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> it doesn't make much sense to think about protections Why? If I’m going to put my business on hold for 3 months to entertain your offer to buy my company, w
by cj 3y ago
> it doesn't make much sense to think about protections
Why?
If I’m going to put my business on hold for 3 months to entertain your offer to buy my company, why would it not make sense to make sure the buyer is serious enough to offer something they shouldn’t need to ever pay out if they are serious about their offer?
> structure the dealmaking or negotiate the deal to get what you want.
You usually have lawyers doing a lot of the legal strategy for you. It’s easy to say “negotiate what you want”, but realistically this negotiation happens via redlines back and forth between lawyers who consult the buyer and seller who both make concessions. Whether or not you make a concession is often influenced by what’s most commonly occurring in other deals.
What’s most common in other deals doesn’t automatically equate to what’s the most fair and balanced transaction terms.
- tptacek 3y agoBecause we assume, reasonably, that businesses are sophisticated enough to navigate these transactions themselves.
- cj 3y agoIf you're talking large M&A transactions where you have bankers and investors and advisors and a well built out team supporting the entire transaction process, absolutely. But the volume of deals that happen in the $3-50 million range is very high (especially if you include non-tech companies, like PE's buying up a veterinary clinics or dentist offices) -- this segment of companies generally are not "sophisticated" re: M&A by any means. To be fair this article is talking about a $100m+ transaction, so maybe that's the segment your head is in. I'm coming at it from the perspective of a < $50m transaction.
- tptacek 3y agoBy way of example, the accredited investor standard, which has the same motivation we're talking about, has an asset threshold of $1MM.
- paulddraper 3y agotptacek was referring to mandatory legal protections. Typically, those are only created for unsophisticated parties who don't know what to negotiate for. --- > If I’m going to put my business on hold for 3 months I've had a failed LOI before (as a seller). Very rarely should an LOI ever fail after 3 months of exclusivity. The LOI is "hey we'd like to dig deep into this, but we want to be sure we aren't wasting our time." Competent parties shouldn't take much more than a month to figure out whether it works or not. (Funding logistics, or SEC approvals, etc can stretch that out.)
- lazide 3y agoI’ve anecdotally heard of sellers being strategically strung along to distract them/tie them up, to help their portfolio company get additional market traction. This is by some less than ethical Chinese investors. That said; it could also be (unsuccessful) sellers remorse.
- paulddraper 3y agoAcquisition by competitor is a quite dicey affair...beyond a concern for resources, the information transfer itself is also concerning.
- lazide 3y agoYup. Also a common situation.
- ibejoeb 3y agoAbsolutely. You can get squeezed by a potential buyer. You're exposing your books, and if the buyer is particularly shrewd, it can manifest a very unfavorable position, especially for small companies. They squeeze, back out, and come back in 6 months if you're still around. If you're looking to sell your company, you need to know this and set up milestones to mitigate this.
- linuxdude314 3y agoYou don’t suspend bizops because you’re selling a business. That sounds like a great way to cause your biz to not sell at all.
- lazide 3y agoHaving the owners distracted can cause marginal businesses to implode/slow down. At a minimum it’s almost always distracting from something important. Is that business valuable in that case? Probably a lot less than they’re trying to get for it, for sure hah. But it can happen.