The following steps remain to close the transaction, a process that takes typically two to three months to conclude.
When writing a letter of intent, the buyer’s commitments come with caveats that the closing of the pending transaction is subject to buyer verification. The time has come for the buyer to validate that what has been represented is substantially what is being bought. To facilitate, Sequoia will provide access to the electronic data room to enable select, time-limited access to the buyer and the buyer’s advisors engaged in due diligence.
Sequoia plays a critical role in managing the effects of change in the mindset of the parties during this phase. Although buying and selling a company is a business matter, it is one conducted by people. When a letter of intent is accepted, there is a distinct change in buyer behaviour — glasses once half full become half empty. The increased presence of advisors (accountants, bankers, and lawyers) can produce conflicting information and negative viewpoints. Maintaining momentum is crucial. Sequoia’s role now focuses on defending value, maintaining clear and direct communication flow between all parties, anticipating roadblocks and solutions thereto, and eliminating friction and mitigating emotions between parties adopting an adversarial stance. We’ve efficiently and successfully managed transactions with buyer deal teams of more than 35 professionals, including subgroups from strategy, finance, operations, real estate, environmental, insurance, HR, and legal. Until the transaction is done, the process remains a sales function and closing becomes the number one most important sales skill.
Managing the flow of information is a full time job once there is an executed letter of intent and due diligence is underway. It is critical to have all information requested by the buyer catalogued and accounted for to facilitate a smooth and expeditious due diligence process. Sequoia’s electronic data room technology ensures that all documents and data that are accessible by the buyer are tracked from source of request through posting to the electronic data room to satisfy each due diligence item without redundancies that can cause significant delay, and in some cases, can derail the transaction. Our electronic data room technology enables real-time viewing of who on the buyer’s deal team is accessing what information and when. On a typical transaction managed by Sequoia, the information flow through our electronic data room amounts to gigabytes of data, not to mention thousands of emails, and countless phone calls, teleconferences, and meetings to coordinate the due diligence process — diligence indeed.
Assign Material Contracts
Most companies have valuable contracts with key suppliers, distribution channels, landlords, or customers that contain change of ownership clauses that require consent, explicitly or otherwise, to assign or transfer the contract to a third party (i.e. the new owner of your company). The realities of business dictate that the timing of these meetings be well thought out to ensure a successful outcome. Sequoia has considerable experience in the planning of these meetings and generally attends them with you and the buyer of the business.
Purchase and Sale Agreement
This is the final written agreement upon which your company is sold. The buyer’s lawyer initiate the agreement. Both sides need some caution with their lawyers at this stage. First, choosing an experienced lawyer that specializes in mergers and acquisitions is paramount. There are many facets of business law — those lawyers focussed on M&A transactions know the ins, outs, and nuances of business transactions and are a necessity for representing your legal interests in this matter. Besides the lawyer’s specific expertise, a good M&A lawyer will focus on closing the transaction, pragmatically find a way around problems, and think in sound commercial (and not purely legal) terms. Conversely, a poor lawyer inexperienced in mergers and acquisitions will find ways to unpick a good transaction through irrelevant distractions to the point where it becomes at risk of frustration or failure. We must agree with the buyer that both sets of lawyers are to be servants of the transaction and not masters of it.