How to Draft an Acquisition Agreement

This article was co-authored by Clinton M. Sandvick, JD, PhD. Clinton M. Sandvick worked as a civil litigator in California for over 7 years. He received his JD from the University of Wisconsin-Madison in 1998 and his PhD in American History from the University of Oregon in 2013.

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An acquisition agreement is a contract that governs the purchase of one company by another or the merger of two companies. The acquisition agreement is made up of multiple documents including the purchase agreement as well as all documents that are needed to finalize the transfer of the business. If you or your company has decided to acquire another business, it is very important that you or your attorney draft a comprehensive and legally sound document to protect your interests.

Part 1 of 3:

Negotiating an Acquisition

Retain an attorney. Purchasing or merging with another business is very complicated. You should consider hiring an experienced business attorney to help you at every step of the process. An attorney can negotiate the terms of the deal, draft all of the legal documents including the purchase agreement, and finalize the deal. If you are not interested in having an attorney for all parts of the acquisition process, you should at least consider hiring an attorney to review any materials that you draft. [1] X Research source #*You can locate local attorneys and check to see if any grievances have been filed against those attorneys through state bar associations.

Reaching out directly to the business owner and asking for a one-on-one meeting to discuss mutual opportunities. This allows a potential buyer and seller to see whether there is mutual interest and the ability to work together.
A joint venture is considered by some to be a better way to initiate contact with a potential seller. In this case, the potential buyer enters into an agreement(s) with potential business acquisitions to have a close look at the potential business and how it operates before acquiring it. It also allows a potential seller to get a chance to see what it would be like to work with/for the acquiring company.
A potential buyer can also make contract through a third-party who contacts business owners to see whether they would be willing to sell. This method allows a potential buyer to keep his or her interest in the acquisition of certain types of business hidden while making inquiries. [2] X Research source

You can view a sample NDA related to an acquisition at: http://www.allbusiness.com/asset/2015/02/15.4-Confidentiality-Agreement-in-Connection-with-Merger-or-Acquistion.pdf.

Draft a letter of intent. A letter of intent is a non-binding agreement between both parties that outlines their intent to enter into an agreement, sets forth the exchange of information, and establishes a purchase price for the business. These letters may also include a period of time during which the seller is restricted from attempting to sell the business to someone else. [4] X Research source

The reasons the company is selling and whether there were any previous attempts to sell the business.
The complexity of the business and evaluate how difficult it would be to take over the company.
The organizational structure of the company, including any regional offices, subsidiaries and employee reporting.
Employees, including identifying key employees and charting employee compensation.
Lawsuits, including employee injury and discrimination claims as well as lawsuits originating outside of the business.
All employee benefits including insurance, pensions plans, vacation and sick time.
Financial records, including financial statements, cash flow analyses, assets, liabilities, and expenses.
Business assets, including real estate and intellectual property.
Business structure, including shareholder agreements and/or equity partner agreements. [5] X Research source
For an extensive acquisition due diligence checklist visit: http://www.accountingtools.com/due-diligence-checklist.
Major contracts and leases to identify any potential problem.