What can the seller of a business expect with regard to the terms and conditions of the final Purchase Agreement (PA)? Only that his PA will be completely unique to him and his firm. And what is the role of the IBanker in this process?
The PA terms negotiation is the primary purview of buyer's and seller's legal counsel. At the same time, the investment banker must be mindful of what are common buyer's requests. With this knowledge, the IBanker can forewarn his seller client. The following are "common" deal point issues:
- Working capital adjustments, usually to detriment of seller – 80% of transactions
- Earn-out provisions – about 40% of deals
- Anti-sandbagging (buyer knew of problem at close) – 40% require this provision
- Baskets – 60% included a deductible amount
- Caps – while over 80% include these, most were 10% or less of the deal value
- Escrow holdback – nearly 60% in deals, but only 25% of these were exclusive to particular issues
- Surviving representations – these are often split between taxes and environmental issues, and about 33% were 18 months in duration