Divesting a business is never easy. While corporate development plays a huge role in the preparation, the legal team also plays a crucial role. In this article, Andrew Gratz, Chief Privacy Officer, and Associate General Counsel at LyondellBasell, walks through what a divestiture looks like from a legal perspective.
"Whether you like it or not, lawyers influence everything. Any strategic action a company will take has legal consequences, so it is best to have lawyers in the room when the strategy is being developed." - Andrew Gratz
To ensure a successful divestiture, the legal team needs to understand the reason behind the sale. According to Andrew, the legal team can't develop the “how” if they don’t understand the “why”. Also, the legal team needs to know how you intend to sell the business. Are you doing an auction process? Are you doing a bilateral deal? All of these matter because there will be varying legal ramifications.
Lawyers must have a good grasp of what is for sale. Depending on the nature of the transaction, there different risks and issues that may arise. Here are some common issues to consider when selling a business.
Similar to selling a house, you need to present the documents and data room in an organized format. To give a good impression, files must be complete, well managed, and have the appropriate language. Examples of files that need to be thoroughly checked include the teaser, confidential information memorandum, and purchase agreement.
According to Andrew, when it comes to a carve-out, the least of his concerns is the purchase agreement. Lawyers bring the most value through ancillary agreements where they can use their expertise and experience. Make sure you involve them as soon as possible.
"As the seller, you want to provide the fewest services possible, for the short amount of time possible in a TSA." - Andrew Gratz
If a transition service agreement is unavoidable, make sure there is compensation for it. If you dedicate a tremendous amount of resources, licenses, and people to manage the TSA for free you will lose money.
However, if you have a buyer that will offer you a clean exit for a slightly lower price, you should highly consider the offer.