Definitive Agreement & Closing
The definitive agreement (sale and purchase agreement) is the final agreement that, once signed, means the business is in new hands. It may reflect the price and terms exactly as outlined in the letter of intent. Alternatively, the price and terms may change due to changes in the economy, industry, or company—or if the buyer discovers something significant in due diligence.
The buyer and seller should put the definitive agreement together throughout due diligence. The M&A advisor, lawyer, tax specialist, and accountant work to ensure that the definitive purchase agreement is in your client’s best interests.
The primary person working on the definitive agreement will be your client’s lawyer so it is critical the client has a lawyer with M&A experience and a history of successful deals. When deals break down at this stage, it is often because of an inexperienced lawyer; often the deal could have been saved. If the lawyers are unable to resolve issues, the M&A advisor should step in and work with the buyer to come up with a solution.
The closing date is the date that the deal is executed and the seller receives compensation as detailed in the definitive agreement. As of this date, the buyer now owns the business.
Your client’s lawyer will handle closing. The client will need to visit the lawyer on the closing date to sign the appropriate documents. The buyer will need to do the same with his or her own lawyer. When everything is signed and in order, your client will receive the cash agreed to in the definitive agreement. At this time, the seller also pays any company debts and amounts owing to advisors. A portion of the funds is placed in escrow in case adjustments are made in the coming months.
After closing, sellers should inform employees about the sale. This should be done as soon as possible. Depending on your relationship with your client, you may want to provide the following advice at some point in the process to help your client prepare.
Tips For Telling Employees About The Sale
- Buyer and seller may want to tell the employees together, with seller introducing the new owner
- Keep the message positive and focused on the exciting future under new ownership
- Encourage employees to connect with and respect the new owner
- Answer questions honestly and positively but deliver info on a need-to-know basis