The following article originally appeared in the March 2009 edition of The Myers Report newsletter published by the firm.


The “Urge to Merge” – Part III: Winning Strategies to Sell or Merge Your Business

By James E. Robinson, Esq.


Roller coaster economy notwithstanding, there are a vast number of baby boomers who are looking to retire and “cash out” of their businesses now. Most don’t have the internal talent to take the reins.  As a result, they have to look outside their business for a successor.

How do you find a potential match?

  • Make Contact

Unless you’ve conducted your business isolated in a cave, you’ll have a fairly good idea of who the possible buyers will be. Your next step is to make contact.  A cold call or letter is always possible, but there are other methods that may prove far more effective.  Networking is probably the best way to get in touch with someone at the prospect company who’ll be in a position to discuss the possibility of an acquisition or merger.  Another avenue is through a business broker.  There will generally be a commission paid to the broker if the transaction is successful.  However, working with a broker may provide advantages such as identifying prospects you might not have thought of, and disqualifying the “tire kickers” so you can focus on companies that are serious about a merger or acquisition partner.

You feel the “spark” . . . how do you keep it quiet until you know you’ve got the “right one”?

  • Letter of Intent

The process usually begins with informal meetings between the principals of the two companies to test the waters.  If discussions become more serious, the parties typically sign a letter of intent, or “LOI”.  An LOI will describe the parties’ understanding in general terms but not firmly obligate either one.  The purpose is to allow them to investigate each other’s business at greater depth.  With an LOI, the parties will have assurances that:

- they’ll have access to information about each other’s business, and

- the other party won’t explore transactions with others while the current deal is being pursued.

  • Non-Disclosure

Typically, the LOI will also include a non-disclosure agreement, or “NDA”.  The purpose of the NDA is to protect confidentiality in a number of ways:

1. It provides that any information disclosed to the other side (client lists, financial and pricing information, business methods, trade secrets or proprietary information) will remain confidential and be used only for the purpose of evaluating the transaction.

2. The NDA will limit the potential merger partner from contacting your employees.  Your goal is to minimize gossip or speculation that could create fear and disrupt your company’s operations.

3. Most importantly, an NDA restricts information about the proposed transaction from being released to the general public.

Due Diligence

Signing an LOI/NDA is the signal to begin the “due diligence” process.  “Due Diligence” means that the records and operations of the companies will be exchanged and reviewed to verify the accuracy of the discussions the parties have had.

  • Be Prepared

If your company is being acquired, the process might seem overwhelming at first.  The acquiring company will ask you to answer a lot of questions about your business, furnish copies of a wide variety of business records and prepare lists of clients, work-in-process, receivables, payables, status of collections, equipment, inventory, and more.

Delegate! If the task is broken down into pieces and delegated it can be handled.

  • Personal Contact

Expect a visit to your offices from an “acquisition team” made up of the involved officers or management, attorneys, accountants and technical or other personnel from the acquiring firm.  Depending on the particular structure of the transaction, there may be information that you’ll be requesting from the other side as well.  This is the time for in-depth involvement by your accountant, attorney and insurance broker.

One Step Closer

  • If the parties:

- are comfortable that their “cultures” are compatible;

- have satisfactorily completed their “due diligence”; and

- are ready to proceed with the transaction . . .

What Can They Expect Next?

Watch for our next monthly installment of The Myers Report . . . we’ll discuss Tying the Merger Knot.



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Please note that this article is intended only as a general discussion of issues pertaining to the sale or merger of a business and that it should not be taken as creating an attorney-client relationship or as legal advice with respect to any particular person, business or situation.  Circumstances and the applicable legal principles vary and you should consult with an attorney and/or other professionals regarding the facts of your particular situation.