M&A Blog
M&A Nuggets
M&A Nugget: Smart Moves During an M&A Slowdown - Strategic Preparation for Business Owners
Although there are always segments of the M&A market that are busy, most advisors will tell you that there is a current slowdown in overall M&A activity. This gives sellers an opportune time to conduct “spring cleaning.” Just like the stock market, the M&A market ebbs and flows, and it is important that owners be prepared for the next M&A market flow. Here are a few steps you can take to be ready: Update Corporate Records – Make sure that ownership certificates reflect the current ownership of your business and that all required corporate documents exist. Consider implementing incentive plans to retain your key employees, which will help to drive the growth, value, and ultimate purchase price for your business. Review the classification of your business’s personnel between W-2 employees and independent contractors - always a hot-button issue with acquirers. Conduct an audit to ensure that your immigration documentation for employees is current and in compliance with the law. Review or have your CPA review the company’s compliance with sales tax rules to make sure that the company is filing sales tax returns and paying sales tax, where and when required. All of the above items, and many more, will be thoroughly investigated by any acquirer. By conducting spring cleaning now and arranging your business house to be in order, you will be steps ahead when the tempo of the M&A market picks up.
June 30, 2025
Business
Effectively Representing Entrepreneurs: Bridging the Gap Between Business and Law
Entrepreneurs represent a unique type of client for attorneys. They thrive on uncertainty, they move fast, and they see opportunities where many others see red flags. They often have a much higher risk tolerance, and they are visionaries who challenge the status quo, not only in the markets they disrupt, but also in the regulatory or legal frameworks that often cannot keep pace with innovation. For attorneys representing entrepreneurs, there can be a clear challenge as they struggle to bridge the gap between the law and the entrepreneur’s fast-moving world. Therefore, it is critical to remember that when working with entrepreneurs, the law is not the only seat at the table. Their legal counsel is just one of many voices in the room involved in making strategic decisions. Law, finance, insurance, product development, and growth marketing must all come together to make sound decisions and to create a path forward. Attorneys must understand this broader context and be able to operate within it. When advising entrepreneurs, it's not enough to say no or shut down ideas due to high risk levels. It is better to determine their tolerance for risk and develop a structure to make it work. Entrepreneurs don’t want a gatekeeper. They want legal counsel who can help them navigate the complexities of their world. Innovation Often Outpaces Regulation We have all seen that innovation frequently moves faster than the law. Just look at the incredible developments in AI over the past few years and the regulatory efforts that have significantly lagged the innovation in this space. We now see a patchwork of regulations across this country and on an international level. This highlights the point that an entrepreneur doesn’t always have the luxury of waiting for full regulatory clarity. They need legal counsel who can advise them on the current regulatory environment and help them anticipate and prepare for what the future might hold. Manage Risk, Don’t Eliminate It Entrepreneurial lawyering does not mean ignoring risk. It means identifying and managing risk, as well as helping the client embrace it in a calculated way. The idea isn’t to stifle innovation or kill ideas, but instead to make the big ideas viable within some parameters. There must be a mindset of managing risk smartly as opposed to avoiding risk at all costs. When attorneys can help entrepreneurs to see the legal implications of their decisions without shutting them down, they create the kind of trust that defines a successful attorney-client relationship. The Importance of Understanding Business Entrepreneurs want legal counsel who speaks their language and understands the many moving parts that make up their world. To have a seat at the entrepreneur’s table, it is essential to fully understand how legal decisions will impact their business objectives. This requires attorneys to evolve beyond just providing traditional legal advice and to move from the singular role of legal advisor to the multifaceted role of business advisor, risk strategist, and trusted partner throughout the entrepreneurial journey. There will always be a gap that exists between business and the law, as legal frameworks and regulations serve as roadblocks to the next big ideas coming out of startups. But great attorneys build bridges, not walls. They don’t ignore the law, but instead help entrepreneurs to navigate it with clarity, creativity, and awareness.
June 2, 2025
Mergers and Acquisitions
Younger Generations Looking to Sell: What Millennial and Gen X Business Owners Need to Know
I recently wrote about the “Gray Tsunami” and the mass numbers of Baby Boomers that will be retiring over the next few years. For Boomers, there are specific considerations that must be addressed if sale is their exit option. Similarly, there are age-oriented issues facing younger generations looking to sell their businesses. There are approximately 138 million Americans across the Millennial and Gen X generations as of the latest data. Millennials, born between 1981 and 1996, make up about 72.7 million Americans, and Gen X, born between 1965 and 1980, is not far behind at about 65.35 million. Data also shows that Millennials own 13% of small businesses, with Gen X owning 47%. As such, these two massive generations combined account for the majority of small business owners in the US. When looking at a transition at a much younger age, there are different issues to consider as opposed to those who sell later in life. Timing and Valuation A business owned by someone in their 30’s, 40’s, or 50’s will typically have a shorter life span than one owned by a Boomer. This means there might not be decades of financial performance to demonstrate stability to a buyer, and the business could be at a stage of high growth potential, but not maturity. While this is not always the case, buyers tend to prefer a strong history of stable cash flow and profitability. This is why timing is a critical factor. Younger generations should strategically plan their exit so that the timing works in their favor to maximize their valuation. Shifting market conditions and economic trends can impact valuations as well, so it is important to consider a variety of factors when determining the right timing that results in the greatest valuation. The retiring Boomer generation is also a major consideration in terms of timing. If a flood of Boomers are looking for buyers simultaneously, younger generations might look to delay their sales to reduce the competition for buyers. Conversely, this also presents a significant and unique opportunity to younger generations looking to buy. Planning for the Future Individuals in the Millennial or Gen X generations will likely have a great deal of life in front of them, so planning for the future is essential if they are going to sell their business. Consider the short and long-term goals of the sale. Do you want to be acquired to start a new business? Is your goal to retire early? Are you looking at other employment opportunities? Do you want to only sell a portion of the business to a strategic partner such as a PE firm, as opposed to a full exit? These are all important points to consider as they will help you to determine what kind of valuation will be required to meet your specific needs and how you need to structure the sale. These are different for everyone based on life goals, thus, looking at your future and what you need to make it happen is key. It is also important to work closely with your legal advisor to ensure the transaction is structured in a way to allow for the necessary financial and legal protections Selling to Start Again If your goal is to sell the company and start a new venture, then there are some very specific points that will need to be negotiated with the seller. For example, what kind of agreements does the buyer require? A non-compete agreement could prevent you from starting a similar business within a specific region or time frame, and a non-solicitation clause could restrict the hiring of former employees or soliciting clients. These are points that need to be front of mind if you are considering starting a similar business down the road, as they could seriously impact its success. Company Culture vs. Financial Gain Younger generations also tend to place a greater sense of value on company culture, employee retention, and customer loyalty. So, finding the buyer that will carry on the established company values and culture can play a larger role. Younger sellers must work to find the balance between carrying on the long-term vision for the company and maximizing the financial return from the sale. Selling your business at any age requires careful planning and preparation. But when selling earlier in life, there are complexities that exist due to the longer road that lies ahead. Having a clear long-term vision and understanding how the acquisition fits into your plan will help you to maximize the benefits and carry out your goals.
