Once an LOI is negotiated and executed, what happens next? Again, this is where an Advisor differentiates themselves from a Broker.  Brokers typically view themselves as match makers and leave the heavy lifting of conducting the due diligence and negotiating the definitive documents to the owner and their counsel.  An Advisor will act as a quarterback or orchestra conductor (whatever analogy you prefer) and will coordinate all of the post LOI to closing activities.

Again, it depends on the nature of the company being bought/sold, but in general we recommend the following next steps:

First – we recommend a principle to principle meeting with advisors present.  Everyone at this stage is energized by the prospects of a deal and it serves to start to build some good will and trust between all parties.  This meeting serves to make introductions between all parties, set broad timelines, establish what employees will be notified and when, outline required diligence items and provide a business update.

Second – Coordinate any third party reports.  These are items like appraisals that may be required for financing or confirmatory diligence, Phase I (and follow-up Phase II) environmental reports, and an accounting Quality of Earnings report.  These can take several weeks or longer and can be critical path items, so its important to identify and coordinate the procurement of these reports (and defining who pays for them should be part of the LOI).

Third– Begin drafting and negotiating the definitive documentation.  We will cover this more in future posts, but this generally includes a Purchase and Sale Agreement (“PSA”) or Asset Purchase Agreement (“APA”), Real Estate Purchase Agreement (“REPA”), Employment contracts, non-compete, non-solicitation agreements and any other legal documents that are required.

Fourth – the seller should begin populating a data room with all of the confirmatory diligence items and supporting documents that will be part of the definitive documentation.

Fifth – Coordinate site visits (whether during business hours or evenings/weekends) and employee discussions.  Employee discussions can be tricky depending on how confidential the discussions are, whether key employees will be retained (and whether their willingness to stay is key to the transaction, which unwillingly gives them some 3rd party leverage in a deal).  This topic will be covered in a future posting.

In closing, at the risk of sounding self-serving, a strong advisor will coordinate, manage and report on progress on all of these key items and will allow an entrepreneur/ownership group to continue to focus on the success of their business and not on their sale process which can be time consuming and costly if not handled by an experienced advisor.