Selling Companies – Frequently Asked Questions Is the process confidential? Maintaining confidentiality is an important part of our role in the process. Confidential information is never disclosed until the prospective buyer has signed a Confidentiality Agreement. Communication with buyers and their advisers is through us – they are not permitted to contact you or your management team. Due diligence is conducted through a highly secure virtual data room that controls and tracks every access to every document. If a portion of the due diligence material is highly sensitive competitively, it will be segregated in a (virtual) “black box” and disclosed only at a very advanced state of negotiations. What can I do to help the process be successful? Your most important priority by far should be to continue managing the business and its various stakeholders to ensure that revenue and earnings momentum is maintained while potential buyers are working through the process, completing due diligence, negotiating the agreement and closing the deal. An earnings decline during the process, perhaps because of management distraction, inevitably causes buyers to seek price concessions and may cause some prospective buyers to walk away. Do I have to sell to the highest bidder? You are not compelled to sell to anyone. Non-financial components of a buyers offer, and even subjective factors such as the expected impact on long-standing employees and the community, are relevant factors that you may weigh as you wish in deciding among competing bids. We and your lawyers will also help you assess the risk associated with selecting any particular prospective buyer before the process is narrowed down to exclusive negotiations. Should I manage the business differently during the sale process? We’ll have a more specific answer once we know more about your company. As a general rule, the business should be managed “as usual”, but major decisions such as large capital expenditures, IT conversions, etc. should be looked at more closely to ensure that they enhance, or at least do not reduce, value to the buyer. How are my lawyers involved? Your lawyers should be an integral part of the team throughout the process. Their greatest involvement will be during due diligence, negotiation of the definitive agreement, and closing. Do I have to disclose everything to prospective purchasers? Disclosure is progressive through the process. The Confidential Information Memorandum is a “selling document” which presents enough information to allow prospective purchasers to assess the fit between your company and their acquisition or investment needs – typically including highly summarized financial performance data. Additional data is provided during due diligence, and by the time a buyer enters into a conditional agreement essentially all available information is made available. Complete transparency is important, as buyers will quickly abandon a deal if they lose trust. How long will it take? In most cases the sale process takes six months from commencement to closing. What are your fees? Our fees are comprised of a work fee payable at the outset or periodically during the process, which is normally paid by the company, and a success fee payable at closing, which the selling shareholders pay directly out of closing proceeds. How much tax will there be on the sale? At the beginning of the process we will work closely with you, your lawyers and your tax advisor to assess whether one of several tax mitigating structures should be deployed. If so, this will be built into the process and communicated to prospective buyers. Generally speaking, tax will be payable on one-half of the net gain (the net sale proceeds less your cost), but the first $750,000 is generally tax exempt for Canadian individuals. It is often possible to reduce or defer the tax by appropriate advance planning. Do I have to manage the business after the sale? If you are the active owner-manager, most buyers will want to enter into a contract for a finite period after closing, so that you will be available to transition to new management. This rarely requires your full time commitment for more than six months to a year. |
