Business Transactions

How Much Attorneys Charge to Handle a Company Sale or Purchase?

In a recent posting, I outlined what attorneys do to help business people buy and sell companies. An attorney’s role in a company sale includes helping the parties with getting ready for sale, contract negotiation, financing, due diligence review, and closing.

Of course, one of the initial questions I get from clients seeking a lawyer to help with a company sale is “How much are the legal fees for a company sale?” I’ll talk in terms of number of hours. If your lawyer charges an hourly rate, you can then do the math. Here are some general guidelines on attorney hours required for the phases involved in a relatively straight-forward small or medium-sized company sale:

• Drafting and Negotiating Term Sheet, 5 - 10 hours
• Drafting and Negotiating Purchase Agreement, 10 - 20 hours
• Conducting Due Diligence Review, 10 – 15 hours
• Drafting and Negotiating Ancillary Documents, 20 – 40 hours
• Handling Closing and Post-Closing Matters, 10 hours

Hours required will vary greatly depending upon which party has responsibility for drafting the various agreements and how much negotiation is required to reach agreement. Attorney hours required can increase significantly if a problem is uncovered or develops and must be remedied prior to closing. Sample problems include chain of title in property to be conveyed; difficulty obtaining required third party or governmental consents; and a party’s unwillingness to assume potential liabilities uncovered during due diligence.

Setting a Price for a Company Sale. Audio Interview with Business Broker, Clayton Wendt.

In this posting, I continue the discussion about how attorneys help buy and sell companies as well as how other professionals aid in facilitating a company sale.

If you seek to buy or sell a company, one of your first questions is what’s the value of the business? That’s a question a business broker can help you answer. Clayton Wendt, a business broker with Sunbelt Business Brokers in St Paul, Minnesota, shared with me his thoughts on how to set a price for the sale or purchase of a business.

When valuing a business, Clayton divides companies into separate tiers. A main street business might sell for of up to about $1M and is valued according to a multiple of the seller’s discretionary earnings. A mid-market company might sell for a price of up to $7 - $8 Million and is valued at a multiple of EBITBA (Earnings Before Interest, Taxes, Depreciation and Amortization). Clayton also explained how copyright, trademarks, and patents owned by the company get worked into the valuation.

(Click the link below to listen to my 10-minute conversation with business broker, Clayton Wendt.)

Interview with Clayton Wendt

The Business Broker’s Role in the Sale or Purchase of a Business. Audio Interview with Paul Corrigan.

In my last posting, I outlined what attorneys do to help business people buy and sell companies. Of course, attorneys aren’t the only professionals who work on company sales. Business brokers collect listings of companies available for sale, make those listings available to the public, pre-screen buyers, and facilitate the closing of the deal. (In some ways, they are analogous to a real estate broker helping you buy or sell a home.)

I recently spoke with Paul Corrigan, a business broker at ROI Business Broker. During our conversation, Paul shared how his firm prepares a confidential business memorandum to promote transparency and minimize the chances of the transaction going off-course. Paul also discussed the importance of confidentiality in the company sales process, the positive impact of recent SBA legislation, and how buying and selling businesses stimulates the economy.

(Click below to listen to a 5-minute excerpt of my conversation with Paul.)

 

Interview with Paul Corrigan

 

Your Attorney’s Role in the Sale or Purchase of a Business

I allude to the attorney’s role in the company sales process as part of the blog series, "Steps In a Business Transaction". I thought it would be helpful to outline more specifically what attorneys do to help business people buy and sell companies:

Getting Ready. Small businesses owners sometimes neglect corporate formalities such as annual meetings and resolutions. If the small business is organized as a corporation or LLC, it must make sure that its organizational documents are up-to-date. It will have to represent that they are as part of the sale. Attorneys review your organizational documents and help fill-in anything that’s missing. Reviewing the other party’s (i.e., the buyer or the seller) organizational documents is also part of the due diligence review. When representing the buyer, the attorney’s "getting ready" activities might include organizing the business entity (e.g., a new LLC or corporation) that will make the company purchase.