My company is being acquired by an other one. They are going to send me a (draft) letter of intent. What should I add to protect myself/my company? (Things like "No information gathered during the due diligence can be communicate or used.", etc). Do you have advices?
Thanks.
And the terms also depend on the size of the deal. Not asking you to tell me, just that a deal worth $100k is different than a deal worth $5M. Also, it would depend on if their intent is to purchase your company through an asset sale or a stock sale as to some of the terms you should pursue.
Consult with an attorney to protect you and your company. And consult with an accountant to make sure you don't get smacked hard on taxes based on the type of deal they want to setup.
We are speaking about $10M...
You might be able to get some older sales/purchase documents online to use as examples of things to watch out for. I can share privately some of the "standard" clauses we had placed in our documents, but I really think you need a good attorney and CPA. As every deal is unique.
One other point, you can't stop them from using knowledge they gain from the due diligence part of the process. Yes you can put clauses in the letter of intent, agreement etc, but that just means you can sue them if you catch them later. Of course, they will claim they gained that knowledge independently and its hard to prove. This is why you limit the duration of due diligence. Keep it as short as possible so they have to act or leave, but not so short that you are unreasonable. Also, why I never had one, to me this is where a breakup fee may be worthwhile, make it painful for them not to complete the transaction, so that if they are just tire kicking to "learn" it still has costs.
Consequently as you allude to confidentiality is vital. At the same time, you should have a limited exclusivity period following the expiry of which you are free to go to any other potential acquirers, and also the acquirer will have to return/destroy all confidential information.
Of course in reality, the benefit of the information could already have been derived from the acquirer. In the first place therefore only information which is absolutely necessary should be disclosed.
In any event, in a usual acquisition you would have lawyers deal with the paperwork for the sale and purchase, so I see no reason not to get those lawyers involved at this stage. This does to an extent depend on the size of the deal, and whether sales or assets are involved of course.
They already set some constraints for the afterwards.
I would like them not to use the knowledge they will acquire during the assessment of my assets. :)
