Keys to Successful Succession Planning

Keys to Successful Succession Planning 

Grimes, McGovern & Associates, formerly W.B. Grimes & Company has over 45 years experience assisting owners in the valuation and sale of their  media businesses. For a confidential review of your own situation contact John McGovern, CEO, [email protected], (917) 881-6563

  •  Basics of Succession Planning
  •  Keys To A Successful Succession Plan
  •  Succession Planning- Are You Ready
  •  Preparing For A Seamless Succession
  •  The Family Succession Process
  •  Putting Together A Business Plan
  •  Looking At the Management Team
  •  Handling Disputes And Problems Among Co-Founders
  •  Tips For Handling Co-Founder Disputes
  •  The Role of the Buy-Sell Agreement
  •  Selling To Your Employees- The ESOP
  •  Selling Your Business- Assembling Your Team
  •  What Happened- Why Did the Deal Fall Apart- What Can You Do?
  •  Key Provisions of a Letter of Intent
  •  Joint Ventures as an Exit Strategy

Basics Of Succession Planning

Estate and succession planning involves making a series of decisions involving tax, business and law issues- decisions regarding the types of property to own, form of ownership, the organization and operation of the business and steps for passing it on to the next generation. The best way to find the plan that works for you is to work closely with your lawyer, accountant, broker or appraiser and other experts who can guide you through the process. It’s absolutely essential that you be well informed about the choices that are available to you so that you can make the right decision for you and your family.
Succession planning is a process. Once the plan is in place it evolves. The plan is reviewed and updated from time to time to reflect changes in the marketplace, your health or capabilities, financial or competitive conditions.

Succession planning will force you to confront many issues including:

Choosing among several capable successors.

Dealing with apathy among potential successorsSuppose nobody in the family is really interested in or capable of taking over the business- now what?

Health deterioration .

Estate and gift-tax implications of the plan .

Impact of the plan on “other stakeholders” in the Company who are non-family members such as key loyal employees, your vendors or customers.

Who are the likely buyers if the business cannot or will not be kept in the family Competitors, strategic publishers, financial buyers.

Intra-family feuding and normal family pettiness . Will this affect the succession plan?

Who should be included in the planning process . Who will have decision-making authority? How will family advisory councils and boards of directors influence the final decision or changes to the plan over time?

The development of a succession plan requires a team effort involving the mutual acceptance of goals and plan objectives. 

Keys To A Successful Succession Plan

  • A secure retirement income and plan for the eventual loss of your spouse.
  • Financial resource diversification so that your eggs are not all in the business basket.
  • Incentives for your children and in-laws to remain active in the business or to encourage non-siblings to become active.
  • Liquidity your estate can draw on in the event of your death to pay taxes and expenses related to the business.
  • The ability to transfer stock or assets in an efficient manner.
  • A capital structure and contractual rights that guarantee you an income stream.
  • An understanding that all children will be treated “equally”, not necessarily fairly. This can be especially dicey for those children that have a stronger business acumen than others or those who have ability to provide long-term value for the benefit of the owners.
  • Rewards for those children already active in the business? What considerations will be given to the other children.
  • Provisions that allow a child who is active in the business or who controls the business to buy out a non-active sibling and a method for setting a fair price for this purchase.
  • A plan for continuing the growth of the business in its continued form with consideration given to the timing of the proposed transfer for gift-taxes purposes.
  • A fallback plan should the family members prove incapable of running the business or if there is a change in the family structure ( divorce, relocation, death of a child, career changes) or a change in the marketplace (such as consolidation). Will it be sold to the employees (if so, how?) or to a third-party.

Succession Planning-Are You Ready?

Successful succession planning involves building the value of your business during your ownership and management, and having a plan in place when you are ready to step down. Answering these questions heads you down the road to the development of a successful plan.

  • How old are you? How is your health? How and when do you plan to retire?
  • How old are your children? What exposure have they had to the business? Are they capable of taking over the business?
  • Do you want to keep the business in your family?
  • If not, what is your exit strategy? What estate planning steps have you taken to manage the proceeds of an eventual sale?
  • If the business is staying in the family, which family members do you select to control the business? Are they truly committed to the long-term objectives of the company?
  • If you sell the business to your children or other family members, or even to your employees, how will they finance the purchase? How will you get the proceeds you need to live comfortably during retirement or to meet your estate-planning objectives?
  • If you choose to transfer the business as a gift (or at a price below fair market value) how can you be fair to “non-active” children and protect the business from their demands?
  • What will be your continuing role, if any, in the business?
  • Will your withdrawal be partial or complete? What is your timetable?

