A Comprehensive Guide

A Comprehensive Guide
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In this Readers’ Platform, your authors describe the steps you need to take before selling your elevator company.

by Andrew C. Glassman and Karen P. Wackerman

In recent years, we have seen significant consolidation in the elevator industry, and the purchasers are private equity groups or existing elevator companies that are protecting or expanding market share through strategic acquisitions. This provides significant opportunities for smaller, family-owned businesses looking to sell.

Negotiating and working toward selling your company can be intimidating for those not familiar with the mergers and acquisitions landscape. If you’re thinking about selling, it’s important to hire the right advisors to assist you in the structuring and documentation of the transaction. This will ensure the most efficient tax treatment of your proceeds of sale and minimize exposure to post-closing liabilities.

The “right advisors” are lawyers and accountants who are familiar with the elevator industry and understand the maintenance, repair, modernization and construction aspects and processes within it.

Preparing To Sell

Prior to any sale process, contracts need to be organized and easily accessible, including agreements with customers, vendors, suppliers or landlords. In addition, your accountant should have your books in sufficient order to present accurate financial statements to a buyer.

Have a purchase price in mind. Consider hiring a broker who is familiar with the industry and has been involved in elevator transactions. A broker can help determine your enterprise value, assemble a package of information to provide to potential sellers, work to maximize interest and price and assist through the closing.

Before providing any information to a potential buyer, make sure a nondisclosure agreement is in place. This will require the buyer to hold the information you provide in strict confidence.

Letter of Intent

When a buyer is found, the first step is to enter into a letter of intent (LoI). This letter will set forth the basic terms of the sale transaction. Most of its terms are not binding, but you should always have your lawyer review the LoI.

Even though not binding, the parties expect that the final agreement will follow the terms of the LoI. A lawyer who handles transactions such as these will know how to advise you on the terms.

Due Diligence and the Quality-of-Earnings Report

Once the LoI is signed, the buyer will begin the due-diligence process. Due diligence is the investigation of your business by the buyer. You will be asked to provide detailed financial and legal information, employee information, contracts and more.

The buyer will want to know everything about the business. This can be a very time-consuming process. If there is someone at your company who can be the point person for due-diligence requests, that will allow everyone else at the company to continue to run the business with minimal distraction.

Many buyers will require a quality-of-earnings report about your company. This report is typically prepared by a third-party accounting firm hired by the buyer. This firm will analyze your company’s financial situation to determine whether there are areas of concern and whether the offered purchase price can be supported by the reality of the company’s condition.

This will take time to finalize and involve additional due-diligence requests. Sometimes the due-diligence process or quality-of-earnings report will result in a change of structure of the transaction, or even a change in the price for the company.

Contracts and Schedules

Once the buyer is ready to move ahead, the parties will begin to negotiate the purchase agreement. The buyer’s lawyers traditionally create the first draft and other key documents. The transaction might involve a sale of the shares or assets of the company.

The sale contracts for these transactions will involve substantial negotiations. Some key areas will be:

Representations and warranties: The buyer will require the company and the owner(s) of the company to make a number of representations about the business regarding such things as tax liabilities, environmental compliance, employees, contractual obligations, etc. These must be accurate. Fraudulent or untrue representations can lead to liability for the sellers. These all must be reviewed carefully and modified to ensure that they correctly reflect the facts.

Indemnification: A seller is usually required to indemnify the buyer for certain losses. This means that certain actions or facts can trigger a requirement that the seller pay for the buyer’s legal costs and any damages assessed. Losses or claims that could result in this responsibility include a claim for taxes due from the seller for the period before closing, a lawsuit against the buyer caused by an activity that occurred before closing or a false representation in the purchase agreement that causes a loss to the buyer. Many aspects of indemnification provisions are typically the subject of negotiation. Occasionally, the buyer obtains representation and warranty insurance, which can involve a significant cost but limits the possible indemnification exposure of the seller.

Holdbacks and earnouts: Many purchase agreements include a provision that a portion of the purchase price will be held back by the buyer for some period of time. Payment of the holdback may be contingent on the company continuing to perform well after closing.

Post-closing adjustment: The final price paid at closing is usually adjusted to provide for payoff of company debt, payment to the broker, lawyers and other advisors to the seller and a portion of cash to remain with the company as working capital. A calculation of the post-closing adjustments may not be final until months later, when the parties can look back at income that came in and accounts payable as of the closing date. For this reason, the parties usually agree to do an adjustment two to three months after closing. As a result of the adjustment, the seller may owe a refund of some amount of the purchase price to the buyer or may receive a payment for working capital against a closing target amount.

Escrows: The purchase agreement will typically provide that some portion of the purchase price be held in escrow. One escrow is usually for the post-closing adjustment described above. This will be resolved in a few months, after the post-closing adjustment calculations are finalized. Another escrow is usually created to provide funds to cover indemnification claims. This indemnification escrow may be held for a year or two.

Schedules: The purchase agreement will require disclosure schedules, which generally relate to the representations and warranties made. The purpose of schedules is to list exceptions to representations and warranties, or to further explain or provide more details about them. It is important that schedules are done thoroughly and correctly with counsel so the seller is protected as much as possible from indemnification claims for breach of representation.


Sometimes the purchase agreement is signed and then the transaction closes a month or so later. More often, the purchase agreement is signed at the time the closing occurs. A number of tasks are required to prepare for closing, including obtaining consents from contract parties where needed, preparing resolutions of the seller’s board or members to authorize the transaction and other certifications to make the agreements legally binding on all parties.

Selling your elevator company is a complicated and time-consuming process. But with the right advisors, the transaction can run smoothly and bring great financial rewards.

The firm has represented elevator companies in mergers and acquisitions totaling more than US$150 million.

Andrew C. Glassman and Karen P. Wackerman

Andrew C. Glassman and Karen P. Wackerman

Andrew C. Glassman is co-chair of the Business Organizations and Finance Practice at the Connecticut law firm Pullman & Comley.

Karen J. Wackermanis a member of the Business and Finance practice at Pullman & Comley.

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