When entrepreneurs sell their business for stock of the purchaser (as opposed to engaging in an asset sale), they may tend to focus too much attention on one aspect of the deal: the selling of their business. But there is another crucial part of the this deal.
Entrepreneurs should realize they are also buying stock of the purchasing company. As with any situation where one buys stock, it’s important to sit down and do your investment homework. Even if the purchasing company is publicly-traded or a household name, it does not mean that entrepreneurs should just forgo the due diligence of researching the company’s stock from an investment standpoint.
In addition to conducting investment research, entrepreneurs should also consult with professionals in determining if the offered quantity of stock is a good deal. Chances are entrepreneurs are already engaging investment bankers, accountants, and consultants when selling their companies. Of course, it’s a good idea to consult these experts as to the investment potential of the stock received in the sale. Considering the fact that entrepreneurs may have to hold on to the stock for a long period of time as part of the deal, it’s even more critical to conduct investment research.
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