Preparing for a Seamless Succession

There are several steps you can take today to ensure your transition is a smooth one. These steps recognize that succession planning is a process, not an event. It is never too early to start the process.

Prepare an Organization Chart with Defined Position Descriptions 
. Now is the time to determine which family and non-family members will hold which positions, with clear understandings of duties, responsibilities,, and performance goals for which they will be held accountable. In assigning positions, be guided by merit, education, commitment and not by love or nepotism.

Train, Develop, Coach 
. Set up a formal mentoring system so you can impart your knowledge, experience, and tools of the trade to the next generation. The training should be structured; a mix of field and formal classroom training. Start now before you lose the next generation of leadership to a competing company or career; while your health is good, and while you have the time to train rather than dump all at once at retirement. Start today so you can enjoy your retirement without ten calls a day from your son or daughter.

Get Sound Advice 
. The quality of your advice is paramount. Seek professional counsel from accountants and attorneys who should be experienced with the succession-planning and transition-management needs of closely held and family-owned businesses.

Establish a Board of Advisors 
, made up of outside business leaders and professional advisors who can help the company with those difficult transition-management decisions as well as with the implementation of the transition plan.

Establish Criteria to Eliminate Surprises 
. Establish a clear set of criteria for ownership and management candidates for the upcoming generation to remove any element of surprise when the successors are selected. These criteria can be objective such as education, experience, and performance. They could also be subjective such as passion, commitment, respect and trust by family members and employees.

Communicate Early and Often 
. Sharing information and imparting knowledge to the next generation is critical. This not only builds trust but allows you to take the pulse of the members. Everyone needs to be on the same page. Keep communications channels open through meetings, periodic MyCompany Quarterly Reports, one-on-one mentoring to keep the next generation interested in the family business and poised for transition.

Create a Family Council 
. This is an ideal way to anticipate family succession issues well in advance and to create a culture of genuine interest and early involvement. These councils may have certain protocols or bylaws that allow for key decisions to be discussed and voted on by affected family members and in a manner that supercedes the traditional decision making structure set forth in the typical state corporate laws.

Succession is an Opportunity . Not Duty. Present it that way 
. Results can be disappointing if succession is presented as a family obligation rather than a potentially lucrative economic or career opportunity. The notion that upcoming owners regard themselves as stewards of the family legacy and that the ability to step into the leadership shoes is an earned privilege not a birthright is a good notion. A lack of enthusiasm and interest is a clear signal that it is time to consider an alternative exit strategy.

Support Employment Outside the Business 
. Encourage employment outside the family business, and either within or outside the industry, with the hope and expectation that these designated leaders will return to the family business at the appropriate time. There is the risk they will never come back. Despite that risk, it is likely working outside the family business will develop more balanced leadership and the confidence that success can be achieved under circumstances outside the shadows of nepotism. This also allows for a more gradual transition to new management. The new generation is gaining valuable experience elsewhere rather than sitting around to take over. That said, a good transition plan is one that takes shape over a period of years.

There can be more than one “Indian Chief”. 
The notion of collective management isn’t unique, especially when there may be several qualified siblings or cousins. Another option is restructuring the company to allow each qualified member of the next generation to be the leader of a strategic business unit.

When you step down, you should really step down 
. When the time comes for you to let go, you should truly let go. It’s important that you have enough activities to keep you busy when you step aside. This prevents the post-transition meddling that hampers many companies.

The Family Succession Process


  1. Face Reality-It’s time to plan- Determine your life plan timetable.
  2. Assemble your advisory team.
    Gather data
  3. Research
  4. Perform tax, financial, and market analysis and evaluations. Have your operations appraised. Determine the present and future value of what you have built. Conduct a legal audit.
  5. Determine your retirement and estate-planning needs. What are your personal financial goals. How do you there.
  6. Develop primary and fallback strategies. Pick successors among family and non-family team. Focus on corporate structure and reorganization.
  7. Build consensus. Get the family involved. Seek input from your advisory team, those parties targeted as the next owners. Make sure your plan will be well accepted.
  8. Succession Development Plan Implementation. Next generation training.
  9. Monitoring. This includes the flexibility to implement the fallback black in the event there is a change of circumstances.
  10. Repeat the process for the next generation, anticipating changes that will need to be made.