May 2, 2025
Mergers and Acquisitions
Every M&A Transaction Is a “Big Deal”
M&A over the last number of years has been “hot.” Despite slower-than-expected first quarter, we are anticipating another strong year for sell-side M&A. With stories of success, however, certain assumptions tend to follow. Business owners looking to buy or sell sometimes mistakenly believe Offit Kurman is too busy or expensive for their needs. A common objection typically sounds like: “My deal is probably too small for you.” I’ve been hearing from sellers with businesses worth $5 million or less lately. In any other context, it would be a bizarre thing to say. One million dollars is not “small.” For most of us, a check of that size would be a life-changing amount of money. However, the marketplace has a way of skewing perceptions. M&A advisors and investment bankers typically chase transactions in the eight and nine-figure range, and many refuse to go after anything worth less than $10 million. The same holds true for many law firms. As a result, owners of closely held businesses become jaded and self-select out of the market. Other business owners, meanwhile, believe the opposite: that our firm is exclusively focused on small or mid-market transactions, and we do not have the capability to handle large, multimillion-dollar deals. As someone who has seen hundreds of transactions through to completion, I can provide some perspective: every M&A transaction is a big deal. Especially if you’re a seller, we’re talking about what may be the single largest transaction in your lifetime. Moreover, at Offit Kurman, we are enterprise value agnostic. That means we are happy to provide representation and guidance to any business owner regardless of the potential size of a transaction. Here are a few more reasons why deal size should not limit your ability to work with a qualified M&A attorney: The size of the deal has no bearing on your legal fees. At Offit Kurman, we do deals at $1 million, $10 million, $100 million, and above (and below) because the purchase price has no financial impact on our billing structure. Our job is to zealously represent and protect every client. In contrast to investment bankers, who usually get paid a percentage of the deal, our attorneys bill at an hourly rate. That means time — not size — is what counts. Factors such as the condition of your business and the complexity of the deal determine how much work your attorneys must do. M&A demand is market-driven. Buyers and sellers control the M&A market. You could have a massive, multinational business — with advisors lining up to help you sell it — but if there’s no demand for the company, there’s no deal. Similarly, a small, well-positioned firm could be a hot commodity in its niche. A five-person government security contractor, for instance, might be able to leverage its relationships and intellectual property to create competition among multiple potential buyers. You don’t need to pay big money for expertise. Be wary of working with advisors who only take on enterprise M&A — there’s a good chance they’re overcharging and under-experienced. At Offit Kurman, we have successfully negotiated complex deals of various sizes, industries, and geographies. We bring this experience to every client matter. We can scale our representation to the size and character of the business, as well as the personality of the owner, at a price point and workflow that meets the client’s needs. Ultimately, M&A transaction size is relative to one’s frame of mind. As a seller, you may not be able to quickly change the value of your business, but you can control the value of the experience in shaping your future. Instead of worrying about how your purchase price compares to another business, focus on your own goals. Retiring wealthy? Now that’s a big deal.
