To Sell, or Not to Sell

Valuations based on EBITDA multiples have remained robust in many industry sectors. With uncertainty around the corner, boards might ask whether it is the right time to sell. The sell or hold question can move front and center following a strategy review, a stockholder inquiry, an unsolicited bid from a potential acquirer or the sale of a competitor.

Most directors understand that Revlon duties apply when a company has been put on the auction block. Directors may feel less confident about their duties in deciding on the timing of a sale—or whether to sell at all. Will they be second guessed, or even personally liable, if they miss a historic valuation window?

This article will review the board’s duties in deciding whether to sell or hold, and the legal standards by which the board’s conduct will be judged. Delaware corporate law, under which directors owe duties of care and loyalty to the corporation and its stockholders, is assumed to apply.