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Sale and Purchase of Companies, Investment Funds

Further reports on aspects related to the sale and purchase of companies have already been announced in previous posts. In fact, I outlined several reasons for the significant increase in operations of this type. Today I will focus on those cases where the potential buyer is an INVESTMENT FUND, either national or foreign, or a competing company that uses one of these funds to finance the purchase.

Buying and selling a company, tips for selling a company to an investment fund

General terms are difficult to fix, but investment funds use to follow certain "tics" or ways of acting of an investment fund. Getting knowledge of those behaviours can be helpful. Our experience in the field of selling and purchasing companies allows us offering you some important hints on that kind of transactions we have recently performed:

1 - Evaluation of the company

The investors have the money and they know it; but in addition, they will remind you of this fact during all stages of the negotiation. I mean that too often, the one who has money thinks he is BETTER than the other party. More than this, when there is a big amount involved, then the behaviour frequently turns to be like a sort of GOD..., that is to say, feeling like above good and evil... Facing this requires a mentality standing on the point that you have something that they don't have and they want, say your company. Nobody else knows your company better than you and therefore, it is worth at least as much as their money; in the end the target is to exchange one thing for the other.

2 - Subjectivity Vs. Objectivity

Let me mirror on the scenario from your point of view. The sale of your company (which is often almost like a child of ours), is UNIQUE, subjective and sentimental. Viewing from the other side, this operation is one of many and it is only a FINANCING OPERATION, where its purpose (logical, legal and moral, of course), is to have a high profitability after a few years.

Therefore do not forget that having a lot of money forces them to "move" it to invest, so you are also doing them a favour.

Don't forget that: The investors do have money that you want to obtain, but you have a company that generates more money and that they long for.

3 - Attitude and emotional intelligence

These two previous facts explain the way these investment funds act in front of a company sale and purchase: at the beginning these funds will send sympathetic managers, very much in their business line, but then the tough negotiations start. Engaging very well prepared young people, technically skilled, who out of 10 words used, 3 are anglicisms (they love to use technical language, initials of abbreviations, of course in English. Don’t forget that they are very eager for money, striving for achievement of bonuses in a short time, usually characterised by lacking, almost always, a plus of emotional intelligence, of attitude, which will often make you want to, as one businessman told me, "slap them with an open hand" (please don't do it....). . ).

This lack of attitude of these "apprentice sharks" requires you to be the one who sets the rules, for example: you are the one who must set the times, i.e. these people are entering your company, your home, and for now and until you get paid, the property is yours and therefore the rules and times are fixed by you.

In connection with the above, it is advisable not to "burn yourself" directly in these first negotiations. Someone else in charge should take over this burden, even if it costs you money, because there will already be time for your participation. It is always good to stay one step behind in order to have the last decision.

4 - Negotiation of clauses in the contract for the sale and purchase of companies

Buyers have no qualms about making you sign documents where their conditions and clauses favourable to them are repeated as many times as necessary and explained again and again. On the other hand, as they are the ones who usually draw up the documents, it is likely that your rights will either not be well explained or they will give you a "bad face" when you want to change a comma in the agreement. Keep in mind that changing a comma costs them meetings with their lawyers, with their analysts and therefore they lose a lot of time; maybe they "screw up" their bonus. But I repeat, make sure that this is their problem, not yours.

5 – Fixing all details in writing

Pursuant to the previous point, finding that these consultants try to convince you not to change a comma in the document they present to you is very typical. Statements such as "I guarantee you that this will not happen... I am here and I am sure we will comply... let's put it in writing and then they will do what they want to do..." are frequently used.

If you get that sentence, what I recommend is that you LAUGH OUT LOUD, yes please just laugh.... Keep in mind that if you default, you will always be there (or if you die, your heirs). While on the other hand, the negotiators of an investment fund, the directors and even the CEO use to be changed periodically. So, the new one will not want to know anything about what the previous one said, especially if it is not written down.

Sometimes they do not even respect what has been agreed.

6 - Arbitration and lawyer's fees in the sale and purchase of companies

Never forget that in the event of litigation or non-compliance, you will always be in a worse position: normally in these operations it is agreed that disputes are submitted to arbitration and arbitration IS VERY, VERY EXPENSIVE. Say, it can happen that in addition to not having been paid a significant amount, you will also have to disburse exorbitant arbitration and legal fees, which you may not be able to bear.

On the other hand, the investors don't care: they have money and they are using it to increase their profitability.

In another post I will tell you about our experience in a very tough arbitration of this type, which fortunately for us and the client, went very well (it is clear that if it had gone badly I would not have told you about it... or maybe I would have... As the Americans say, you learn more from failures than from successes, although that does not go very well with our Mediterranean culture)...

7 - Letter of Confidentiality, Letter of Intent and Term Sheet

Typical of the Anglo-Saxon world, funds are required to sign, in addition to the initial "LETTER OF CONFIDENTIALITY" and "LETTER OF INTENT" (usually called, respectively, NDA (an anachronism of non disclosure agreement) and LOI (Letter of Intent), a contract called TERM SHEET (T.S.), which some confuse with the LOI or letter of intent.

Theoretically it should be an initial document, after the letter of intent, where some terms that will be used for the future contract are detailed, non-binding except for certain clauses of the contract.

BEWARE, BEWARE of this document, which can sometimes "kill"...

We will certainly continue reporting about these issues, but don't forget: you have founded, maintained and developed a company that is now the object of desire of an investment fund that wants to give you a lot of money for it.....

So, YOU ARE SMARTER THAN THEM.... use that advantage....

For all the reasons stated above, our Area for Legal Advice can help you.

Don't hesitate, reach out for us.

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