April 17, 2025
Mergers and Acquisitions
Tariffs and DOGE: The Impact on Mergers and Acquisitions in 2025
While many felt that 2025 might finally be the year of the rebound for mergers and acquisitions (M&A), the M&A landscape has hit turbulence as we take off into the new year. In just the first few months, the new administration has imposed 25% tariffs on Mexican and Canadian imports, with a limit of 10% on Canadian energy, as well as a 20% tariff on products from China. These countries have already announced retaliatory efforts, including 15% tariffs from China on a variety of US farm exports and an announcement from Canada that they would “plaster tariffs” on more than $100 billion of American products over 21 days. There has also been a flurry of activity from the Department of Government Efficiency (DOGE), cutting funding and staffing across a variety of government agencies. According to a recent article in M&A Alerts, “The department’s influence could significantly impact industries reliant on government contracts, regulatory approvals, and cross-border investments, raising critical concerns for dealmakers in this evolving economic and political environment.” These efforts also raise regulatory concerns and are already running into legal challenges. Needless to say, the combination of tariffs and actions by DOGE has and will continue to have an impact on M&A activity this year. In fact, PitchBook is reporting that Morningstar DBRS stated they do not anticipate the substantial rise in M&A that was expected to arrive this year. So, why are these efforts poised to have such an impact on the M&A market? A lot of it has to do with uncertainty. Bloomberg points out that “the worst enemy of a booming market for mergers and acquisitions has always been uncertainty.” Their data shows that just over $470 billion in global transactions have been announced so far in 2025. That number is down 17% from the same period last year. If history proves to repeat itself, that is not a good sign for an M&A rebound in 2025, as Bloomberg also notes that “not once in the past two decades has dealmaking rebounded from a negative first quarter to beat the previous year’s tally.” In addition to uncertainty, tariffs have a real impact on businesses who import or export goods and can negatively impact profitability and valuations. Supply chains can also be subject to tariff-related risks, which makes the due diligence process in transactions more complicated. Additionally, tariffs have implications for deal structure and timing, and some deals that were in the works might have to be restructured to account for the impact of new tariffs. However, there could be some silver lining in all the doom and gloom. M&A Alerts also notes that DOGE’s efforts could have positive impacts on the business community, and “the push for efficiency and deregulation may accelerate approvals and boost deal flow.” So, while there is very real concern about the market volatility all of this is creating, there could be some pro-business efforts taking place that will have long-term benefits. No matter your opinion on the tariffs or the work DOGE is doing, these are very important areas to monitor for dealmakers as they will no doubt impact deal structure, target selection, valuations, supply chain issues, regulatory compliance, and a host of other factors at least for the foreseeable future. Legal advisors will be working to find ways to mitigate the impact and risks amid this period of uncertainty.
March 31, 2025
Mergers and Acquisitions
The Gray Tsunami: How Retiring Business Owners Can Prepare for a Successful Sale
There is a significant demographic shift headed our way known as the “gray tsunami,” as a very large portion of the American population will reach retirement age and eventually exit the workforce. In fact, we are at a peak time for retirement in America, known as Peak 65 where an average of 4.1 million Americans are projected to turn 65 each year between 2024 and 2027. To put it in perspective, that is about 11,000 people per day. This wave of older adults leaving the workplace stands to have a great impact across the business world as owners pivot to fill these roles left by retiring employees. But it will also have great implications for family-owned businesses as owners reach retirement age and must decide the best course for the future of their company when it is time to step down. A recent Wells Fargo Wealth & Investment Management survey indicates that 52% of business owners do not want their children to run and inherit their business. So, for many, this will mean considering the sale of the business as they look to exit on their own terms. By engaging in advanced planning, entrepreneurs can capitalize on this generational shift, creating a strategic opportunity to ensure their financial security and preserve their life’s work and legacy. Below, we look at some key considerations for baby boomer business owners as they plan for the next chapter in their lives and the potential sale of their family-owned enterprise. Finding the Right Buyer When you have spent your life building your business from the ground up, finding the right buyer when it is time to sell is critical. This means not only finding a buyer that will offer the right price to establish financial security in retirement, but also a buyer who will preserve the values and culture you have established. Finding this perfect buyer means having clearly defined goals for the future of the company. Outline the non-negotiable aspects of the company you want to preserve. This could be anything from retaining your employees to protecting customer relationships. Some owners wish to remain in an advisory capacity during the transition period to ensure continuity, others might want to make sure their business stays family owned. There are numerous types of buyers to consider, each with their own implications for the sale and future of the company. Again, the type of buyer you choose will correlate directly with the goals laid out from the beginning. For those focused more on maximizing value and less on legacy preservation, a strategic buyer such as a competitor could be the best fit. This could involve the integration of the business into a larger organization, so preservation of the company’s employees or culture could be at risk. A sale to a private equity (PE) firm is also an option, noting that the goal here is likely not to hold the business long-term but rather to sell again in 5-7 years. A sale to a family office would likely be a longer-term play. For those focused more on preserving the legacy of the company, selling to key employees or company leadership through a management buyout could be an option, or an Employee Stock Ownership Plan (ESOP) might be a consideration. As both would keep the business with current employees or leadership, maintaining the company culture and vision would be a priority. These are all important points to consider as they help to identify what you are really looking for in a buyer. Owners must work closely with trusted advisors to thoroughly vet potential buyers to ensure they align with those goals, and then carefully craft a deal structure that will best protect their legacy. Maximizing Business Value and Financial Security Maximizing the value of your business well before any exit event is key to establishing financial security for retiring business owners. This means engaging in careful planning, financial optimization, and strategic positioning very early in the process. It will be important to make sure every aspect of the business is streamlined and strengthened including financials, operations, employees, and suppliers. Conduct a comprehensive examination to determine if there are any areas that might need improvement to make the business the most attractive to potential buyers. Making necessary adjustments early on will help to create the best valuation and a smoother due diligence process. Setting the company up for future success by decreasing owner dependency and making sure there is strong leadership firmly in place is also important here. Determining what you will need for your own financial security post-sale must also be top of mind. This should involve working with advisors on significant tax planning to ensure the sale will be structured in the most beneficial way to minimize your tax liabilities as the seller. It will also be important to have a strategy for wealth management to ensure the proceeds of the sale will work for you. Legal Considerations As with any transaction, the sale of a family-owned business also comes with many legal considerations that can have a lasting impact and must be addressed alongside your legal counsel to minimize risk. These can include but are not limited to the following issues: Structuring the sale in the manner that best reduces tax implications and minimizes liabilities for the seller. Planning to avoid excessive capital gains and estate taxes. Conducting due diligence preparation to verify that all information Is accessible and in place and to resolve any outstanding issues. Ensuring liability protection and minimizing risks through avenues such as indemnification clauses and reps and warranties. Compliance with all regulatory and compliance requirements, which can become more complex based on some industries. Conclusion When a business owner makes the significant decision to sell, it will have long-lasting implications for the owner and the family overall. By working with advisors early on to carefully plan and prepare, baby boomers can enter retirement knowing they have not only maximized the value of their life’s work, but also preserved the legacy they have established.
