BB&C has experience representing buyers of all sizes in the acquisition of target companies.  Below is an outline of the process we generally follow and the points to consider along the process.

Overall Process.  The process of purchasing an ongoing business enterprise typically consists of the following steps:

(1)    Identification of the target company
(2)    Negotiation of a letter of intent
(3)    Negotiation and signing of a definitive agreement whether an asset purchase agreement, a stock purchase agreement or an agreement of merger

(4)    Due Diligence by the acquirer
(5)    Arranging of the capital both equity and debt
(6)    Contracting with Key Employees
(7)    Closing
(8)    Post Closing Adjustments
(9)    Escrow Agreement administration and indemnification claims

Identification of Target.  Buyers and investment bankers or business brokers often identify companies that are targets for purchase.  Also, because of the broad reach we have in the many industries and practice areas we serve, we often know of companies that are actively looking to purchase or sell their business.  As long as everyone is clear who we represent, we are happy to make introductions to buyers and sellers interested in consummating a purchase or sale.  After the target is identified, we can assist you in the review of the offering material provided by the Seller.

Letter of Intent.  A letter of intent is typically a non-binding document, with the exceptions of dealing exclusively with the other party and a confidentiality provision, which sets forth the parties agreement on the major terms of a transaction.  A letter of intent will generally cover the following items:

• Identification of the parties.  This is important when the shareholders will be parties to the agreement for purposes of representations and warranties, indemnification obligations and noncompetition covenants
• Deal Structure.  The deal structure provision provides for the deal to be structured as an asset purchase, stock purchase or merger.  We assist in the structuring of transactions considering the unique aspects of each transaction including tax implications.
• Price and Payment Terms. This section sets for the total purchase price, and terms for payment of the price.  In some scenarios, the price may be comprised of all cash at the time of closing, a seller financed promissory note, or an earnout structure based on the future performance of the business
• Contingencies.  This section will set forth the conditions that must be satisfied before either party is obligated to close on the transaction.  Examples include a due diligence investigation by the buyer or the buyer’s ability to secure the equity and debt to close the transaction.
• Working Capital Adjustment.  Working capital is the current assets and current liabilities that are necessary to run the businesses.  This section may provide that certain items will be included or excluded from the working capital adjustment calculation.
• Representations and Warranties of the Seller.  This section will say that typical representations and warranties will apply or call out special representations and warranties that the buyer wants included due to the nature of the business.
• Indemnification Obligations.  This section sets forth who will bear the risk for breach of the representations and warranties and the extent to which the parties have the obligations.  For example, if the deal includes a certain amount of payment for the accounts receivable of the business and the seller represents that the accounts receivable are collectible and one accounts receivable is not collectible the indemnification section will provide if the seller must reimburse the buyer.
• Timeline.  The letter of intent typically sets forth a timeline for the entire transaction from entering the definitive agreement (the asset purchase agreement, stock purchase agreement or merger agreement) through closing and post closing adjustments.

Definitive Agreement.  The definitive agreement is the binding purchase and sale document.  Transactions are typically structured as asset purchases, stock purchases or mergers.  We have experience drafting and negotiating all three transaction types.  Below is a table that describes the differences in stock purchases versus asset purchases:

• Alliance Bank
• Community State Bank
• Industrial Federal Credit Union
• Lafayette Bank & Trust
• Purdue Federal Credit Union
• Salin Bank & Trust

Due Diligence.  During the due diligence phase of an acquisition, the lawyers at BB&C have the capability to prepare a due diligence memorandum containing an analysis of the target company in the following areas:

• Corporate documents
  • The corporate formation documents
  • The foreign qualifications to do business in other jurisdictions
  • Organizational chart
  • Shareholder lists
  • Stock option plans, incentive plans, warrants, and other agreements relating to the purchase and sale of stock
  • Minutes of the board and shareholders
• Asset Analysis
  • List of assets
  • UCC searches for liens on assets
  • Intellectual property searches
• Product or Services Contracts
  • Customer contracts
  • Customer lists
  • Vendor contracts
• Litigation
  • A summary of the lawsuits where the target has been or is currently a party
• Insurance
  • A summary of all insurance
• Regulatory and Enforcement Matters
  • Permits held by the target
  • Citations and notices received from regulatory agencies
  • Reports to government agencies regulating the target
• Employee Matters
  • Employee contracts and noncompetition agreements
  • Independent contractor agreements
  • Employee benefit plans
• Real Estate
  • Leases for real property
  • Copies of deeds, surveys, and title insurance policies for owned real estate

Capital Structure.  The purchase price of any acquisition must be funded in some way.  BB&C can help structure the debt and equity portions of the purchase price through purchaser funds, private equity and venture capital, management and key employee equity participation, senior secured lenders, seller financing or earnout payments and other debt sources.  We can deal with transactions from simple cash purchases to complex capital structures.

