When MSP/VAR owners think about selling their business, they usually imagine negotiating one primary document: the purchase agreement. Then the legal documents begin arriving.
A typical MSP/VAR transaction may involve eight to fifteen agreements, schedules, certificates, and closing documents. Some determine how much you receive, while others govern your employment, rollover equity, post-closing restrictions, and potential liability. The purchase agreement receives the most attention, but your complete deal is defined by the entire collection of documents, called the Definitive Agreements.
If you are wondering what all this legal work might cost, keep reading. I will share the range I have seen at the end.
The Letter of Intent
Most transactions begin with a Letter of Intent, or LOI, summarizing the purchase price, form of consideration, rollover equity, earnout, working capital requirements, employment expectations, and exclusivity period. Although most of the LOI is nonbinding, it becomes the framework for the definitive agreements.
Once the LOI is signed, the seller typically agrees to negotiate exclusively with one buyer and gives up much of the leverage created by a competitive process. Defining the major economic and structural terms in the LOI reduces the buyer’s ability to reinterpret them later.
This is why I spend so much time negotiating the LOI before my clients sign it. It is much easier to improve a term when several buyers are still competing than after one buyer has exclusivity.
The Purchase Agreement
The principal agreement may be an Asset Purchase Agreement, Stock Purchase Agreement, Membership Interest Purchase Agreement, or Merger Agreement. In an asset sale, the buyer purchases specified assets and assumes specified liabilities. In a stock or equity sale, the buyer acquires the legal entity, including its assets, contracts, employees, and liabilities, subject to the negotiated terms.
The purchase agreement addresses the cash paid at closing, rollover equity, escrow or holdbacks, net working capital, debt, transaction expenses, representations and warranties, indemnification, closing conditions, and post-closing adjustments. It determines how the purchase price is calculated and what happens if a problem arises after closing.
If the transaction includes an earnout, the agreement should define the performance target, measurement period, accounting methodology, reporting requirements, and dispute process. For an MSP/VAR, the earnout may be based on revenue, gross profit, EBITDA, recurring revenue, customer retention, or some combination of these measurements.
An earnout that appears achievable in the LOI can become much less certain once the calculation details and the buyer’s operating discretion are defined. Sellers need to understand whether the buyer can change pricing, allocate corporate expenses, combine the business with another entity, replace employees, or make other decisions that could affect the earnout.
The purchase agreement will also generally describe the principal terms of any seller note. A separate promissory note may be signed at closing to document the interest rate, payment schedule, maturity date, and default provisions. If the buyer has senior financing, the seller may also be required to subordinate the note to the buyer’s lender.
The Disclosure Schedules
Disclosure schedules are attached to the purchase agreement and identify exceptions to the seller’s representations and warranties. They may include customer contracts, employees, litigation, intellectual property, debt, related-party arrangements, software licenses, benefit plans, and contracts requiring consent.
For an MSP/VAR, the schedules may also address customer concentration, cybersecurity incidents, vendor licensing, subcontractors, service-level commitments, data privacy obligations, and change-of-control provisions. The schedules require substantial input from the seller and management team because the attorneys will not know every detail of the business.
A properly disclosed issue may be accepted by the buyer as part of the transaction, while an omitted issue could become the basis for a post-closing claim. Sellers should treat the schedules as an important risk-management document, not an administrative attachment to be completed at the last minute.
The Employment Agreement
If an owner remains with the company after closing, the buyer will usually require an employment agreement covering responsibilities, compensation, bonuses, benefits, reporting relationships, termination rights, confidentiality, and ownership of work product.
Pay close attention to what constitutes termination for cause, whether severance is available, and what happens to the earnout or rollover equity if employment ends. The employment agreement must be consistent with the purchase agreement, particularly when continued employment affects the seller’s right to receive additional consideration.
A post-closing salary is compensation for future work, not additional purchase price. It should not be included in enterprise value when offers are compared, although the salary, bonus opportunity, benefits, and expected time commitment remain important when evaluating the overall transaction.