February 28, 2025
M&A Nuggets
M&A Nugget: Letter of Intents should be neither a Gimme nor an Obstacle
The letter of intent is the first significant document signed by the target and potential acquiror in a merger transaction. Many times over the years, clients have first contacted me after signing a letter of intent to sell or purchase a business. That is usually a mistake. The letter of intent should set forth the parties’ expectations of the business deal and the most core legal issues. Accomplishing that, while not allowing the letter of intent to bog down the progress of the deal, is a fine balance and takes professionals who have been through the process many years. Some clients hurry through a letter of intent because they are under a misconception that the letter of intent is non-binding. However, the letter of intent is in fact a legally binding document in part. Although most letters of intent do not create a legal obligation to close the transaction, letters of intent do typically contain clauses that bind the seller and the purchaser, including, a) a no-shop clause prohibiting the seller from seeking or negotiating with other buyers; b) a confidentiality provision; c) a statement that from the signing of the letter of intent through the termination of the letter of intent, the seller will operate in the ordinary course of business; d) the date the letter of intent expires; and e) a statement of which State’s law governs the letter of intent. The primary purposes of these binding clauses are 1) to ensure the buyer who will be expending time, money and resources investigating the seller, that the seller will operate ordinarily and not seek to negotiate against the buyer, and 2) to give the seller with comfort that its willingness to sell its business will remain confidential and that there will be a date to move on if the parties agree on the terms of a definitive agreement. Since the letter of intent sets the parties’ expectation of the business terms, a rushed letter of intent can miss the boat on key business terms that, if thought of later, are difficult to incorporate into the deal. While the letter of intent must be dealt with expeditiously to move on to the next steps as quickly as possible, one side will be very unhappy later if a key business term is missed.
December 18, 2024
Mergers and Acquisitions
Sell-Side M&A: Navigating Continuing Entanglements After the Deal Closes
Sell-side mergers and acquisitions (M&A) can be transformative events for companies, shareholders, and stakeholders alike. For the seller, this often means a significant payout and the culmination of years or even decades of hard work. However, post-closing sellers often remain connected to the business in various ways through what are known as "continuing entanglements." These post-transaction obligations can have legal, financial, and operational implications for the seller. Earnouts and Contingent Payments An earnout is a mechanism where the seller receives additional compensation based on the post-closing performance of the business. Earnouts are common in deals where the buyer and seller cannot agree on the valuation or where future business growth is uncertain. However, earnouts can be complex and can be areas of dispute post-closing. Sellers should negotiate clear terms that are tied to objective financial indicators, especially as Sellers may have little control over the business post-sale. Escrow and Holdback Provisions Buyers often require a portion of the sale price to be held in escrow or retained as a "holdback" for a period after closing as means to cover post-closing items such as undisclosed liabilities and indemnifications. Sellers need to negotiate protections and structure into these escrows including the terms of release and limitations against escrow claims. Representations, Warranties, and Indemnifications In M&A transactions, Sellers provide representations and warranties about the state of the business at the time of sale. If these representations turn out to be inaccurate or incomplete, the buyer may seek indemnification. Sellers should limit the duration and scope of their representations and warranties. At times, representation and warranty insurance may be an option to protect sellers from such claims. Non-Compete and Non-Solicitation Agreements Buyers often require sellers to sign non-compete and non-solicitation agreements as part of the M&A transaction. Sellers should also evaluate how these restrictions will affect their future business ventures and negotiate reasonable carve-outs when possible. Consulting or Employment Agreements In many cases, the buyer may require the seller to stay involved with a consulting or employment agreement, especially for transition and integration. Sellers should be careful about clarifying their role and expectations post-closing, including a seller’s ability to terminate the arrangement. Tax Implications Taxes drive transactions and M&A transactions can trigger significant tax liabilities for sellers. Sellers should work closely with tax advisors to structure the deal in the most tax-efficient way as well as be mindful of tax treatment for contingent payments like earnouts. Operational Matters Sellers should be careful to account for day-to-day potential entanglements with buyers post-closing. Such items include bank account transfers, leases, licenses, etc. Having a clear understanding with the buyer as to what will be the disposition of these items post-closing is important. Conclusion For sellers, it is important to be mindful of the continuing entanglements that can persist long after the deal is done. Legal, financial, and operational obligations may continue to bind the seller to the business for years to come. Sellers should work closely with experienced legal counsel to navigate these complexities and minimize their post-closing risk.
November 7, 2024
M&A Nuggets
M&A Nuggets: Working Capital Requirement: The Seller's Scourge?
