Yes, it might take longer to close the deal, but if your buyer is talking LOI, you know they’re serious, and it makes sense to get your house in order to make the acquisition process as smooth as possible.Chances are, you won’t be the buyer’s first acquisition, nor will you be their last, so don’t underestimate them.
Deadlines manage the buyer’s and your expectations, but you don’t have to set your time by the buyer’s watch. Yes, once the LOI has been accepted, the buyer is in control of most of the situation. Set an appropriate timeline that includes an exclusivity period of thirty days or less . Provide ample time to complete due diligence and other negotiations.Timelines and the exclusivity period need to be reasonable and agreeable to both parties.If price is a sticking point, consider an earnout to close the gap. Earnouts are agreements where you receive future payments on the condition of certain financial goals being met.
In this case, you might want to swap stock to own equity in this new entity. The buyer won’t always be willing to negotiate such a term, but it’s worthy of consideration. Buyers may selectively choose the representations that require the most stringent warranties, potentially to your disadvantage. Obviously the more robust your IP, the better placed you’ll be to negotiate. This is why doing as much due diligence before signing the LOI is so important.Most buyers will expect you to leave the business cash-free and debt-free. This affects working capital too.