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Pt 6: Selling a Business, Completion Stage
- Darren Shacknofsky
- Jul 2, 2023
- 3 min read
In part 6 of our Selling a Business blog series, we look at the Completion stage, which consists of the following components:
Submission of final offers by prospective purchasers.
Negotiation and entry into a sale agreement with the preferred purchaser; and
Transaction completion.
Prospective purchasers submit their final offers
Prospective purchasers submit their final offers at the end of their due diligence. This consists of:
a letter, which either confirms their indicative offer, or sets out changes to it as a result of their due diligence; and
includes their mark-ups to the draft sale agreement.
The vendor and their mergers and acquisitions advisor assess the relative quality of each offer by having regard to their:
offer price;
consideration;
payment structure;
conditions to transaction completion; and
mark-ups to the sale agreement.
The highest price doesn't always translate into the best offer if:
the consideration isn't all in cash;
payments are structured to be paid in the future under a deferred or earnout arrangement rather than the whole price being payable on the transaction completion date;
conditions to completion are included which create genuine uncertainty around a deal being completed; and/or
the sales agreement has been marked-up to include indemnities and warranties that either aren't standard practice or would expose the vendor to an unreasonable risk of future liability.
The mergers and acquisition advisor will form a view on the leverage they have to negotiate improved offers with each of the prospective purchasers based on:
their motivations for wanting to acquire the business. Some parties will be motivated more strongly than others, seeing the acquisition as a golden opportunity to execute their strategy; and
the number and quality of offers received.
The mergers and acquisition advisor will then revert back to the parties to to attempt to secure improved offers from each of them; and following receipt of their best and final offers, agree with the vendor which party to work exclusively with to enter into a final sale agreement.
Negotiation and entry into a sale agreement with the preferred purchaser
The vendors lawyer leads the negotiation of the preferred purchaser's mark-ups to the draft sale agreement.
The vendors mergers and acquisitions advisor assists by ensuring the vendor's and preferred purchaser's lawyers remain practical in their discussions and don't become deadlocked by points of law that are low risk and of little commercial consequence.
Legally, a transaction occurs when the sale agreement is entered into by the vendor and the buyer.
Transaction completion
Transaction completion, or settlement as it is otherwise called is ready to occur when all conditions to completion contained in the sale agreement have either been satisfied or waived. A completion date is then selected when the buyer will pay the vendor and take ownership of the business.
Examples of conditions to completion included in sales agreements include:
consents to the sale being obtained from landlords, customers, suppliers; and/ or regulatory authorities; and
security interests against the business' key assets being discharged.
The time between entering the sale agreement and transaction completion will depend on the unique nature of the conditions to completion contained in every sale agreement.
Some agreements contain no conditions, in which case agreement entry and completion can be managed to occur on the same day.
However, other agreements may take an extended period of time to complete, if approval from government authorities, who are notoriously slow, are required for example.
The vendors mergers and acquisition advisor and lawyer should try to negotiate as few conditions to completion as possible to keep the period between agreement entry and completion as short as possible.
When selling a business, the Completion stage also consists of notifying staff, customers and suppliers about the transaction.
Staff are typically advised of the sale after all conditions to completion have been satisfied but before transaction settlement.
The buyer may have to make offers of employment to them where the transaction has been structured as a business asset sale. This isn't required if the sale is structured as a sale of shares in a company holding the business.
The buyer and vendor will usually deliver a joint presentation to the staff explaining the rationale for the transaction and the buyer's vision for the business under their ownership.
The briefing represents an opportunity to address any concerns staff may have and to excite them about the future.
Judgement is typically exercised in deciding when to advise customers and suppliers about the deal.
They would usually be notified either after the sale agreement becomes unconditional or after the transaction completes.
If the consent of major customers and suppliers is required as a condition to completion of the transaction, then it will be necessary to approach them following entry into the sale agreement.
Following completion of the deal, it can also be common for the buyer, with the approval of the vendor, to release a story publicising the deal through various media channels.
Previous blogs in the Selling a Business series:
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