One of the most befuddling concepts to a seller in a merger transaction is the working capital requirement. Buyers base their purchase price offers assuming that there will be a normal amount of working capital in the business at closing. To a seller, the concept of leaving any working capital in the business may seem illogical. As a result of these disparate views, an inordinate amount of time is devoted to negotiating the working capital requirement. However, the working capital process does not need to burden moving a deal forward, There are two key steps in the working capital process. The first step is to establish the target working capital that will be required at closing. The second step is to determine after closing whether the target amount of working capital was left. An important part of determining the target working capital is the definition of working capital itself. In its most basic form, working capital equals current assets less current liabilities. However, sellers are often surprised when buyers propose to include in working capital certain current assets and current liabilities that the sellers have not historically included. Here are two key takeaways to be mindful of when negotiating the definition of working capital: Purchasers prefer to base working capital on a strict GAAP (Generally Accepted Accounting Principles) standard. Sellers, however, often maintain books and records at least in part on a basis other than strict GAAP. Sellers should therefore negotiate for certain of their historical methods of accounting to be utilized to determine working capital, even if at variance from GAAP. Although certain historical accounting practices may not be in accordance with GAAP, it is unusual for a seller’s financial statements to be totally divergent from GAAP, that is, many accounting practices will be in accordance with GAAP. There are, however, different methods to account for certain items, all of which are consistent with GAAP. For example, GAAP recognizes several different methods to value inventory. For those items that it is agreed GAAP will apply to, sellers should insist that an agreement be made on which alternative allowed GAAP method is to be used. The purpose of negotiating the finer details of the working capital target is to have a meeting of the minds between the buyer and the seller, the result of which is no adjustment, or a small adjustment, to the purchase price when actual closing working capital is compared to the target.
November 4, 2024
Mergers and Acquisitions
Risk Challenge: Bridging the Gap
Typical Professional Advisor Approach: Hates risk Paralyzed by risk Gap and Disconnection Between Typical Advisor and Typical Entrepreneur Typical Entrepreneur/Business Owner Approach: Embraces risk Views risk as gateway for opportunity My Approach to Bridge Marrying my 25+ years of practical understanding of business to specific clients’ risk tolerance profiles in order to educate and empower clients to make informed decisions. Entrepreneurs are a different than most people. Entrepreneurs embrace risk…every day. Business and personal risk to an entrepreneur are always present. Just ask an entrepreneur about their personal guarantee of the business’ debt (as an example). The smart management of risk by an entrepreneur is how he or she advances the business and sleeps at night. The problem is that most advisors working on behalf of business entrepreneurs approach risk from a position of fear and absolute avoidance. Thus, with the entrepreneur embracing and needing risk to advance business on one side of the spectrum, and the typical advisor on the other side of the spectrum, a large divide is created between the two parties and miscommunication and disconnect are often the end result. Like an entrepreneur being different, my approach is also different than most advisors. My job is to advise the entrepreneur of the potential risks associated with an action – and the job of my entrepreneurial client, once educated, is to let me know how little or much he or she “cares” about the risk. If my client does not “care” about the risk, I don’t waste valuable resources on it. However, if my client does “care” about the potential risk, I spend my time working to manage and mitigate the associated risk. Knowing that proper risk management is the key to helping entrepreneurs advance their business allows me and my clients to sleep well. Originally posted 7/18/2018, no content changes.
October 24, 2024
Business
Why Are the Fees to Sell a Business So High? It’s a Matter of Expectations
“How much will it cost to sell my business?” It seems like a reasonable enough question—and a business owner is wise to plan ahead and think about the financial impact of merger, acquisition, or other business transactions early on. However, focusing on what you’ll pay to sell a business is a classic example of “missing the forest for the trees.” Or, to put it another way, missing the sale for the fees. I get it. Legal costs are never pretty. Most business owners are fortunate enough to only pay attorney’s fees periodically, on an as-needed basis, for relatively small projects. We’re talking about document review, collections, intellectual property development, and so forth. If you’re really unlucky, you may need to bring on a lawyer for litigation. The associated bills aren’t pleasant, but they won’t bankrupt you (and if they do, you hired the wrong attorney). When you have the opportunity to consummate the sale of your company, on the other hand, you can expect to receive the largest legal bill of your lifetime. Depending on the size of the deal, your attorney may charge you upwards of six figures. In any other situation, the price would seem exorbitant—outrageously so. But a business transaction isn’t like other situations. It’s an extraordinary event with exponentially higher stakes than an owner is used to. No business milestone compares. Yes, you’ll receive the largest legal bill of your lifetime—because you’re earning the biggest payday of your lifetime. It’s a matter of scale and complexity. You will not get a good second “bite of the apple.” For sellers, some level of legal “sticker shock” is understandable. Few people on Earth can normalize earning several million dollars, or several hundred million, at once. The problem arises when a business owner handcuffs their advisors due to fee constraints. The handcuffs could have unintended implications for a seller. I recently represented a client who had grown accustomed to relying on legal assistance from a family friend. He was used to essentially paying his lawyer a couple of bucks and a case of beer. When it came time to sell his business, the client realized he needed a different caliber of attorney—but failed to adjust his expectations accordingly. When he learned he owed approximately $300,000 in legal fees, I watched the color drain from his face. Keep in mind my client’s business sold for $75 million. Our fees amounted to less than 1% of the total sale price. That’s in line with (admittedly loose) industry standards—if not below. My client knew how many hours were invested in the matter—and he had the budget in mind before the deal commenced. He knew a substantial bill was coming. But it wasn’t tangible for him until the end. The moral of the story? Don’t wait until after you’ve sold your business to think about the costs of selling your business. Develop a financial plan—and speak to your advisors to understand the moving parts and inputs to a transaction. Be prepared to spend substantial fees paying your attorney, investment banker, accountant, M&A advisor(s), and any other professionals involved in your team. After all, the sale of your business likely will be the largest financial transaction of your lifetime. Then, move all that to the back of your mind and prepare yourself for the biggest question ahead: what you’ll do with all that money after you close?