Putting together a business plan really is a good idea.


Some of the questions that will be addressed in the plan include&

  • What is the business model? How will it evolve over the next five years?
  • What market opportunities have been identified? What market problems exist or may be on the horizon?
  • What products, services and inniatives are planned to take advantage of these opportunities or to solve these problems.
  • How much capital and what personnel resources will be needed to bring these projects to fruition?
  • How will the capital be allocated?. How will this infusion of capital increase sales, profits, and the company’s overall value?
  • How will the company meet its loan and lease obligations and provide a meaningful return on investment to its lenders and investors?

Looking at the management team… 

  • Where do we expect the business to be in the next five years? How might that affect today’s decisions regarding management and control?
  • How old are members of the current management team? What are their retirement plans?
  • What expectations do the company’s employees have with regard to ownership? Have any promises been made to them?
  • How will the company’s projected capital needs affect management’s ability to maintain control?
  • What type of leadership is required to keep the company competitive over the next five years?

Everything couldn’t be better in our transition except…

  • He found his calling as a social worker in India and has no interest in the family business.
  • He loves the business but just does not have what it takes to run the business and despite your training.
  • She married a nice man whose idea of hardword is two rounds of golf in one day.  He’s eyeing your business as a means of keeping that golf habit rolling right along.
  • She gave you three grandchildren, all of whom show a genuine interest in and actually understand the business. This opens up additional possibilities but also some complications.
  • Business is booming. The value of the business has grown so much why not “share the wealth” with your favorite charity, other family members or even key employees who helped build the company.
  • Your nephew shows interest in the business, is really doing a super job, and shows strong leadership potential.
  • Publication values are soaring. If I agree to sell to a third party I might just receive an offer I shouldn’t refuse.
  • Sales and profits have been hit hard. Gifting the business is just not a viable option from my retirement-planning perspective.

Handling Disputes and Problems Amongst Co-Founders

Disputes among co-founders can be tenuous to say the least. And even though you may have a buy-sell agreement in place, these contracts are not usually enough. Having a clear strategic plan in place, implementing sound business practices and showing a little sensitivity to ego issues can go a long way in solving disputes. Some of the most common types of partnership problems include the following.

The “Ego-Clashing Partner”. 
Entrepreneurs tend to have large egos. Egos can clash some times. The challenge is to make everyone feel important without having too many chefs in the kitchen.

The Obsolete Partner 
. As a business grows it is not uncommon to find one or more partners unable to keep pace with the level of sophistication or business acumen the company now requires. It becomes increasingly difficult for these partners to make meaningful contributions to the business. This can be even more difficult when the partner is a close friend or relative.

We Just Have Different Goals and Objectives 
. Often times owners begin to move into different directions. Each develops his/her own vision of the business. This can strain a relationship. Partners can loose that drive once a business meets its short term objectives and goals. At this point, it is best for that co-partner to step down., be reassigned or find new challenges. Much like the flame in an old marriage can be rekindled, so can the entrepreneurial spirit be re-sparked.

The Best Friend/College Roommate Partner 
. Mixing personal friendships with a business conflict-especially when the partner can’t separate the personal with the business- can be particularly troublesome.

The “Silent Money” Partner
Trouble is they are never silent. In fact, many are quite disruptive.

“Hand Caught in the Cookie Jar” or “Caught in the Back-Room-With-A-Subordinate” Partner
When the partner is caught doing something unacceptable or illegal this can be hard to handle diplomatically. The Company’s potential liability can be huge.

I Have an Immediate Need to Cash Out 
. This situation can put a big strain on the company and relations among owners. The Company may not have the cash readily available to meet the partner’s needs even if the demand for cash results from ordinary circumstances.

I Just Want to Retire Early 
. People reach personal career levels at different stages. One partner may be ready to travel leaving the business world behind. Another may feel they reached as point where they’d like to put up the feet and just relax. In addition, many companies are founded while partners are single. Families grow. Family situations change. Co-founders may now feel the need to spend more time at home and less time in the office. This can significantly reduce their ability to make significant contributions to the company’s growth. Growing families can bring new income needs that the company may not be able to meet.

