How a Business Acquisition Works: A Buyer’s Guide

Acquiring a business is one of the largest transactions most buyers will ever undertake, and the mistakes are expensive because they surface late, after closing, when the seller has been paid and the problems are yours. The process that protects you has a well-worn shape. Here is how it runs, stage by stage, and where deals in the current market actually go wrong.

The letter of intent (LOI)

Serious deals start with a letter of intent, a mostly non-binding document setting out price, structure, timeline, and exclusivity. Mostly non-binding deserves emphasis in both directions. The business terms are not enforceable, but the LOI anchors every negotiation that follows, and terms conceded casually at this stage are rarely recovered in the purchase agreement. A few provisions, chiefly exclusivity and confidentiality, are binding and should be treated with care. Negotiate the LOI as if it were the deal, because economically it is.

Due diligence when buying a business

Diligence is where the buyer verifies what is actually being purchased: financial records, material contracts, intellectual property ownership, employee and contractor arrangements, litigation history, licenses, and regulatory compliance. On any deal of meaningful size, a quality of earnings review has become standard. That is an accountant's independent look at whether the reported earnings are real and recurring, and it is the single best defense against overpaying for adjusted numbers.

Modern diligence has grown two newer workstreams worth naming. Data and cybersecurity review matters because a patchwork of state privacy laws now covers a large share of American consumers, and a target's sloppy data practices become the buyer's liability and remediation cost. And where the target's value rests on software or content, diligence now asks how it was built, including whether AI-generated work product and the licenses behind it leave the company actually owning what it sells. AI tools have also changed diligence itself. First-pass contract review that once consumed associate weeks now happens in days, so there is less excuse than ever for skipping a full contract review on a mid-sized deal.

Asset purchase or stock purchase

The most consequential structural choice is whether you buy the company's assets or its equity. An asset purchase lets you select what you take and, in general, leave undisclosed liabilities behind, which makes it the buyer-friendly default for small and mid-market deals. A stock (or membership interest) purchase is cleaner operationally, since contracts, licenses, and employees stay in place, but you acquire the entity's entire history, known and unknown. Tax treatment also differs sharply between the two, and buyer and seller interests usually point in opposite directions, so the structure gets negotiated rather than assumed.

The purchase agreement

The definitive agreement converts the handshake into an enforceable allocation of risk. Its machinery includes representations and warranties (the seller's factual promises about the business), indemnification (who pays, and up to how much, when a promise proves false), closing conditions, and restrictive covenants keeping the seller from competing or poaching.

Two features of the current market deserve a buyer's attention. Representations and warranties insurance, once a large-deal luxury, is now routinely available in the middle market, and it changes indemnity negotiations fundamentally because the insurer rather than the seller's escrow backstops many breaches. Earnouts, meaning price tied to the business's performance after closing, have become a standard bridge when buyers and sellers disagree on value. They resolve the price conversation and then generate more post-closing disputes than any other provision, so the measurement terms and the buyer's operating covenants need to be drafted with litigation in mind.

Closing the deal (and a wire-fraud warning)

Closing itself is largely mechanical. Funds flow, documents release, and ownership transfers. The unglamorous risk is wire fraud. Fraudsters actively target transaction closings with spoofed emails carrying altered wire instructions, and money wired to a fraudulent account is usually gone. Verify wire instructions by phone, through a known number, every time, with no exceptions, however senior the apparent sender.

After closing: keeping the value you bought

Value is captured or lost in the transition, when key employees decide whether to stay and customers decide whether to stick around. Transition services agreements, thoughtful communication plans, and realistic integration timelines are not legal niceties. They are how the thing you paid for stays worth it.

At Roitman Legal we represent buyers from LOI through post-closing integration: structuring the deal, running diligence, negotiating the definitive agreements, and managing the close. If you are evaluating an acquisition, involve counsel before the LOI is signed rather than after. That is when the leverage exists.