Due Diligence on your company has been conducted (see M&A Basics: Do you want to sell your company? Part 3 - Due Diligence) and now all you have to do is sign the agreements. We deliberately write in the plural because the transaction documentation consists of a number of agreements and other related actions.
The most important transaction documents will be the so-called SPA (Sale and PurchaseAgreement) and, if you are to remain in the company as a shareholder, the so-called SHA (Shareholders/Stockholders Agreement). All other documents will follow these two agreements.
The subject matter of the SHA is to govern the detailed terms of the transaction, including the amount of shares to be transferred, the amount and method of payment of the purchase price, the terms and method of settlement of the transaction, liability for latent defects, non-compete, confidentiality obligations, etc.
What should the seller look out for when negotiating? Of course, every transaction is different and may have its own specifics, but the priority for the seller will always be to be paid for the transferred shares in the amount and at the time agreed in the SPA and that the final purchase price is not reduced through other contractual arrangements.
As we wrote in the M&A Basics section: do you want to sell your company? Part 2 - Structuring the Transaction, agreeing on a price has many alternatives. If you agree to a fixed amount with an additional adjustment based on "debt-free cash-free," focus your attention on the wording of the definitions of "debt," "net debt," "cash," and "working capital," as each party may understand these terms differently. Ideally, a common indicative calculation can be made as of a certain date before the transaction closes. That way you will be sure that you and the investor are on the same page. The same applies if you have agreed a deferred payment of the purchase price depending on the future performance of the company. In this case too, it is a good idea to determine in detail which items will be considered addable or deductible (e.g., current results may be affected by transaction costs, the cost of remediating due diligence findings, repayments and interest on the acquisition loan, etc.). At the same time, for a deferred payment of the purchase price linked to the future performance of the company (e.g. EBITDA over the next two years), it is a good idea to agree on a procedure in case the parties arrive at different EBITDA calculations. Sometimes the difference in thousands of euros can determine whether you receive a top-up payment in millions of euros. For this purpose, it is a good idea to agree on a third independent party who will verify the different calculations and give the benefit of the doubt to one side or the other.
Speaking of the purchase price, the method of payment is also important. You want to make sure that once you transfer the shares, you get the purchase price for it. If you don't want to close the transaction at the bank and wait for the money to "roll in", you can protect yourself with a escrow account. On this account, the money is already waiting before the transaction is closed and will be released by the bank under the terms you have agreed in the SPA (e.g. upon receipt of the signed transfer agreement or upon receipt of the Business register record confirming the transfer of shares). From the seller's point of view, the escrow account is good for the purpose of paying the first, in most cases the largest, part of the purchase price. It only makes sense to leave a deferred instalment of the purchase price in the escrow account if the conditions for its release are clear and, in particular, achievable.
The final purchase price may be materially affected by the seller's liability for latent defects and misrepresentations. This liability is in certain cases limited to the amount of the purchase price, and you may suddenly have neither the company nor the money (the investor can recover the money you have already received at the closing of the transaction). A good legal adviser will therefore try to limit your liability as much as possible, whether quantitatively, materially or in time. Of course, you can also contribute by transparently disclosing all relevant information about the company before the closing of the transaction. The more an investor knows before joining the company, the lower the risk of your liability and related investor claims.