The Good News is We Are Being Acquired. The Bad News is the Buyer Wants Me- But not You
Naturally, this situation creates divided loyalties among partners. It may also have a dramatic affect on performance right up to the close of the transaction. What motivation would you have, if you know you are going to be replaced.

“I Think I am A Partner” Non-Partner. 
Often key employees have the idea they are co-owners. This can be common in companies where there is “open” management, or where employees are issued phantom stock or stock-appreciation plans. Stock option plans can be big incentive builders, but they can also go too far. Keep in mind- issue stock to an employee and they may become the “swing vote” and probably not when you intended.

Tips for Managing Co-Founder Disputes


Be creative when seeking and structuring solutions . Don’t just offer to repurchase shares.

Be civil 
. What goes around comes around.

Be reasonable and realistic regarding price and structure 
. Being creative in how and when payments are made and whether they will be made in cash or with other assets can be important. Consider an earn-out clause or some other participation right or post-sale adjustment to help avoid future disputes. Put in a clause that calls for a formal third-party appraisal in the event of a buy-out. It is unreasonable to think the company can make payments to you, if the company’s available cash flow is insufficient to begin with.

Be sensitive to those around you 
. Don’t lose sight of the impact of disputes on company morale and leadership. Keep disputes “in the family” and out of the public eye. The last thing you want is the media, your key customers, creditors and vendors to become involved.

Never litigate over matters of principle
Before you go to the expense, be sure the potential rewards outweigh those expenses.

Be patient, be disciplined in your break-up negotiations 
. Sweat the details and be sure to deal with the difficult issues. These can include assumption of liabilities, the value of the co-founder’s equity in the company, indemnification. Do not let emotion get in the way of sound judgment.

Govern yourself accordingly 
. Remember that problems and solutions can be as much psychological as they are legal and as much strategic as they are contractual.

Be active, not reactive 
. If you see problems nip them in the bud. The longer you wait the worse it may seem. Few problems go away by being ignored.

The Role of the Buy-Sell Agreement

The buy-sell agreement is a legal document that spells out how a company or its owners will redistribute ownership shares after one of the owners dies, becomes disabled, retires, or otherwise, leaves the company. It is a contractual covenant by each owner (or the company) to redeem the stake of any owner who departs. This eliminates many of the complications of having surviving spouses (or even the entire family) at the ownership table. The primary goal is to avoid conflicts and confusion by keeping ownership and control in the hands of those individuals who will be responsible for managing the operations of the business.

There are several advantages for the business in a buy-sell agreement.

  • A buy-sell agreement helps ensure the continuation of the business. The security provides peace of mind for the company’s owners, employees, suppliers and creditors.
  • A buy-sell agreement eliminates the problem of unintentional owners. Survivors may be unqualified to run the business. They can even interfere with the business.
  • The buy-sell agreement can provide a built-in guarantee for each owner and his or her estate will be treated equally regardless of who dies or leaves the business, and when.

There are also several advantages for surviving family members.

  • A buy-sell agreement can provide the family members with a ready market for selling the estate’s ownership interest. The survivors need the shares converted into liquid funds to provide an income to pay estate taxes and costs, or to meet other needs.
  • Through an arms length negotiation in making a buy-sell agreement, the owners determine the value or price of the shares to be purchased or redeemed from their estates. Negotiating a price after the fact takes away that balance and makes adversaries of the surviving owners and the decedent’s estate.

There are several ways to help prevent co-founder problems from occurring in the first place. They include&

  • Schedule Regular Valuations of the CompanyA formal appraisal can provide you with an objective, third-party assessment of the company’s worth. We recommend the valuation be completed annually depending on the company’s growth patterns and industry trends. These audits serve not only as a basis of company valuation but can also pinpoint potential problems and operations that need to be addressed before they become major problems.
  • Prepare A Shareholders’ or Partnership Agreement . Do it early in the development stages of the business. The agreement should address the decision-making procedures, restrictions on the transfer of stock, buyout provisions, and a lack of shareholder participation.
  • Understand that there are certain decisions that might require unanimous approval under the shareholders agreement . They could include: Changes to the company’s bylaws or article of incorporation; Increases or decreases in the company’s number of authorized shares of any class of stock; The pledge of any company assets (real estate, equipment, inventory, receivables) or the grant of a security interest or lien in those assets; Creating, amending, or funding a pension, profit-sharing or retirement plan; Signing any major contract or agreement; Making major changes in the nature or operations of the Company.
  • Buy Key-Person Insurance Policies that provide a source of capital for the buy-out of a co-founder’s shares in the event of a death, disability, or departure.

