In embarking on an M&A process, the seller will have usually answered a number of questions himself - he knows that he is interested in the transaction, has an idea about its shape and the price that he would like to receive for the business being sold. Our experience shows however that in order for the transaction to be as profitable as possible for the seller, it is very important to prepare well for it, even before the talks with the buyer enter advanced stages.

Vendor's due diligence

The market standard is for the buyer to carry out the so-called due diligence, which is to allow better understanding of the target and identification of potential legal risks. The result of due diligence, especially if it turns out that the target has unresolved legal problems that may affect its functioning in the future, may give the buyer additional arguments in negotiating the price or liability rules in the SPA contract.

Unfortunately, problems occur even in the best-managed business - from a blank promissory note not collected from the bank or uncleared pledges on assets, through failure to register a trademark, to the expiry of the term of office of management board members. Determining whether and what shortcomings have occurred is the primary objective of the vendor's due diligence. Having identified which areas are problematic, you can often take action to remedy deficiencies, or, if that is not possible, at least prepare in advance for discussions with the buyer.

It is good practice  to make economic and financial analysis a part of this process, including, among others, determination of normalization adjustments to EBITDA (e.g. ownership costs incurred by the company) and identification of non-operating assets that will not be part of the transaction.

Finally, the seller may consider performing a valuation (it is a good idea to engage an advisor who specializes in M&A processes and valuations for transaction purposes) to verify the price expectations with the market.

Amendment of the articles of association

Before commencing a transaction, it is a good idea to check whether the articles of association or legal regulations restrict in any way it being concluded. Examples of restrictions include the requirement to obtain the consent of the general meeting of shareholders of a limited liability company, to sell shares or prohibit the sale of all rights and obligations in a partnership, if the partnership agreement does not allow it. Restrictions may also result from contractual provisions (e.g., priority right or change of control clauses in financing agreements).

Separation of a part of the enterprise

Sometimes it turns out that the subject of the transaction should be only part of the enterprise run within a given company. The sale of a part of the enterprise can be achieved through the so-called asset deal * transaction consisting in the sale of an enterprise / organized part of an enterprise / assets in accordance with the provisions of the Civil Code.

Due to the specific nature of an asset deal * transaction, it is often more convenient for the parties to consider, for example, prior separation of certain assets or lines of business from the company, in order to keep the structure of the transaction intact, including the acquisition of the company's shares.

An M&A transaction is by its very nature such a complicated process that in order to secure the interests of the seller, who often sells the business he has built throughout his life, proper preparation for it is of fundamental importance. In this context, getting professional and experienced legal, tax and financial advice is absolutely essential.

* The differences between a share deal and an asset deal are taken up in a separate article.