Lawyers Specialized in Business Sale and Acquisition Transactions

There is no single ideal time to sell a company. The right timing depends on the business's circumstances, its future prospects, the shareholders' situation, and their objectives. As a general rule, it is advisable to start preparing for a sale well in advance and while the company still has strong business prospects, rather than waiting until there is an urgent need to sell. Early preparation makes it possible to identify and address potential corporate, contractual, employment, or tax issues that could reduce the company's value or delay the transaction.

The valuation of a company in connection with its sale can be carried out using different methodologies, including market multiples, discounted cash flow (DCF) analysis, and comparable transaction analysis. Other key factors that should be assessed include cash generation, EBITDA, debt levels, assets, competitive position, revenue recurrence, customer concentration, and the company's future growth prospects.

The purchase price does not depend solely on revenue or profit. In a Business Acquisition and Sale transaction, buyers typically assess factors such as cash flow generation, growth potential, recurring revenue, business risk, and market conditions.

It is essential to distinguish between two key concepts:

• Enterprise Value (EV): the value of the business regardless of its financing structure.
• Equity Value: the value attributable to the shareholders after deducting net financial debt (debt minus cash). Example: based on an Enterprise Value of €84 million, with €10 million in debt and €3 million in cash, the Equity Value would be €77 million (EV − Debt + Cash = 84 − 10 + 3).

For this reason, when evaluating an offer, it is important to look beyond the headline purchase price and understand how it is adjusted for debt, cash, and the specific terms and conditions agreed upon.

While it is not essential in every case, a vendor due diligence review allows the company to be assessed before the transaction process begins, helping sellers prepare for the sale, maximize value, and reduce negotiation time with potential buyers. A company that enters the process with its documentation properly organized and its key risks and contingencies already identified is better positioned to respond to the buyer's due diligence requests and inspires greater confidence throughout the transaction process.

The documentation required will depend on the industry and the specific characteristics of the transaction. However, sellers are typically expected to provide corporate records, financial and accounting information, tax documentation, employment-related records, and key contractual agreements. Documents relating to assets and real estate, intellectual property, permits and licenses, financing arrangements, litigation matters, data protection compliance, and significant commercial relationships with customers and suppliers are also commonly requested. 

This information is usually organized in a virtual data room, a secure online repository where documents are centralized so that buyers and their advisors can conduct the due diligence process efficiently and in a structured manner.

The timeline depends on the size and complexity of the company, the number of interested buyers, the structure of the transaction, the scope of the due diligence review, and the negotiation of the purchase agreement. A transaction may take several months from the initial discussions through signing and ultimately closing. Simpler transactions can be completed more quickly, while transactions involving conditions precedent, such as acquisition financing, third-party approvals, pre-closing corporate reorganizations, or outstanding issues that must be resolved before closing, generally require additional time.

A business sale can generally be structured in one of two ways:

• Share Deal: the buyer acquires all or part of the shares or ownership interests of the existing shareholders without altering the company's legal structure. The company generally retains its assets, contracts, and legal relationships because there is no transfer of contractual positions; the buyer acquires the company "as is." This structure is typically more straightforward because it does not require contracts to be renegotiated individually. However, it is important to review whether any agreements contain change-of-control provisions that could allow the counterparty to terminate the contract following a change in ownership
• Asset Deal: the buyer acquires specific assets, rights, and, where applicable, liabilities, allowing the buyer to select which assets and liabilities will be assumed, subject to certain liabilities that may transfer by operation of law. Because there is no universal succession, contracts generally must be assigned or renegotiated individually with suppliers, customers, and employees, making the transaction more complex. In addition, labor law successor liability rules may apply.

The choice between these structures has important corporate, tax, employment, and contractual implications and should be carefully evaluated when designing the transaction.

An earn-out is a form of deferred and variable consideration. A portion of the purchase price is not paid at closing but instead depends on the future performance of the company following the closing of the transaction. If the company achieves certain agreed targets during the years following the acquisition, such as a specified EBITDA or revenue level, the seller will receive additional payments. 

An earn-out can be a useful tool when the buyer and seller have different expectations regarding the company's future performance, as it helps bridge valuation gaps by deferring part of the purchase price. For this reason, it is essential to define clearly how performance will be measured, the applicable measurement period, and which management decisions may affect the earn-out calculation in order to avoid future disputes.

Potential risks may include corporate, employment, tax, contractual, or regulatory liabilities, as well as litigation, asset ownership issues, or intellectual property concerns. In addition, the purchase agreement itself typically imposes significant obligations on the seller through Representations and Warranties (Reps & Warranties). Inaccurate or incomplete representations may result in liability and indemnification obligations. 

While these protections are designed to protect the buyer, sellers can negotiate limitations on their exposure, including survival periods, liability caps (cap), and minimum claim thresholds (basket and de minimis provisions). To secure these obligations, transactions commonly use mechanisms such as purchase price holdbacks, bank guarantees, escrow arrangements, security interests, or Representations and Warranties Insurance (R&W Insurance).

The tax consequences of a business sale depend on several factors, including whether the seller is an individual or a corporate entity, whether the transaction is structured as a share deal or an asset deal, and the specific circumstances of the transaction. For this reason, when evaluating an offer, sellers should focus not only on the gross purchase price. The transaction structure and its tax treatment can have a significant impact on the net proceeds ultimately received by the seller.