October 17, 2024
Business
What Message Are We Sending When We Say, “We Are Busy?”
Have you been busy lately? I’ve been busy. We’ve all been busy. Everyone, it seems, is really busy—super busy, incredibly busy—so, so busy. It’s become something of a greeting, in fact: “How are you?” “I’m all right—really busy.” “How’s work?” “Oh, you know, work’s been busy.” “How’s your family?” “Well, with school, and the kids, and the dog… things are busy!” Frequently, we’re not just busy but “swamped” or “crushed” by our daily activities and obligations. It’s almost as if we take pride in how out of control it all seems or how overwhelmed we feel. And yes, busyness is a feeling. So, why do we frequently tell others we’ve been “busy” or “swamped?” If I had to guess, I think we use these terms as a means of communicating success. No one wants to say they have no work or no clients—or no life, for that matter. Busyness also (conveniently) obfuscates the choice to prioritize one thing over another. Consider how often “I’ve been busy” follows “I’m sorry.” But just as “sorry” loses meaning with repetition, “busy” can’t insulate us from the consequences of our decisions. Nor can it affect how our words are received by others. If you’re not careful, a client may hear “I’m busy” as “I don’t have time for you” or “I can’t give you my best effort.” I’ll give an example. A few weeks ago, I approached a landscaping business. I knew the current season—late spring, early summer—would be a busy time for the company, but I figured they would be prepared for it and happy to take my business. The company was too busy to take my work. So, I went with a competitor. I wonder how the owner of the first business will feel when January comes around, and the business is not so busy. Missed opportunities are one of the many risks the always-busy face. I recently heard about a company that lost a multi-million dollar award because the would-be customer thought the organization lacked the time and capacity to handle the work. Employees had transmitted the company’s busy status to the prospect—a couple of offhand remarks was all it took. Of course, if you run a business, there will be times—many times—when your company is unable to meet a certain deadline or deliver results within a given timeframe. In these circumstances, the wise move is not to turn clients or customers away or stunt the conversation with a blanket “I’m busy” but to manage expectations. Take a moment to think past your current feelings of stress and consider the other party’s needs: Can the project wait a week? Would the client be willing to pay rush fees? Use that busy period as an opportunity to negotiate, consider your boundaries, learn, grow, and establish better lines of trust and communication. You should never promise what you can’t deliver, but that doesn’t mean you always have to say “no.” The old saying holds true: make hay when the sun is shining. When there is business, work harder and work longer. There is no guarantee a customer or client will come back if you turn them away now. Every relationship is important, and work arrives when it arrives—not always when it’s convenient. And remember: words have meaning. The next time someone asks how things are going, try something besides “I’ve been busy.” How about “business is good?” It is the truth, after all. Originally posted 6/13/2019, no content changes
October 10, 2024
Business
What M&A Buyers Lose by Keeping Their Closing Checklists to Themselves
I recently represented a group of business owners in the sale of their company. As with any merger or acquisition, the transaction demanded tremendous patience, effort, and commitment from all people involved. For my clients, however, the deal was far more onerous than it needed to be — because the buyer’s attorney chose not to work from a closing checklist. A closing checklist can be thought of as a shared roadmap for an M&A transaction. It lays out all the steps that must be taken to bring the deal to fruition, specifying the roles and responsibilities of the buyer, the seller, and any other participants. Checklists cover everything from sophisticated legal and financial considerations (e.g. intellectual property searches, lien releases, third-party consents) to minute particulars such as signatures and wiring instructions. Whatever its level of detail, any checklist is better than none. Deals without closing checklists sometimes waffle as parties experience distrust, restlessness, and confusion over priorities. While this transaction fortunately did go through, my clients faced significant friction and frustration. At times, a collapse appeared likely. Instead of providing a closing checklist, the buyer essentially assigned us several dozen to-dos, which was just a rundown of tasks we needed to complete in order to satisfy their pre-closing requirements. It was a one-sided, opaque way of doing business. It left us feeling as though we were operating in a vacuum and never working fast enough. This kind of approach not only strains the lines of communication between a buyer and seller, but also tends to dissolve any kind of meaningful negotiations. When you’re rushing through line items without the larger context of the deal in mind, you give up your leverage. A closing checklist is essential because it situates parties within the same universe and keeps their attention oriented on a shared goal. It’s a common point of reference for discussions and perspective — a constant reminder that all that labor and stress is in service of a mutually beneficial transaction. If you don’t have a closing checklist, you become blind to the other side’s objectives as well as your own. What is particularly baffling about the decision to keep the seller in the dark is that it creates more work for the buyer. Closing checklists are generated in almost every transaction. They flow naturally from the buyer’s documentation and due diligence. There’s no additional effort or risk to making them generally available to the other party. By refusing to share their checklist, the buyer chooses instead to dole out the information in a piecemeal manner, potentially causing errors and slowing down the deal. It’s the difference between telling a seller what you aim to accomplish and telling them what to do. It’s turning what should be a partnership into a managerial relationship. And ultimately, it’s unproductive. Few owners can put up with being bossed around—especially when they’re in the middle of exiting their business. Originally posted 09/26/2019 - no content changes.
