Getting Started
The sale of a company in a private equity deal typically begins with a term sheet spelling out the major terms of the transaction and setting out a timetable for due diligence, document preparation and closing. The parties then negotiate a definitive purchase agreement containing representations and warranties, covenants controlling actions before and after the closing and indemnification provisions. The time between contract signing and the closing is devoted to obtaining consents of third parties, waiting for clearance under the Hart-Scott-Rodino Act, securing financing to pay the purchase price or concluding other tasks that are required to be completed before closing.
One of the key issues in any private equity transaction is who will manage the company after it is sold. Sometimes the answer is quite simple, as where the prior owners intend to retire. Other times the answer is more complex, as where the prior owners are required to remain involved in the company to ensure a smooth transition or to secure an earn-out.
Most of the time, the current senior managers of the target company are very important to sustain a core business, such as relationships with customers, product development or brand name. In that case, the private equity buyer may insist that these people sin independent employment contracts. They in turn acquire substantial influence over the transaction and may even have an impact on the sale price.
