Perhaps the most critical phase of selling a winery is the Due Diligence Phase.
You’ve agreed with the buyer on the key issues of the sale of the winery. We create a non-binding letter of intent (LOI) that details the price, down payment, financing, and summarizes the key business issues for the sale of the winery.
The LOI leads to the final purchase agreement, which establishes additional terms and conditions of the sale and a host of ancillary agreements, such as noncompetition, opinions of counsel, earnouts, securitization, employment agreements to name a few. Also included will be all the legal details such as a list of representations and warranties for the seller and buyer.
What happens next is that he buyer will want to certify certain facts regarding the condition of your winery.
What’s in a Purchase Agreement?
This purchase agreement will contain conditions which must be satisfied in order for you and the seller to complete the transaction. One of these conditions will be the completion of the “Due Diligence Review.”
The due diligence review exists to protect both you and the buyer. The goal of the investigation is for the buyer to fully understand the winery, its markets, customers, legal position, and any risks inherent in the transaction.
From your perspective, the due diligence process is your opportunity to disclose to the buyer all facts and information about your winery, relieving any anxiety he has about buying the winery.
We will spend more time on due diligence negotiations (what is acceptable and what we’ll do) than on the actual terms of the sale. That’s why we devote so much of our efforts to preparing you for the due diligence phase.
Due Diligence: Why Many Deals Fall Through
The due diligence process is the single biggest reason that the time to close a business sale transaction has increased four-fold in the last twenty years. Buyers – and bankers – are pouring over the details like never before, and any single “surprise” can cause a significant delay or ruin the deal altogether.
That’s why we spend so much time and energy collecting information, documenting issues, and bringing transparency to the entire sales process before we ever speak with a buyer.
The key to shortening the due diligence investigation (sometimes by that same factor of four) is to have everything ready and organized prior to the beginning of the transaction. We’re going to anticipate the items that the buyer will need, and have them ready for delivery within a moment’s notice.
We don’t want any surprises for the buyer, if at all possible. With each negative discovery, the buyer loses confidence in your winery, and will either demand a lower price, or if enough surprises have been uncovered, walk away entirely. A failed transaction means a considerable loss of time and professional fees paid to attorneys and accountants.
You have to remember that what’s familiar to you is new to the buyer. They’re already nervous about the purchase even before they see any documentation or detailed information. Our job is to reduce their anxiety by quickly providing all the information they need with full disclosure.
What’s Needed for Due Diligence?
As part of the due diligence process, we’ll ask you for a number of documents and information. This list might include (this is a partial list):
- Corporate information: organization charts; company charter and Bylaws; meeting minutes; stock books; office locations; and lists of your consultants, advisors, etc.
- Corporate transactions: stockholder list; copies of notes, loans, credit agreements, mortgages, deeds, etc.; shareholder agreements; stock purchase agreements
- Management & Employees: organization chart, including resumes; list of key employees; list of current officers; management reports; employee contracts and independent contractor agreements; employee handbook
- Operations: copies of contracts & agreements; copies of PR and marketing materials, brochures, etc.; copies of leases, sub-leases, etc.; standard forms of agreements; trademarks, copyrights, etc.; facilities leases and equipment leases; equipment list.
- Financials: copies of financial statements; letters issued by accountants; budget information; AR and AP aging reports
- Legal: lists of complaints, claims and any pending or past litigation; description of outstanding judgments, orders, etc.; pending actions or investigations.
- Miscellaneous: insurance policies; planning or strategy statements; any industry reports or industry analysis; copies of audit reports covering pension, retirement or employee benefit plans; real estate surveys, title reports or appraisals made in the last three years.
The most important thing to remember about the due diligence process is that it doesn’t have to be hard. By doing the necessary work up front in gathering and organizing everything we expect the buyer to need, we’ll smooth the process, quickly alleviate the buyer’s concerns, and pave the way to a successful transaction.
Contact us today about California Wineries for sale or selling your winery.