October 3, 2024
Business
The Entrepreneur’s Lab Video Series: Definitive Sales Agreement
Definitive sales agreement – the sales agreement is the key document for the seller in a transaction. It encompasses the hard work of the parties from LOI through diligence. Definitive agreements typically are drafted by the buyer’s counsel and will be a large document with many moving parts. A few of the key parts are as follows: The business terms: A seller needs to make certain the key terms in the LOI are accurately and fully reflected in the agreement. Typically, the first portion of a definitive agreement speaks to the price, the payment terms, and the related items. Representations, warranties and covenants: The largest part of the agreement will be the various reps and warranties required of the seller. These reps are statements of truth about the business and will need to be carefully reviewed with legal counsel to make certain no modifications are necessary. Conditions to closing: A seller needs to be keen on any conditions in the agreement that need to be satisfied prior to closing. Such conditions could include buyer’s financing or the obtainment of certain customer consents. Indemnifications: Remember the buyer will want to pass the risk of any issues arising prior to closing back to the seller. A seller needs to fully understand the risk of indemnification and make efforts to cap and/or limit future exposure. Disclosure schedules: These schedules supplement the agreement, especially the reps and warranties. In many respects, disclosure schedules culminate and complement the diligence process. As a seller, disclosure and completeness is your friend. Make certain that your sell-side schedules are accurate. Originally posted 2/16/18. No content changes.
September 26, 2024
Business
Not Sure if Your Company Is Ready to Sell? Consider the PAEI Model
For most business owners, the chance to sell your enterprise is a once-in-a-lifetime opportunity. But if you take that offer too early or at the wrong stage of business development, the sale could result in a number of undesired outcomes: a low valuation, difficulty finding a buyer, management disputes, contract issues, and other legal problems. Selling a business is like preparing a meal. It’s crucial for a business owner to be able to recognize if their business is either under or overcooked before taking it to market. Unfortunately, it’s not as simple as using a meat thermometer. Instead, owners rely on systems such as the PAEI Model, which Dr. Ichak Adizes developed in the 1970s to track business growth and stability. To this day, business owners use the model to understand their organizations’ lifecycles through the lens of management dynamics. How the PAEI Model Works “PAEI” stands for four different yet common management personae that affect a business’s short-term and long-term performance. Producers are managers who are task-oriented and focused on tangible results. They demonstrate big-picture thinking with little regard to interpersonal or individual concerns. Administrators are managers driven by procedure and planning, with a strong focus on routine and structure in order to maintain success. Entrepreneurs are managers driven by dreams and future achievement. They’re concerned less with day-to-day operations and more with a broad, long-lasting vision of the business. Integrators are managers who work well with others. These individuals are adept at both considering and balancing the concerns of other managers and employees. Each of these roles is important to business development, but each has its own time. The PAEI model lays out an arc of business growth, starting with “Courtship” (when an owner “flirts” with the business idea), which leads to “Infancy,” “Go-Go,” “Adolescence,” “Prime,” and ultimately stability. Which Stage Is the Ideal Moment to Sell? Every stage can spin off into a negative conclusion. For instance, Infancy can result in “Infant Mortality” when there’s nothing left but a Producer. Adolescence, meanwhile, can result in “Divorce” (the owner and the company split), which may lead to “Premature Aging” (the company peaks early without an entrepreneurial vision) and an “Unfulfilled Entrepreneur.” To avoid the potential pitfalls during every stage of a business’ lifecycle, each one of the four management styles must be present. But not everyone comes to the foreground in every stage. Instead, a single management style or combination of styles takes dominance at certain points along the way. For example, in Courtship, the very beginning stages of a new business, the Entrepreneurial management style is required for crafting the initial big ideas and long-term goals that will sway investors and fund the enterprise into Infancy. Once the money rolls in and the business reaches Infancy, it’s important for a Producer to recognize how to responsibly use the startup funds to survive on a daily basis. After some inevitable growing pains, a business reaches Adolescence with the help of an Administrator, whose management style shifts the focus away from sales and revenue generation—and toward cost-cutting, boosting profits, and keeping the company lean. At this stage, an organizational structure is key in order to reach the Prime period of a lifecycle. When the business is in its Prime—when profits are up, operations are running smoothly, and customer satisfaction is at an all-time high—that’s when it’s time to sell. Yes, believe it or not, the best time to sell your business is usually right before it reaches the Stable stage. While further growth can seem all but guaranteed at the Prime stage, according to the PAEI model, most companies begin to falter and precipitously lose value once they’ve become Stable. This is the period in which the Entrepreneurial management style begins to fade, and the Administrative and Integrator styles achieve dominance. In other words, the initial visionary is replaced by people who excel at bureaucracy and longevity. In the realm of mergers and acquisitions, the Integrator is frequently the buyer. As a seller, it’s up to you to ensure the business has reached its Prime and that all the elements are in place for continued success—and to get out right before the business peaks and starts to lose value. While the PAEI Model is not a guaranteed method of success, I believe it can provide rare insight into the business lifecycle. It presents a valuable framework for the roles and traits it takes to reach success and ultimately earn the highest possible sale price for your company.
September 19, 2024
Business
Letters of Intent (LOI) – Buyer’s Exclusivity
I’ve reviewed many LOIs over the years – some we’ve prepared and others the client prepared. I’ve found that too many people view LOIs as form documents containing commercial terms. Yes, LOIs are vital documents establishing the commercial terms of a transaction. However, LOIs should not be considered “throwaway” forms in the M&A process. I think the lax attitudes relate to the non-binding nature of most terms in the LOI. Yet, there should be specific binding terms in every LOI. For a buyer, one important binding term is the exclusivity provision. Most recently, I needed to enforce this provision due to a seller’s breach. My client invested much of their time and money evaluating a transaction and documenting the same (legal, accounting, and banker time). The exclusivity provision protects a buyer from a seller “two-timing” them by not committing fully to the contemplated transaction and not negotiating in good faith. In my instance, the seller committed to another transaction during my client’s exclusivity period, leaving my client with much frustration and wasted costs. Buyers rightly demand a fair time frame to evaluate and work with a seller to consummate a transaction. Buyers invest substantial front-end costs in this regard. Fairtrade is for the seller to commit to an exclusivity period (30, 60, 90 days) to allow the parties to finalize a transaction in good faith. My client had an exclusivity period with “teeth” that allowed him to recoup these costs – and the seller did reimburse. But buyers beware. Without an adequate exclusivity provision, among other protective provisions, much time and money can be lost when a seller changes course.
