or options) - and may not be paid at all if the minimum goal is not met. In addition, there are several compensation mechanisms that commonly are
and they could virtually dictate the terms of a deal. But M&A markets are like a pendulum: they shift back and forth from favoring the buyer to favoring the seller. Merger-mania comes and goes on a cyclical basis. Despite dramatic shifts in the M&A markets and tax policies that can bewilder even the most experienced buyers and sellers, the future for M&A transactions is fairly predictable. Financial and strategic investors with capital and creative strategies will always be able to find