Develop Employment Agreements for each of the co-founders that are separate fro the shareholders’ or partnership agreements. The employment will provide for conditions of termination and should clearly set forth each of the co-founder’s duties and decision-making authority.

Selling To Your Employees
There are a number of ways for transferring ownership in your company to your employees. Many closely-held companies sell all or a portion of their business either to key or all their qualified employees through an employee stock ownership plan (ESOP). Others sell to select executives through one or more stock-option programs.

If structured properly, and ESOP can offer numerous tax advantages. It may also be a viable exit strategy when no family member is available who has the desire or ability to take over the company.

The ESOP Plan-Primary Issues

(Where Trust Agreement is Self-Contained)

  • Name Designation for the ESOP
  • Key Terms Definitions (e.g., participant, year of service, trustee)
  • Participation Eligibility (standards and requirements)
  • Employer Contributions (designated amount or formula)
  • Investment of Trust Assets (primarily in employer securities; plans for portfolio diversification; stock purchase price; rules for borrowing by the ESOP)
  • Procedures for the release of shares from encumbrances (formula as the ESOP obligation is paid down)
  • Voting Rights (Trustee rights; special matters that trigger employee voting rights)
  • Trustee (s) Duties (accounting, administrative, appraisal, asset management, record keeping, voting obligations, annual MyCompany Quarterly Report preparation, allocation and distribution of dividends)
  • Removal of trustee(s)
  • Effect of retirement disability, death, and employment severance
  • Put Option Terms (for closely held corporations)
  • Rights of First Refusal upon transfer
  • Vesting schedules

ESOP Stock-Purchase Agreement 

  • Background Information in the form of Recitals (the Whereas and clauses)
  • Securities Purchase terms
  • Closing Conditions
  • Seller Representations and Warranties
  • Buyer Representations and Warranties
  • Obligations prior to and following the closing
  • Termination
  • Opinion of counsel
  • Exhibits, attachments and schedules

ESOP Legal Considerations 

  • ESOPs need to meet certain minimum legal requirements as set by the IRS. The requirements include:
  • Establishing a trust in order to make contributions and administer the plan.
  • Structuring the ESOP so that it is not top heavy in the allocation of assets and income distribution. The plan should not favor officers and major shareholders, for example. At least 70% of all non-highly paid employees must be covered by the plan.
  • Invest primarily in the securities of the sponsoring employer. It is assumed at least 50% of the ESOP portfolio will be made up of your own securities.
  • The plan must adopt either a five year cliff vesting (employee must be fully vested after five years but not need to be vested at all prior to that) or the seven year “scheduled” vesting (20% fully vested after three years, increasing by 20% per year until fully vested after seven years).
  • Establishing voting requirements that conform to the IRS rules.
  • Complying with IRS rules related to the distribution of ESOP benefits or assets. The plan must provide full distribution within one year distribution of benefits following the retirement, disability or death of an employee.
  • Contributing based on a specific percentage of payroll (can be based on percentage of pay or percentage of profits). The plan must provide for a minimum contribution that is sufficient to pay any principal and interest due on a loan used to acquire your securities. Your contribution can be made in cash, securities or other property.
  • Providing “Adequate Consideration” in connection with the purchase of employee stock in an ESOP. This requires that some method for a “fair market” valuation of the shares be made. This will generally require an independent appraisal.

ESOP Alternatives
There are other ways to transfer or award ownership rights to key (not all) employees. These methods are typically used as incentives to retain key employees or bonuses for outstanding work. These include:

Stock Bonus Award Plans 
which pay key employees bonuses in company stock. They may also include cash to cover the recipient’s tax liability.

Stock Options 
which can be “qualified” and “non-qualified” under which employees are granted options to purchase stock in the future at a per-share price as of the day of the issuance of the option.

Selling Your Business-Assembling Your Team
If you’re considering a sale of your business you have many important tasks to consider. At the forefront is the selection of a tam of advisors that will not only help you prepare the company for sale, but also assist you in developing an “offering memorandum” that will summarize the key aspects of the company’s operations, products and services, personnel and financial performance.

