The M&A Deal Protection Guide
Legal Steps Every Buyer and Seller Should Know Before Closing
Buying or selling a business is a high-stakes transaction. Sellers want to walk away with the strongest deal possible; buyers want to acquire growth without hidden risks. Too often, mistakes in contracts, tax structuring, or post-closing obligations leave one side with less than they expected.
This guide outlines the critical legal steps buyers and sellers must take to protect value and avoid costly surprises.
INSIDE, YOU’LL LEARN HOW TO:
———— Prepare before signing an LOI ————
———— Negotiate asset deal terms with clarity ————
———— Handle diligence in stock sales ————
———— Plan for post-closing obligations ————
———— Choose the right escrow arrangement ————
———— Work with independent tax advisors ————
What to Do Before Signing an LOI (Beyond the LOI Itself)
Whether you are buying or selling, the Letter of Intent sets the tone for the deal. Rushing into one without preparation is a common and costly mistake.
For sellers: identify liabilities, review contracts for change-of-control issues, and consult with your tax and financial advisors before negotiation. An unprepared seller loses leverage.
For buyers: review corporate records, regulatory obligations, and financing strategy before signing. Entering into an LOI blind ties you to terms that are hard to renegotiate.
Lesson: the LOI is not “just a starting point.” It defines leverage and shapes the entire deal.
Key Considerations for LOI Negotiations (Especially for Asset Acquisitions)
In asset acquisitions, the LOI isn’t just about price — it’s about what is included, what is excluded, and who bears future risks.
+ Purchase price allocation: impacts tax treatment for both sides.
+ Working capital adjustments: can silently reduce the seller’s payout.
+ Excluded liabilities: vague language leaves sellers paying for debts that should have been carved out, or buyers absorbing risks they didn’t expect.
Buyers need clarity; sellers need protection. The LOI is where those interests collide.
Due Diligence for Stock Sales
In stock sales, buyers step into the shoes of the business — taking assets, obligations, and history. That means diligence must be thorough.
+ Employment agreements and benefits: enforceability, hidden obligations, retention risks.
+ Intellectual property: verifying ownership of trademarks, software, and proprietary assets.
+ Litigation and compliance: active and past disputes, regulatory filings, tax audits.
For sellers: anticipate these requests and prepare documentation early.
For buyers: pressure test representations and warranties before signing.
Stock sales succeed only when diligence uncovers no surprises.
Pre-Closing Prep for Post-Closing Items
Closing day is not the finish line — it is the handoff. The weeks and months after closing often determine whether the deal works in practice.
Common pre-closing prep items:
+ Transition services agreements: defining seller involvement after closing.
+ Employee retention strategies: preventing value from walking out the door.
+ Customer and vendor communication plans: structured messaging to maintain continuity.
Both sides need to anticipate and negotiate these items before closing, not after.
Post-Closing Checklist
The aftermath of a deal often generates avoidable disputes because the parties fail to execute on their post-closing obligations.
A strong post-closing checklist should include:
+ Government filings and regulatory consents
+ Assignment and renewal of key contracts
+ Employee benefits and payroll continuity
+ Notifications to lenders, landlords, and tax authorities
Deals are won or lost in the details. If this list isn’t managed, both buyer and seller suffer.
Choosing an Escrow Agent
Escrow protects both sides — but only if it is structured correctly. Poor escrow terms can lock up funds unnecessarily or fail to safeguard against real risks.
+ Neutrality matters. Do not blindly accept the other side’s “preferred” agent.
+ Release conditions must be specific. Vague triggers keep money frozen.
+ Fee structures and jurisdiction should be negotiated. Small terms have large effects when disputes arise.
Whether buying or selling, escrow must be designed to protect your position without adding avoidable friction.
Why You Need Your Own Tax Advisor
Every M&A deal has tax consequences. Relying solely on the other side’s tax professionals is a mistake — their interests are not aligned with yours.
+ For sellers: structure determines whether proceeds are taxed as capital gains or ordinary income — a difference of 20–40%.
+ For buyers: allocation of purchase price affects depreciation and long-term tax savings.
A dedicated tax advisor ensures the economics of the deal aren’t lost to poor structuring. In many cases, the right tax strategy is worth millions.
Case Study: Securing Real Value in a Deal
A mid-sized company approached Horton Legal with a buyer’s $4M offer. The seller was prepared to accept. Instead, we focused on legal strategies that shifted the outcome:
+ Tightened LOI terms to set favorable conditions for negotiations
+ Negotiated stronger protections in the purchase agreement
+ Addressed potential liabilities and clarified post-closing obligations
+ Pressured buyers with competing interest to strengthen leverage
Outcome: the final sale closed at $26M — more than six times the original offer.
This case demonstrates how legal structuring, liability control, and strategic negotiation can dramatically change deal outcomes.
Every deal carries risks. Buyers want to avoid inheriting liabilities. Sellers want to protect their price and keep as much as possible after taxes. Both sides need clarity, structure, and foresight to ensure the transaction delivers real value.
Handled properly, legal strategy keeps the deal safe, fair, and successful.
Key points to remember:
+ Prepare thoroughly before signing an LOI — it defines leverage.
+ In asset deals, negotiate purchase price allocation, working capital, and excluded liabilities carefully.
+ Stock deals demand rigorous due diligence — employment, IP, litigation, and compliance are critical.
+ Anticipate post-closing items before closing day to prevent disputes.
+ Use escrow that protects both sides, with clear release conditions.
+ Always engage your own tax advisor — structure and allocation affect real dollars.
+ Strong legal strategy and negotiation can transform an offer into a far better outcome.