Employee Contracts.  Often buyers of a business want to keep at least a few of the key employees in place.  BB&C can help prepare employment agreements that key employees and the buyer enter before or at the closing.  These agreements typically include noncompetition and non-solicitation provisions.  These agreements help assure buyers that the business continuity is interrupted as minimally as possible and the buyer is able to retain some of the most valuable assets in the company – the key employees.

Closing.  Closing a transaction is the culmination of the work and negotiation over a long period of time.  The closing is when title to the assets is actually transferred from the seller to the buyer.

If it is an asset purchase agreement, this is the transfer by the buyer of cash, a promissory note or a contractual obligation to pay an earnout amount to the seller.  The seller provides to the buyer a bill of sale, assignment of contracts, assignment of intellectual property, deeds and other conveyance documents as necessary.

If it is a stock purchase agreement, the seller signs the shares of the company over to the buyer and the buyer transfers cash, a promissory note or a contractual obligation to pay an earnout amount to the seller.

• Post closing adjustments.  Asset Purchase Agreements and Stock Purchase Agreements often contain working capital adjustment clauses.  These are clauses that set the base amount of working capital required to run the business that is set at the time the buyer and seller settle on a base purchase price.  Working capital typically is current assets (cash, accounts receivable, prepaid items, etc) minus current liabilities (accounts payable, accrued liabilities, etc).  The working capital adjustment clause prevents the seller from intentionally draining the company of working capital leaving the buyer with a cash flow problem and an imbalance in working capital.  After closing one of the parties will prepare a working capital balance sheet to compare the base working capital to the closing date working capital and then one of the parties repays the other for the difference in the base working capital versus the closing date working capital.  These sometimes complex calculations and can lead to disputes with the seller’s counsel and accountants.

• Indemnification claims. Often a transaction will include a requirement that the seller escrow a portion of the sales price with an escrow agent to cover claims subject to indemnification in the purchase agreement.  For example, the purchase price may have been arrived at by the buyer allocating a certain dollar amount toward accounts receivable and the seller may have made a representation and warranty that the accounts receivable of the company were fully collectible and the seller may have agreed to indemnify the buyer if the accounts receivable were not collectible.  We can help a buyer comply with the requirements of the purchase agreement and escrow agreement in making an indemnification claim and pursuing the claim against the escrow funds and seller if necessary.

• After the Purchase.  After the purchase closes we typically stay very involved with the business and remain involved as described in Business Law & General Corporate Counseling.

Preparing for a Sale

If you are going to sell your business, we can help you go to market prepared to sell your company.  Prepared sellers who can address concerns of buyers proactively are more likely to maximize their sale price.

• Creation of a data room consisting of the important documents and contracts in your business such as:
  • Articles of Incorporation or Organization
  • Minutes of the Corporation or Company
  • Foreign qualifications from states where you do business
  • Historical Financials
  • Major customer and supplier contracts
  • Real Estate Leases
  • Intellectual Property records for owned and licensed intellectual property
  • Drafting of confidential information memorandum on the business consisting of:
    • An Executive Summary of the Business
    • Market Overview
    • Business Description
      • Company History and Background
      • Product Overview
      • New Product Development
      • Sales, Marketing and Distribution
      • Customer Lists and Relationships
      • Vendor Lists and Relationships
      • Facilities and Equipment
      • Management and Employees
      • Financial Overview
        • Historical and Projected Financials
        • Anticipated transaction structure and timing

 

Representation during the Sale.  Once a Buyer has been identified and negotiations are underway, BB&C can help you negotiate a Letter of Intent, Definitive Agreement (Asset Purchase Agreement, Stock Purchase Agreement or Merger Agreement), the ancillary documents such as the assignment of contracts, bill of sale, corporate resolutions, and then close the transaction.

For more specific information on the contents of the Letter of Intent and Definitive Agreement please review the For Buyers section.  The only difference in the representation is that BB&C will be advocating for changes to the transaction documents from your perspective as the Seller.

After the Sale.  The closing of a purchase of a business is typically the beginning of the process of either reinvesting or estate planning for sellers.  BB&C can assist you in reinvestment of your sale proceeds as a buyer of a business or we can assist you in the planning for distribution to your heirs.  Please see our Estate Planning & Estate Administration section for more information.