In August 2024, we hosted a webinar in conjunction with Acquiring Minds. We gave a short presentation on common deal sticking points in purchase agreements and then answered questions from the audience.
Question Timestamps
- 10:20: What are the most effective tactics for a buyer to handle discrepancies between the LOI and due diligence findings, such as shifting money from cash at close to a seller note or adjusting the working capital target?
- 11:24: How do working capital adjustments typically work in M&A deals, and what are some best practices for managing them? What is a working capital peg?
- 18:12: You mentioned that the SBA only does working capital true-ups in the buyer’s favor. This suggests that sellers might be incentivized to underestimate working capital. If a seller underestimates the working capital left in the business, how does a buyer address this? For example, if I need to retrieve an extra $25,000 from escrow due to this underestimation, what is the process? Is it just a matter of sending an email, or is there a more formal procedure involved?
- 23:21: What are the key considerations around indemnification and indemnity claims in purchase agreements?
- 30:09: How are non-compete agreements typically negotiated in business sales, and what are some common sticking points? Are there any warning signs around non-compete agreements?
- 35:00: Can an attorney explain the principle of “possession is nine-tenths of the law” in the context of business negotiations? Specifically, why is it generally better to have cash on hand rather than trying to recover it later?
- 37:32: What happens if the business performs exceptionally well during the due diligence phase after the LOI is agreed upon? Does this give the seller more leverage to renegotiate the deal?
- 41:28: Can you provide insights into situations where the seller insists on a second lien or personal guarantee on the business if there is a default on the seller note? Have there been cases where buyers received indemnification or forgivable notes in exchange for waiving the guarantee?
- 47:36: What are the warning signs that a company might encounter issues during due diligence?
- 52:57: How do you handle a situation where the seller insists on using a neutral transactional attorney with fees shared equally to prepare the first draft of the purchase agreement and closing documents?
- 58:27: In the LOI, if the offer is tied to a multiple and the business performs exceptionally well during due diligence, how does this affect the seller’s position? Does it give them more leverage to renegotiate?
- 1:00:30: If there are projects with long completion cycles, and you agree with the seller that a project is 70% complete, but it turns out to be only 30% complete, how should you address this discrepancy?
- 1:02:58: What are some warning signs that a company might face additional issues during due diligence, based on factors like company size or industry?
- 1:05:18: What are the common diligence issues that can lead to a price reduction? Are there any steps you can take before the LOI stage to anticipate or identify these issues?
- 1:07:30: Is there a clear distinction between conducting operational diligence before the LOI versus after the LOI?
- 1:08:55: Some brokers require including a specific working capital number in the LOI instead of using a formula or waiting for the Quality of Earnings report to determine the working capital peg. How do you recommend handling this?
Workshop Handout
If you want a copy of the one pager we prepared for the presentation and provided to attendees, click the button below and we’ll email it to you.
If you need further assistance or are in the process of negotiating a letter of intent, contact us at info@barlowwilliams.law and we will be happy to discuss your situation.