Approached by a potential buyer: what now?

There is usually no need to hurry, even if the other side suggests otherwise. Three things are worth doing before you respond on substance. First, establish who you are dealing with and whether they can fund a purchase. Second, say nothing about figures, customers or margins until a confidentiality agreement is in place: what you disclose now cannot be withdrawn, and a competitor who walks away keeps the information. Third, speak to your accountant and to a lawyer before you discuss price. A first conversation with us costs nothing and commits you to nothing.

The first step on paper is usually a letter of intent, or LOI. It sets out the main points: a price or price range, what exactly is being bought, and the timetable. It will often say at the top that it is not binding. That is only partly true. Provisions on exclusivity, confidentiality, costs and sometimes a break fee can be binding, and in practice the price you name here often becomes your ceiling, because negotiation from that point usually moves downwards. Exclusivity also means you cannot talk to anyone else for some months, including a better candidate. Have an LOI reviewed before you sign it. Our article on the binding parts of a letter of intent sets out what is legally at stake.

The buyer then investigates the business: contracts, employees, tax, permits, insurance, disputes, IT. You supply documents through a secure environment, the data room, and answer questionnaires. This takes time, often more than sellers expect, and it is the stage at which many sellers tire. Two practical points are relevant here. What the buyer finds here can be used to reduce the price or to hold you liable, so anything you tidy up in advance costs you less. And anything you have disclosed properly and verifiably is harder for the buyer to use against you afterwards. What an investigation involves is set out on our legal due diligence page.

Then comes the purchase agreement, in practice the SPA. This is the document that determines what you are left with. Three parts deserve your attention. The warranties are statements about your business for which you are liable if they turn out to be wrong, sometimes years after the sale. Under the price mechanism, the figure in the LOI is usually not the amount that reaches your account, because debt, working capital and costs are set off against it. The deferred element may be an earn-out, a vendor loan or part of the price held in a separate account. This is where it is decided whether you actually receive the money. Further information is available on our share deals page and in our article on purchase price disputes.

Shares in a BV can only be transferred before a notary. Signing the purchase agreement is therefore not the end: a deed of transfer follows, the purchase price usually passes through the notary, and the shareholders' register is updated. There is often a gap between signing and transfer, for example because a bank, a works council or a regulator still has to act. What may happen to the business in that period is governed by the purchase agreement. The formalities are set out in our note on Dutch share transfer formalities.

We agree the fee basis in writing at the outset: a fixed fee per phase, a capped fee or an estimate with regular reporting, depending on the transaction. Alongside our fees you will have the costs of the notary and usually of an accountant or tax advisor. We say at the outset what we expect the exercise to cost as a whole and what can drive that figure up.

From letter of intent to completion, a sale commonly takes three to six months; preparing the business beforehand can take longer. In practice the timetable is set by how well your records are ordered, whether financing is needed, and whether a works council or a regulator has to be involved. We say at the outset what is realistic in your case.