You’ve met with buyers, compared offers, negotiated terms, and signed a letter of intent (“LOI”). It’s an exciting milestone, and you may already be thinking about what comes after the sale. But before celebrating, there is still considerable work ahead.
The LOI outlines the proposed transaction but generally does not obligate either party to complete the sale. Certain provisions, such as confidentiality and exclusivity, are typically binding. Think of it as agreeing on the framework of a deal. Now, both sides need to confirm the details and turn that framework into signed agreements and, ultimately, a closing.
For planning purposes, the period from LOI to closing might be 30 to 120 days, although complex transactions can take longer. Timing depends on diligence, financing, approvals, and negotiations. Several workstreams usually happen at the same time.
Due Diligence Gets Underway
The buyer and its advisors will take a closer look at the business to confirm what has been presented and identify potential risks. Documents are typically shared through a secure virtual data room, with a diligence request list helping the teams track responsibilities and outstanding items.
You can expect requests across several areas:
- Financial: Historical results, earnings adjustments, customer revenue, receivables, inventory, and working capital. This may include a quality of earnings review.
- Legal: Corporate records, ownership, material contracts, intellectual property, litigation, and regulatory compliance.
- Tax: Tax returns, potential unpaid obligations, and the tax implications of the transaction structure.
- HR: Employee records, compensation, benefits, employment policies, and retention of key personnel.
- Insurance: Existing coverage, claims history, and potential gaps or coverage needed after closing.
- IT: Systems, software licenses, cybersecurity, and how technology supports the business.
- Operations: Business processes, supplier relationships, facilities, equipment, and how the business will operate under new ownership.
- Real Estate: Lease terms, property condition, and, where appropriate, environmental matters.
Expect follow-up questions. Providing a document often starts a discussion rather than finishes one. If diligence uncovers an issue, the parties need to determine whether it requires an explanation, a fix before closing, or a change to the transaction terms.
The Purchase Agreement Takes Shape
While diligence is underway, attorneys will draft and negotiate the definitive purchase agreement. The LOI may be relatively short; the purchase agreement will go much further into what each party is promising and who bears responsibility if something goes wrong.
Important items include representations and warranties, indemnification, escrow or holdbacks, and any earnout or rollover equity. The parties also need to agree on how working capital, debt, cash, and transaction expenses affect proceeds at closing.
Some transactions use representations and warranties insurance, which involves a separate underwriting process. This is different from reviewing the company’s existing business insurance.
These details matter. An agreed headline price does not necessarily equal the cash you will receive, and diligence findings can lead to further negotiation.
Employees, Leases, and Other Approvals
The buyer may seek employment or retention agreements with key employees, along with an agreement covering your own role after closing. Compensation, responsibilities, benefits, and the length of your involvement need to be worked through.
Lease agreements may require landlord consent, assignment, or renegotiation. If you own the building personally and plan to retain it, a new lease with the buyer may be needed.
Other contracts may require consent to an assignment or change in ownership. Depending on the business and transaction, regulatory approvals or licensing requirements may also need to be addressed. Identifying these requirements early helps avoid last-minute delays.
Customer Calls and Buyer Financing
Some buyers will request calls with important customers or suppliers to confirm the strength of those relationships. These conversations should be carefully coordinated with your M&A investment banker, including who is contacted, when, and what can be disclosed.
If acquisition financing is needed, the buyer will also be working with its lender on underwriting, approvals, and loan documents. Those discussions primarily occur between the buyer and lender, but your team may need to provide information or participate in meetings. Financing can affect the closing timeline even when the buyer and seller are otherwise ready.
Getting Ready to Close
As closing approaches, the parties complete remaining approvals, consents, disclosure schedules, and closing documents. They finalize the funds flow—who gets paid, how much, and where the money goes—and coordinate debt repayment and lien releases where applicable.
They should also agree on how employees, customers, and suppliers will be informed and how the business will transition after closing. Signing the purchase agreement and closing may happen together, or separately if conditions remain outstanding.
Even after closing, some financial matters may remain open. For example, a working capital adjustment may reconcile estimated closing figures with actual amounts, often within 60 to 90 days, depending on the agreement.
Throughout this process, keep your attention on running the business. Your M&A investment banker should help coordinate the work, track deadlines and the exclusivity period, and address issues alongside your legal and accounting advisors. Signing an LOI is meaningful progress, but staying organized and maintaining business performance are essential to reaching the finish line.
