What You Need To Know About M&A: Key Considerations When Selling Your Company

M&A transactions can involve very complex negotiations. To successfully navigate a sale of your company, it is helpful to understand the issues that frequently arise.
Randolph Aufderhar · 1 day ago · 3 minutes read


Negotiating the Sale of Your Privately Held Company

1. M&A Valuation Is Negotiable

Understand that valuation is a negotiable term. Factors influencing the price point include:

  • Market comparables
  • Buyer type (financial or strategic)
  • Previous valuation used in company financing
  • Recent employee/early-stage investor share sales
  • Financial performance trends
  • Projected growth
  • Proprietary technology
  • Business sector
  • Legal and financial risks
  • Management team expertise
  • Multiple bidders versus single interested party
  • IPO potential

Consider an "earnout" clause to bridge price differences if you and the buyer cannot agree.

2. Mergers and Acquisitions Can Take Time

Multi-month timelines are common. To shorten the process:

  • Run a controlled auction sale process with an investment banker
  • Provide all company information in an online data room early
  • Prepare necessary drafts and presentations
  • Appoint an experienced lead negotiator
  • Identify and resolve potential regulatory delays

3. Sellers Need to Anticipate Due Diligence Investigation

Buyers will thoroughly investigate the company's:

  • Business, financial, and legal aspects
  • Contingent liabilities
  • Problematic contracts
  • Legal risks (including AI, export, and intellectual property)

Set up an online data room to provide controlled access to critical documents.

Review contracts and other documents to ensure compliance and avoid issues that could impact the deal.

4. The Seller's Financial Statements and Projections Will Be Thoroughly Vetted

The buyer will evaluate the company's:

  • Historical financial statements
  • Projections
  • Profit margins
  • Working capital
  • Capital expenditures
  • Warranty liabilities
  • Financial resources

If necessary, consider commissioning a "quality of earnings" report.

5. Multiple Bidders Will Help the Seller Get the Best Deal

Having multiple potential buyers increases the seller's leverage and can lead to a better deal.

Use an auction or competitive bidding process to attract interest.

6. You Need a Great M&A Lawyer and a Great M&A Legal Team

Hire an experienced M&A legal team with expertise in:

  • M&A agreements
  • Tax, compensation, employee matters
  • Real estate, intellectual property
  • Cybersecurity, data privacy, antitrust, and international trade

Also consider hiring legal specialists in each area for in-depth expertise.

7. Consider Hiring an Investment Banker

An investment banker can assist with:

  • Sale process design and execution
  • Buyer identification and contact
  • Data room population and due diligence coordination
  • Management presentation preparation
  • Price and deal term negotiations
  • Board of Directors fairness opinion

8. Intellectual Property and AI Issues Will Be Important

The buyer will be concerned about the company's:

  • Intellectual property ownership
  • Employee/consultant invention assignment agreements
  • Open source software usage
  • Intellectual property representations and warranties
  • Infringement and litigation risks
  • Overly broad licenses and change in control provisions
  • AI development, usage, and governance
  • Data protection and privacy

9. Don't Get Trapped at the Letter of Intent Stage

Negotiate the letter of intent sorgfältig to protect the seller.

Include:

  • Price
  • Exclusivity/no-shop provision
  • Indemnification terms
  • Management and employee treatment
  • Escrow or holdback

10. The Definitive Acquisition Agreement Is Extremely Important

A well-drafted acquisition agreement should include:

  • Transaction structure
  • Purchase price and financial terms
  • Contingent purchase price payments
  • Indemnity escrow or holdback
  • Representations and warranties
  • Conditions to closing
  • Employee stock options or RSUs
  • Termination provisions
  • Allocation of risk

11. Employee and Benefits Issues Will Be Sensitive and Important

Consider issues related to:

  • Stock options and restricted equity
  • Vesting triggers
  • Key employee retention
  • Employee incentives
  • Severance costs
  • Non-compete agreements

12. Understand the Negotiation Dynamics

To negotiate effectively:

  • Identify the party with greater leverage
  • Consider non-financial terms in exchange for price increase
  • Be willing to compromise
  • Maintain professionalism and courtesy