Buy-Sell Agreements

[Beegee]

In the next 2-3 years I will have an opportunity to buy into a contracting company with annual revenue of $18M. I know how to make money in this business, but I'm not familiar with this type of transfer. Currently the company has 1 sole owner and has been in business for 25 years. What type of agreement should I expect that the current owner will want? I'm assuming that because of tax reasons, he's not looking for a lump sum buyout? Also, how can I raise the money that will be required up front for due diligence (and I assume I'll need a broker as well to facilitate an agreement)?

Any advice is appreciated.

[Business Attorney]

Brokers typically work on commissions for putting buyers and sellers together. Since you and the seller already know each other, the normal fees that brokers charge would be out of line. What you may need is an advisor who can assist you on the due diligence for a more reasonable fee.

On the other hand, if you have a good business attorney and accountant, and you are familiar with the business and the industry, another advisor on the team may not add much. Of the last ten deals where I have represented buyers, only 2 used financial intermediaries to assist in the due diligence. Of course, if you are not certain about conducting the due diligence with the assistance of your attorney and accountant, then the money you spend on assistance in that area may be a great investment.

How to raise the money is a hard question. Most people buying a business for the first time (or buying a piece of a business, if that is what you are doing) have to rely on their own resources or those of family and friends. If you are buying the entire business and there are assets that can be pledged to secure a loan, then you may be able to borrow a portion of the purchase price. However, even with assets to secure the loan, most lenders will not only expect you to have excellent personal credit, they will also want you to have a significant investment on your own. If you have no skin in the game and can simply walk away when things get tough, then lenders will be very skittish about making their own investment with you.