We accepted an LOI in late July. Since then it's been a revolving door of redlines on the purchase agreement. Buyer's counsel keeps sending new versions with small changes, and every time we think it's done, there's another round. I understand due diligence takes time, but this is just the contract. Is a long PA negotiation normal?
Deal Closing
Why getting the purchase agreement signed takes so long
How long has it been for us, about six weeks? That's not unusual for a lower middle market deal. The PA often drags on because the buyer's lender may also be reviewing it, or they are waiting on survey or environmental results that are conditions to closing.
We went through this with our hardware store sale. The buyer's attorney rewrote the indemnification section about four times. It came down to the escrow amount and how long it would be held. The buyer wanted 18 months, we wanted 6. Eventually settled at 12. That alone took three weeks.
I'd ask your attorney what the open items are.
One thing I wish I had known: the PA is also where all the due diligence findings get resolved. So even if it looks like just contract language, the buyer is probably folding in their concerns about customer concentration, lease assignment, or equipment condition. Those can turn into long discussions. How many employees are you transferring?
I'd also say if there's real estate involved, the PA can be delayed because the buyer is negotiating a separate lease or survey issues. That happened to us and adeed a month.
Six weeks still feels on the long side for a straight PA. Is the buyer an individual or a PE-backed group? That often changes the pace.
Sometimes the hold-up isn't even legal. If the buyer is using an SBA loan, the lender has its own requirements that must be written into the agreement. That can create extra back-and-forth. Have you confirmed their financing?
There is also the possibility that the buyer's attorney is inexperienced or slow. I'm not saying that's the case, but I've seen it. If your attorney says the redlines are minor, the cost of pushing back on the pace might be worth it.