Offer to Purchase

Offer to Purchase: Once buyer and seller have each found the other, and have exchanged information necessary for each to understand the opportunity represented by the other, after buyer and seller have met, toured the facilities, asked each other and answered each other’s questions, and after both parties have concluded that the business is the right business, and the buyer is the right buyer, the next step should be a detailed written Offer to Purchase.

The Offer to Purchase should clarify whether it is a share sale or an asset sale, price and terms of payment, vendor take back, if any, matters of security, what assets/liabilities are to be included, what are to be excluded, what is expected from and by each party, matters of due diligence, matters of adjustment, matters of timing, and more.

The Offer to Purchase should include the value of and the valuation basis of the assets included. In a share sale, assets and liabilities included will typically be valued at balance sheet or book value, while in an asset sale, maybe at appraised value, or fair market value, or simply agreed values.

The Offer to Purchase should schedule an ‘Offer to Purchase Date,’ an ‘Acceptance Date,’ an ‘Adjustment Date’ and a ‘Closing Date’ with enough time between each to accomplish all that will need to be done to close the sale.

The Offer to Purchase should include a ‘subject to due diligence clause’ and a subject to final valuation and price adjustment clause. There may be other subject clauses required as well; subject to certain banking arrangements perhaps, sometime subject to acceptance by a third party, such as a franchisor, subject to assumption of lease perhaps. There are often matters, particularly those involving third parties, that cannot be or should not be addressed until the end of the diligence process, so as to maintain confidentiality about ‘the business being sold’ until all other subjects have been satisfied and removed.

There are many issues to be addressed and agreed within the Offer to Purchase. The most complete understanding of all that we would typically include in an Offer to Purchase can be gained, probably, by reviewing a sample Offer to Purchase.

But in brief, we simply view the Offer to Purchase as the means by which to create and ensure a clear and detailed business-like understanding between the buyer and seller, in written form that will carry through the due diligence and closing processes, and that will ultimately convey that clear understanding and agreement to the lawyer selected to prepare the purchase and sale agreement and other closing documentation that may be required.

Offer to Purchase … items that should be considered, agreed and set out in the offer, when applicable

  • Purchase and Sale Price – price components; goodwill value; balance sheet value and breakdown
  • Accounts Receivable – how are A/R valued, are they discounted by an allowance for bad debt, or are they guaranteed 100% collectable or repurchased within a reasonable period of time.
  • Inventory – how is inventory valued, how is it counted, when, by who
  • Shareholder Loans (if any) – how are they handled
  • Bank or Other Debt – line of credit, term loan, equipment lease, related guarantees
  • Assets and Liabilities – what are included in the sale, what are excluded from the sale
  • Share or Asset Sale – is the legal structure to be share sale of asset sale
  • Anticipated Adjustments – is goodwill value and/or balance sheet adjustable prior to the close
  • Terms of Payment – cash to close; vendor take back (if any) payable over what period in what manner
  • Security Deposits – refundable, non-refundable, under what conditions
  • Business Premises – leased or owned, included in the sale or new lease or assumption of lease
  • Non-Compete Agreements – who, what restrictions, what territory, what period, what conditions
  • Schedule of Events – offer date, acceptance date, due diligence date, adjustment date, closing date
  • Due Diligence Event – what, when, where, how, who, outline, schedule
  • Closing Event – preparation of documents, by who
  • Post Closing Transition – adjustment until close, training and assistance, consulting or advisory
  • Business Premises – leased or owned, included in the sale or new lease or assumption of lease
  • Subject Clauses – subject to due diligence, banking, certain other events perhaps
  • Arbitration – how will disputes, if any, be resolved
  • The Closing – when, where, how

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