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Selling Your Company: Six Common Pitfalls

By: George Spilka
Posted: May 1, 2008, from the May 2008 issue of GCI Magazine.

page 4 of 5

Unsophisticated sellers and advisory firms that are not overly concerned about maximizing their client’s interests believe that acquirers will always want a seller to take back a significant portion of the purchase price in notes. They rationalize that an acquirer needs this as protection against legitimate hidden problems that might be uncovered after the business is sold and because growth-oriented companies must use all available leverage to fund future expansion. This, however, is nonsense. When an individual sells their company, they have the right to receive their proceeds in cash except for the equity portion retained in a recapitalization.

A selling owner should employ special legal counsel to handle the transaction.

This depends on the sophistication of the seller’s present law firm. If it is a large firm that has specialists in the critical areas of environmental law, human resources, intellectual property, corporate finance and certain other areas, it might be appropriate to retain the current counsel for the transaction. However, if the seller presently utilizes a smaller law firm of generalist attorneys, the seller may want to employ new counsel that has specialists in the numerous functional areas.

If the seller employs a sophisticated advisory firm that will direct the deal negotiations, it is often advisable to allow the advisory firm to bring in a large, experienced law firm with whom it is familiar. This will ensure a blending of compatible negotiating styles with people who are familiar with each other’s negotiating style and skills. And this will be a significant asset to the seller during negotiations.

Owners who understand and avoid these pitfalls should be able to sell their company at an aggressive premium price with only limited, if any, exposure to post-closing issues.