Generally, small business acquisition transactions can be separated into two buckets:
Bucket One. From start to finish, the transaction stays the course. There are some hiccups along the way but the parties (including the attorneys - gasp!) all work together to get the deal done. It is common to see a transaction close in 30-45 days after an LOI or term sheet is finalized.
Bucket Two: The transaction becomes personal or egos get in the way. Motives are questioned and trust is missing. A deal may still get done, but the parties rarely see eye to eye by the closing. Meanwhile, time and costs add up quickly. Negotiations in this bucket may drag on for months.
Here are some red flags that should make a buyer or seller hit pause:
- Over negotiation of an NDA
- Little interest in drafting a LOI or term sheet
- Excessive or nit-picky redlines
- A purchase agreement that is unreasonably long or short for the size and complexity of the transaction
- Advisors without enough experience in similar transactions
- Important information surfaces without previous disclosure
It is possible to pivot from Bucket Two to Bucket One through open lines of communication, controlling the narrative, setting aggressive but reasonable timelines, and engaging with experienced advisors.
Shawn Peddycord is a business acquisitions attorney located in North County San Diego. He represents clients in a variety of asset and equity purchase and sale transactions, and has extensive experience in drafting and negotiating commercial contracts. This blog is for educational purposes only, and is not intended as legal advice or a substitute for legal counsel.