M&A Activity -- Expect a Surge in Mergers

Sellers who are motivated to stay on and continue working, and who may want additional value, should consider earnouts and seller financing components in their deals because they frequently enable the buyer to pay a greater value. They also defer taxes that are paid by the seller.

Contacting the Potential Buyers

Once the valuation, buyer list and Offering Memorandum have been completed, an anonymous "teaser" sheet and a deal process letter must be prepared for the potential buyers. This communication can be preceded by a phone call to the target buyer's CEO or corporate development department to determine, on a no-name basis, their preliminary interest.

If the buyer expresses interest and wishes to receive the Offering Memorandum, he must execute a Confidentiality Agreement prepared by your attorney. This document is defined later in this article.

Now it begins to get fuzzy! Once the buyer has your Offering Memorandum and wishes to move on to more in-depth discussions the process begins to take on a life of its own. No two deals happen the same way no matter how carefully the seller or his representative try to plan the steps.

It will suffice to tell you that if a buyer provides the seller with a "preliminary indication of interest" (a statement that the buyer's perception of value is within striking distance of the seller's expectation), then the seller will likely wish to invite the buyer for a plant visit, meetings and an opportunity to learn more about the business through question and answer sessions. Often it is desirable if management prepares a formal, two- to three-hour presentation to orally and graphically tell their company's story as facilitation for the buyer's questions.

If serious interest continues after plant visits and management meetings, and if the buyer is indicating a willingness to pay a satisfactory price, he may indicate a desire to prepare a non-binding Letter of Intent to Purchase (LOI) or the seller may request this document. Although LOIs are largely non-binding, the standstill and confidentiality provisions are binding. This document frequently affords the best opportunity to negotiate price and deal terms and conditions. It is defined later in this article.