Properly making or evaluating an offer to buy a business starts with understanding the basic components involved. From there, negotiations can begin.

An offer to purchase a business can come in many forms, from simple oral offers, to presentations, term sheets or letters of intent. To effectively negotiate an offer, owners and buyers must first understand the various forms it can take, the general processes and procedures that usually follow, and other basic components.

The most common method for presenting and documenting a proposed deal is by using a Letter of Intent (LOI) or Term Sheet. A Term Sheet is typically a bullet list of terms and is often written in the third person. A Letter of Intent is usually written from the buyer to the seller. Often, an LOI is more detailed than a Term Sheet, but this is not always the case. A good example of where a Term Sheet is more appropriate than an LOI is where the principal deal terms have already been agreed upon by the parties, and the purpose is to document those terms. Often, an M&A advisor or other third-party representative drafts the Term Sheet as a memorial of the terms that have already been discussed and agreed upon. By contrast, an LOI is often used as a proposal, usually from the buyer to the seller, which is meant to start negotiations.

Other methods of making an initial offer include oral offers and strawman offers. A strawman offer, whether oral or written, is a simple list of a few items that are often used to determine if the parties are in the same ballpark with regard to valuation. A Letter of Interest is also used on occasion to precede a Letter of Intent, and is simply a more formal version of a strawman offer.

Continue reading "Making and Sizing Up an Offer"

Whether on your own or with an adviser, finding the right buyer requires planning, negotiation, and flexibility.

Putting your company on the market should not be taken lightly. The process involves many steps and requires a well thought-out plan. Unlike real estate or the stock market, there is no single listing of businesses for sale. So, how do you reach potential buyers without the whole world, especially competitors and customers, knowing that your company is for sale? How do you set yourself up for effective negotiations? How do you present your business effectively? What steps are involved?

Continue reading "Taking Your Business to Market"