The Consulting or Transition Services Agreement
An owner who is not accepting a long-term position may instead enter into a consulting or transition services agreement. This document defines the transition period, expected hours, responsibilities, compensation, availability, and termination rights. The seller may be expected to introduce the buyer to customers, assist with employee retention, transfer important relationships, or support the operational integration of the business.
The agreement may also cover temporary services that the seller or an affiliated company will continue providing after closing, such as accounting, payroll, billing, IT systems, benefits administration, office space, or other shared resources. It should clearly define the services, duration, fees, service standards, responsibility for third-party costs, and termination process.
Sellers should not assume that medical insurance, retirement benefits, paid time off, or other employee benefits will be provided during the transition period. Many buyers treat the seller as an independent contractor under this type of agreement and provide compensation without benefits. Ask about coverage early so you can negotiate the arrangement, price the cost into your consulting compensation, or secure alternative insurance without an unexpected gap.
The required commitment should also be specific because an open-ended obligation to provide “reasonable assistance” can become far more demanding than the seller expected.
The Restrictive Covenant Agreement
A restrictive covenant agreement generally covers noncompetition, nonsolicitation of employees and customers, confidentiality, and interference with business relationships. These provisions may appear in a separate agreement, the purchase agreement, the employment agreement, the rollover documents, or several of them.
Many buyers use the same restrictive covenant agreement for every acquisition and will tell the seller that the agreement is not amendable. Sellers are sometimes surprised by this because they assume the language can be substantially negotiated once the definitive documents arrive. If the buyer’s standard restrictions create a concern, the issue should be raised before signing the LOI, while the seller still has negotiating leverage.
Sellers need to understand how the restrictions work together, including their duration, geographic scope, definition of the restricted business, and starting date. A five-year restriction beginning at closing is very different from one that begins after three years of employment.
The definition of the restricted business is especially important for technology entrepreneurs. A restriction written broadly enough to cover all IT or technology services could prevent a seller from pursuing activities that do not actually compete with the MSP or VAR that was sold. Even when the buyer will not amend its standard agreement, the seller needs to understand exactly what is being accepted and how it may affect future plans.
The Escrow Agreement
The purchase agreement generally establishes the amount placed in escrow, the purpose of the funds, the length of the escrow period, and the conditions for release. A separate escrow agreement is then typically signed at closing because the independent escrow agent is also a party to the arrangement.
The escrow agreement handles the mechanics for depositing, holding, claiming, and releasing the funds. It may cover indemnification obligations, net working capital adjustments, or other post-closing claims. Sellers should confirm that its claim procedures and release provisions are consistent with the purchase agreement and understand exactly what allows the buyer to delay the release of their money.
If the buyer retains a portion of the purchase price as a holdback rather than placing it with an independent escrow agent, a separate escrow agreement may not be required.
The Rollover Agreement
When a seller reinvests part of the purchase price into the buyer’s platform, the purchase agreement will generally establish the amount or percentage being rolled over and the entity receiving the investment. A separate contribution, exchange, subscription, or rollover agreement is then typically signed at closing to complete the investment and document the equity the seller receives.
The rollover percentage does not tell the entire story. Sellers should understand the class of equity received, the valuation at which they are investing, and whether other investors hold securities with liquidation preferences or priority returns. The rollover agreement should also be consistent with the purchase agreement and reviewed together with the operating agreement governing the new equity.
For example, a seller may be told that 20% of the purchase price is being rolled into the buyer, but that does not necessarily mean the seller will participate equally with the private equity investor in a future sale. The rights attached to that equity are just as important as the number of units or percentage ownership received.
The Operating Agreement
The rollover agreement should always be reviewed together with the operating agreement of the entity receiving the investment. The operating agreement may be one of the least understood and most important documents in the transaction.
It governs voting and distribution rights, transfer restrictions, access to information, repurchase provisions, drag-along and tag-along rights, and the process for a future sale. It may also give the controlling investor broad authority to issue additional equity, incur debt, complete acquisitions, or change the capital structure.