In selecting your team look for the following qualities:

  • Knowledge of the company, its history and its founders.
  • An understanding of your goals, motivations and post-closing objectives.
  • Familiarity with trends in your industry.
  • A thorough knowledge of publishing operations.
  • Access to a network of professional buyers.
  • A track record and direct experience in mergers and acquisitions.
  • Expertise with the financial issues that prospective buyers will face.
  • Knowledge of tax and estate-planning issues that may affect you at closing and beyond.

Your team of advisors is most likely going to be made up of three parties.

Broker/Investment Banker 
. Your broker will counsel you on issues affecting valuation, price and deal structure, and assist you in the identification of prospective buyers. In many instances, multiple offers may have different structures and different consequences for you. Your broker will advise you on how to evaluate each offer.

Certified Public Accountant 
. A CPA will assist you in preparing the financial statements that the buyer is sure to request and advise you on the tax consequences of the proposed transaction. The CPA will assist you in estate planning and structuring a compensation package for you that maximizes the benefits of the proposed transaction.

Legal Counsel 
. Your attorney will be responsible for a wide range of duties including

assisting in the pre-sale corporate house keeping which can involve cleaning up corporate records, developing strategies for dealing with dissatisfied shareholders, and shoring up any third party contracts. Your attorney will work with your broker in providing advice on evaluating competing offers. He/she will assist you in the negotiations and preparation of confidentiality agreements, definitive purchase agreements and will work with you and the CPA on certain post-closing, estate and tax-planning matters.

What happened? Why did the deal fall apart so quickly?

There are many reasons why a deal may fall apart and before it really gets started. Here are a few of those common problems.

  • Seller did not prepare the necessary financial statements (plan to go back three years and forward as far into the present year as possible).
  • Seller could not provide a written account for certain revenues or expenditures.
  • Seller and its team are uncooperative during the due diligence process.
  • Buyer finds a “deal breaker” in the due diligence such as a large or unknown liability, frequent “advertising rate cutting”, cash being taken “under the table.”
  • Seller has seller’s remorse or cold feet and has second thoughts about selling, after tax considerations or compensation.
  • Seller suffers from “don’t call my baby ugly” syndrome. Seller gets defensive when the buyer finds flaw and focuses on these flaws during negotiations.
  • A strategic shift or set of extenuating circumstances occur, affecting the buyer’s acquisition strategy or criteria. New management team. Tightening of credit.
  • Seller is inflexible on price and valuation when the buyer discovers problems during due diligence.
  • Seller’s attorney moves outside the deal making box and insists on re-write after re-write, even if it’s for his own agenda.


What Can you do…

  • Avoid impatience or indecision. Don’t seem too anxious to sell or buyers will take advantage of you. At the same time, don’t let the offer sit too long or the deal may pass you by.
  • Let others know in a timely fashion. Employees, vendors, key customers may abandon you, out of fear of the unknown, if you tell them too early in the game. If you wait too long, employees may feel hurt and left out of the loop.
  • Eliminate any third-party transactions with family members. Especially when their relationship will not carry over to the new owner.
  • Purchase minority shareholder interests now so the new owner won’t have to deal with their demands after a sale.
  • Be ready to recast your financial statements. Buyers are interested in real earnings where privately owned companies tend to keep profits and thus taxes as low as possible. Be prepared to recast your numbers to reflect current market conditions. Adjust salaries and compensation to prevailing market rates. Eliminate one-time and non-recurring expenses such as personal expenses, country club dues, travel and entertainment. Recasting is a necessary tool for translating your company’s past into a valuable, saleable future. It allows buyers the ability to make meaningful comparisons with other investment considerations.
  • Convince the buyer your financial projections are credible. The price the buyer will pay depends on the quality of your profit-and-loss statements, balance sheet, cash flow and working-capital requirements for each year over a five-year planning period.
  • Pre-qualify your buyer. The buyer must be able to meet one of a number of pre-closing conditions such as availability of financing. You should take time to understand the buyer’s business plan, especially if you are holding a seller note.

Key Provisions of a Letter of Intent

The Letter of Intent, is in effect, a “road map” for the transaction setting forth a set of binding and non-binding terms. Most parties want the comfort of knowing that there is some type of written document in place before proceeding further and before incurring significant legal expenses.

A letter of intent should include certain binding terms which will not be subject to further negotiation. These are certain issues that at least one side will want to ensure are binding, regardless of whether the deal goes through.

