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More on Buy-sell / Sellers beware – what sellers need to know about potential buyers

May 26, 2020
More on Buy-sell / Sellers beware – what sellers need to know about potential buyers
            When we talk about buy-sell deals we invariable focus on issues that the buyer needs to be mindful about and careful with.  Too often it is suggested that all the seller needs to worry about is getting paid at the closing; then its home free.
            Well that’s nice, but not always the case.  Sellers need a checklist too. 
            There are different kinds of potential buyers in all industries and the alarm industry is no exception.  Lots of businesses sell with some form of indemnity ad guarantee, but the alarm industry almost always includes indemnity and guarantee in the buy-sell transaction.  This means that in just about every deal there is a guarantee and an adjustment in purchase price that has to be calculated sometime after the closing.  A seller would be wise to engage in some diligence before getting in too deep with a potential buyer.
            The buyer a seller wants is fair.  There are certain norms in the alarm industry; custom and practices generally followed in these deals.  For example, if the multiple is in market range the buyer should be looking for a 12 month guarantee against attrition. Less would be naïve and more would be unfair.  Another example, a buyer should be looking to exclude accounts in arrears for more than 90 days.  A buyer who wants to shorten it to 30 days is unreasonable.
            Will the buyer require financing?  This could be a problem because no matter how reasonable the buyer may be, it’s the bank that’s pulling the strings and who will be calling the shots when the buy-sell agreement is being drafted.  Good bet the banker is going to be less accommodating then the buyer; maybe unfair.  Best bet is no bank involvement, but that’s not likely in a larger deal.  Knowing who the bank is, what deals it has funded and how smoothly those deals went is information a seller will want to know.
            Often overlooked is the buyer’s reputation in the industry and even more important, the buyer’s history with buy-sell deals.  How many deals has this buyer looked at?  How many deals has the buyer closed?  How many times has the buyer been involved in a post-closing dispute, and how many litigations or arbitrations has the buyer been involved with.  A seller wants a buyer well versed in the alarm industry, not in litigation.  Most sellers have retired by the time the dispute arises, typically a year after the closing, and sellers are not equipped to stand up to the buyer.  

            I’d like to do a webinar on this topic.   Anyone want to participate? Let me know.
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301