A seller may own a stated percentage of the business while having very little control over distributions, dilution, or the timing of an exit. The operating agreement tells you what your rollover equity actually means.
Sellers should also understand what happens to their equity if employment ends. The company may have the right to repurchase some or all of it, and the price may depend on whether the seller is classified as a “good leaver” or “bad leaver.”
Tax and Reorganization Documents
Depending on the structure, the transaction may require a purchase-price allocation, Section 338(h)(10) election, or documents related to an F reorganization completed before closing. These decisions can determine how the transaction is treated for tax purposes and materially affect the seller’s net proceeds.
This is an area where an experienced transaction tax attorney can make a significant difference. The legal structure, tax treatment, and purchase-price allocation should be evaluated together, preferably before the LOI is signed and certainly before the definitive agreements are finalized. Waiting until closing to examine the tax consequences is far too late, particularly when a different structure or allocation could have produced a better after-tax result.
Whenever possible, I introduce my clients to experienced tax counsel who understands lower-middle-market M&A. The right advisor can model the alternatives, identify risks that general business counsel may not recognize, and work with the M&A attorney and CPA to ensure the documents reflect the intended tax treatment.
The Closing Documents
A final group of documents completes the transfer. These may include bills of sale, contract and intellectual property assignments, stock powers, officer resignations, board and shareholder consents, payoff letters, lien releases, third-party consents, landlord consents, and closing certificates.
The funds flow statement provides the final accounting of the purchase price, including debt repayment, transaction expenses, escrow deposits, and the amount delivered to each seller. Although many closing documents appear administrative, they determine whether ownership transfers cleanly and whether the seller receives the correct amount.
Learn What to Expect Before You Sell
The legal documents arrive toward the end of the sale process, but many of their most important terms are established much earlier through the LOI and initial negotiations with the buyer. Understanding those terms before accepting an offer can help you avoid surprises when the definitive agreements arrive.
In our Ready…Set…SELL course, we go into greater detail about the agreements involved in selling an MSP, the terms that require the closest attention, and the issues sellers should address before signing an LOI. The objective is not to replace your M&A attorney, but to help you become a better-informed seller before the legal bills begin accumulating.
One Transaction, Many Interconnected Agreements
Remember, not every MSP/VAR sale requires every document described above. The structure, rollover equity, seller financing, shared resources, tax elections, and owner’s post-closing role determine which agreements are necessary.
The important point is that no agreement should be reviewed alone. The purchase agreement may establish an earnout, while the employment agreement affects the seller’s ability to receive it. The rollover agreement may state how much equity the seller receives, while the operating agreement determines the rights and restrictions attached to it.
When selling your business, you are negotiating a collection of interconnected economic, legal, employment, and ownership relationships. The purchase price gets the attention, but the complete document package determines what you receive, what you risk, and what life looks like after closing.
What Will All of This Cost?
Legal fees vary considerably based on the size and complexity of the transaction, the experience of the legal team, the number of agreements involved, and how heavily the documents are negotiated. Across the transactions I have advised on, I have seen seller legal fees range from approximately $35,000 to $200,000.
The $200,000 transaction was exceptionally high and, in my opinion, well beyond what should have been necessary for that deal. Sellers should still budget for a meaningful legal expense and select an experienced M&A attorney who understands lower-middle-market technology transactions.
The attorney with the lowest hourly rate will not necessarily produce the lowest total bill, particularly if that attorney must learn M&A while working on your transaction. An experienced deal attorney should understand which provisions matter, which positions are reasonable for a transaction of your size, and which arguments are unlikely to improve the outcome.
Selling a business involves far more documentation than most owners expect. Knowing what is coming will help you manage the process, ask better questions, and keep both the transaction and the legal fees under control.
This article is intended for general educational purposes and does not constitute legal or tax advice. Sellers should consult qualified M&A counsel and tax advisors regarding their transaction.
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