  • Legal ability, authority , of the seller to consummate the transaction.
  • Protection of confidential information . You will want to ensure that all information provided in the initial presentation as well as during due diligence remains confidential.
  • Access to books and records . The buyer needs to know that you will cooperate fully in the due diligence process.
  • Breakup Fees . The buyer may want to include a clause to attempt to recoup some of its expenses if you decide to walk away from the deal (circumstances may change or you may receive a better offer). You may want a reciprocal clause in the event the buyer walks away or defaults on a preliminary obligation prior to closing, such as an inability to raise the capital required to close the deal.
  • No Shop/Standstill Provision . The buyer may want a period of exclusivity during which time you will not entertain any other offers. You will want to place an expiration or outside date in the event the buyer starts dragging its feet.
  • Good Faith Deposit . The issue here can be refundable or non-refundable and at what point and under what conditions. You will want to set a limit on due-diligence and the review period at which point the buyer forfeits all or a part of its deposit.
  • Employee Impact . The timing of telling the employees the company is for sale can be dicey. After the closing, it is imperative that top management of the acquiring company assure all the employees of the continuation of beneficial policies and welcome them into their larger organization, if that is the intent.
  • Definitive Documents . The LOI is often subject to definitive documents such as the formal purchase agreement, promissory note and security agreement, covenants, indemnification, reps and warranties and key conditions for closing.
  • Conditions for Closing . Both parties t5ypically specify a set of conditions under which they will not be bound to proceed with the transaction. These can include certain contingencies that might not be met or events that might occur after the letter of intent is signed.
  • Conduct of Business Prior to the Closing . The Buyer will want assurances that you will operate your business in the ordinary fashion. Assets can’t start disappearing. Collections aren’t all of a sudden expedited. Equipment must be maintained. New customer leads must be pursued. These are just a few.
  • Limitations on Publicity and Press Releases . The parties may want to place certain restrictions on the content and timing of any announcements. This could include non disclosing price and terms at any time.
  • Expenses and BrokersThe parties should decide who bears the expense for the brokerage fees, legal expenses, and other costs pertaining to the transaction.

Joint Ventures As An Exit Strategy

Joint ventures can be an excellent to leverage a company’s growth and expansion, rather than having the owner invest capital on his or her own. A joint venture is typically structured as a partnership or a newly-formed joint corporation where two or more parties are brought together to achieve a series of strategic and financial objectives. Business owners need to give serious consideration to the type of partner they desire, what resources each party will contribute, and what they are prepared to offer in return for that consideration.

Joint ventures tend to share a common set of factors. They include:

  • A complimentary and unified force or purpose that bonds the company together.
  • A management team committed at all levels to the success of the venture and free from personal agendas and any politics.
  • Genuine synergy where the sum of the whole will exceed all the parts.
  • A cooperative spirit among the partners that creates trust, resource sharing and chemistry.
  • A degree of flexibility to allow for changes in objectives as the marketplace changes.
  • An alignment of management styles and operational methods.
  • A high level of focus and commitment from all key parties.

There are also going to be issues that will need to be addressed before and during the joint-venture negotiations. They include:  

  • What types of tangible and intangible assets will be contributed to the joint venture by each party and how will they be valued? Who will have the ownership rights during the term of the joint venture and thereafter? Who will own property developed during the joint venture?
  • What covenants of non-disclosure or non-competition will be expected of each party during the term of the joint venture?
  • What timetables will be established? What performance quotas contemplated by the partiers will be incorporated in the agreement? What are the rights and remedies if one party can not meet those objectives?
  • How will issues of management and control be addressed in the agreement? What will be the respective voting rights of each party?
  • What are the procedures in the event of a major disagreement or deadlock? What is the fall-back plan?
  • What will be the exit strategy of each party and how will each party be accommodated?


Grimes, McGovern & Associates provides expert advice during all phases of a transaction. Contact us today for a confidential consultation: John McGovern, CEO, [email protected], (917) 881-6563.

Free Business Assessment

Find out what your business is worth

We offer an initial complimentary assessment for owners of media properties. Just click on the property type and complete the confidential form to get started. We’ll contact you within 24 hours to review.

Businesses for Sale

View our lists of publishing, global events, technology, digital media, and information services business currently for sale.

Free Publishing or Subscription, Events, Technology & Digital Media News

Stay abreast of the latest trends in the M&A industry. Read interesting case studies. Track deals throughout the country. Pick up hints from experts and much more.