HALO Academy Two Minute Financial Drills: Closing
๐๐๐๐ข ๐๐ฐ๐ฎ๐ฑ๐ฒ๐บ๐ ๐ง๐๐ผ ๐ ๐ถ๐ป๐๐๐ฒ ๐๐ถ๐ป๐ฎ๐ป๐ฐ๐ถ๐ฎ๐น ๐๐ฟ๐ถ๐น๐น๐: ๐๐น๐ผ๐๐ถ๐ป๐ด
Navigating the Final Steps in Asset Sales—What Happens After You Sign?
If you've been following along, Pete Moore has breaking down what's happening behind the scenes as five groups compete to acquire 20 health clubs.
In our latest 2 Minute Financial Drill, he goes behind the scenes of what happens after signing an APA ("Asset Purchase Agreement.") Here's what's happening once the ink dries:
After a series of back-and-forth's (think maybe 3-5 rounds of drafts between lawyers!), both the buyer and seller are now locked into detailed representations ("reps") and warranties. Every piece of information—disclosures about competitors, potential lawsuits, or governmental issues—must be fully transparent.
Also? These reps and warranties don't just disappear right after closing; they can survive for years, or even indefinitely if it involves major issues like ownership or taxes.
But we're (not even close) to finished yet! ๐๐ป๐๐ฒ๐ฟ: ๐ง๐ต๐ฒ ๐๐ฒ๐ฎ๐๐ฒ ๐๐๐๐ถ๐ด๐ป๐บ๐ฒ๐ป๐ ๐ฃ๐ฟ๐ผ๐ฐ๐ฒ๐๐!
If you're selling a group of clubs (and don't own the real estate), every lease needs to be transferred—with landlord consent. This means approaching every landlord individually to get their sign-off on the new buyer. If the seller is still guaranteeing any lease, efforts are made to release or indemnify them, so later liabilities don't haunt them after the sale is done.
We go into much more detail in the HALO Academy. Registration open now for our September cohort: https://www.thehaloacademy.com
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This is Pete Moore. We are officially signed under the asset purchase
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agreement which took probably five drafts back and
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forth between our lawyers and the buyer's lawyers.
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We are now at a place where the seller knows exactly what they
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represent and warranted as what is truthful.
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And all the information that we provided in the drop boxes are
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all effectively guaranteed by the buyer
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and that all their sellers knowledge if they know that a competitor is
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coming across the street or if they know that there's some issue
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government wise or if there's a potential lawsuit. Everything
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that we know has been disclosed to the buyer and that we've answered all their
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questions. Now the reps and warranties might survive
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five years, might survive two years, might survive 10.
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There's no survival period shorter
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than into perpetuity. If you lie about the ownership of the
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company or taxes that could be come back at a
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seller at any time. Now we're going from a signed purchase
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agreement into what we call lease assignment process.
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So if I'm a seller and I have 20 leases on
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20 health clubs, I don't own any of the real estate.
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Okay? In every lease agreement there is a consent and
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assignment clause. That means we have to go back to all
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the different 20 landlords and get them to say I'm
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fine and okay with Ganlon Group and their assets
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and their portfolio company buying these clubs and
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now they will be the ones paying the rent instead of me as the seller.
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If the seller is on a guarantee on any of the leases, we're going
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to try and get that seller off or what we would be called
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indemnified or basically covered by the buyer. If
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for any reason the company is unable to pay the lease, it
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doesn't go back to the seller. So now we're on lease assignment and we're
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almost done. All right, let's do one more.