Transaction process from the seller’s point of view
Negotiating the sale of the business is the main task, which affects the course of the other processes. For the sale process itself, the seller should prepare information material, obtain a valuation of the business and gather documentation for the upcoming negotiations. If the seller hasn’t yet consulted business brokers and professional advisers about the sale, this would be the time to do so. Writing a sales memorandum, sometimes also known as an information memorandum, is often part of the sale process. It’s a factual representation of the company as well as its markets, finances and prospects. The sales memorandum shouldn’t be an advertisement but rather a relatively objective description of the company being sold, stating the positive aspects of the business and the reasons why it’s an attractive investment prospect. As the sales memorandum contains detailed information about the business, it’s typically distributed only to potential buyers who will be asked to sign a non-disclosure agreement (NDA).
To identify these buyers, the seller can prepare a short summary of the sales memorandum, also called a teaser. The teaser is usually distributed to a wider audience to pique the interest of prospective buyers and establish contact with them. The seller will often have pre-negotiations with the most relevant buyer candidates and ask them for an indication of the price they would be willing to pay. Based on these preliminary discussions and prices, the seller then chooses one buyer to engage in the actual transaction negotiations with and to have access to detailed information about the business. At this stage, the buyer conducts further analyses and due diligence, usually with the help of a team of advisers.
The seller and the buyer negotiate the details of the transaction and start drafting a transaction agreement (in the case of share sale, a share purchase agreement or SPA) in which the key terms and conditions of the sale are agreed on. The transaction agreement can be drafted by an external or internal legal counsel. Both parties should seek support from a legal professional for the negotiations. The matters agreed on during the negotiations will be documented in the transaction agreement and the buyer may adjust the price during the process as a result of the negotiations and access to further information.