September 12, 2024
Mergers and Acquisitions
In M&A, a Seller’s Greatest Asset Is Their Engagement in the Deal
Every business owner understands the importance of employee engagement. Keep your team motivated and energized, and you’ll maximize profit, productivity, retention, and customer satisfaction. When the time comes to sell your business, you'll need to cultivate that same level of engagement within yourself. You’re the one in the driver’s seat; no one else can steer the process for you. If you aren’t totally invested and enthusiastic about the deal, you risk missing out on the best possible sale price or letting the transaction fall apart. Keep in mind that during a merger, acquisition, or other business transaction, a seller takes on two jobs: selling a company and running a company. Neither job is easy. Both require full engagement, attention, and leadership acumen. I like to say that during an M&A transaction, you operate your business from 9 a.m. to 5 p.m., and you sell your business from 5 p.m. to midnight! During the transaction, the business owner needs to make themselves readily available to evaluate buyers, negotiate terms, produce documents, answer questions, and actively engage in other elements of the transaction. As a seller, the owner must also sell their business — convincing the other party of their vision, of the company’s valuation, and why the organization is an excellent buy. At the same time, the owner is still involved in the day-to-day operations of the business. We’re talking about governing organization-wide initiatives, developing strategies, making decisions, communicating to internal and external stakeholders, and everything else leaders do on a daily basis. In addition to these full-time responsibilities, the owner is typically hard at work on the transition — readying employees for the changes ahead, locking down key contracts, keeping vendors and business partners updated, and so on. If that sounds like a lot to handle, it’s because it is. It’s like undergoing an extended federal investigation while pushing your business as aggressively as a used car salesman would. Sellers need to prepare financially, emotionally, and psychologically for the difficult road ahead. They need to figure out their goals and objectives early and stick to them resolutely. Fortunately, sellers don’t need to manage it all alone. Business attorneys, investment bankers, valuation professionals, and other M&A advisors can provide much-needed support and sanity checks. That said, we can’t get the deal done without your direction and continual involvement. Again, the operative term is engagement. I’ve worked with clients who lacked engagement and damaged their deals as a result. You need to consider decisions, read every document, and follow through all the way. If your attorney asks you for your business contracts, they don’t want to hear “here’s most of them.” You need to provide all of them, not 80%, not 90%. “Good enough” doesn’t cut it. The buyer who’s going to pay you millions of dollars isn’t going to stand for “good enough” or “most of what I could find;” they need everything, or they need to know what you can’t find and why. On the flip side, there’s such a thing as getting too engaged in the transaction. Micromanaging is a form of sabotage. Trust the members of your team to do their jobs. Insisting that you need something done by Friday has no impact on your attorney’s ability to do it. Deadlines should be based in reality. Moreover, the attorney may have a good reason for taking their time. Sometimes, it’s simply smarter to wait and see how things play out so you can make better-informed decisions. Remember that a business transaction is a dance, a push-and-pull between buyer and seller. If the only reason you’re rushing through it is to check a box, you could be losing perspective on the deal and giving up your leverage. Any effective arrangement between a business owner and an M&A advisor is a partnership. While healthy discussion is good, each partner fundamentally needs to do their part and stay in their lane. A lawyer shouldn’t be asked to provide guidance on net-working capital—that’s an investment banker’s job. By the same token, the banker’s input on legal matters shouldn’t supersede the attorney’s recommendations. And as the business owner, you’re ultimately the one calling the shots. It’s your business, your transaction, your future. Grab hold of the wheel and put your foot on the pedal. Originally posted 10/25/19, no content changes.
September 5, 2024
Business
I’m a Potential M&A Buyer; Should I Focus on Buying Stocks (Equities) or Buying Assets?
When an M&A buyer is looking into a target company, they’re faced with the decision whether to buy stocks (the equities) or acquire assets. But what’s the difference? A stock purchase involves the purchase of the selling company’s stock only. Simply put: the buyer acquires all of the outstanding stock of the target company directly from the target company’s stockholders, including the assets, rights, and liabilities. The buyer then steps in the shoes of the selling stockholders (switches places). Stock purchases are generally straightforward transactions. Both parties sign a Stock Purchase Agreement (a sales agreement used to transfer and assign ownership in a corporation) and any other related documents that outline the terms of the deal, and the sellers then transfer their stock to the buyer. It seems simple enough, right? For the most part. There are risks, such as unknown or undisclosed liabilities of the target company. Again, when you purchase the stock, you become the stockholder; thus, nothing at the company level changes (save perhaps change of control issues). Operations remain intact as do all risks and liabilities. In addition, stock sales generally have favorable tax treatment for sellers. But what if you don’t want to buy everything and/or you want to limit your risk exposure? You might then be more interested in an asset purchase. An asset purchase is an agreement between a buyer and seller to acquire a company’s assets. This means: the buyer only acquires the assets, rights, and liabilities it identifies and agrees to acquire and assume. Assets can be both tangible, such as offices and equipment, and intangible, such an intellectual property and corporate name. Asset purchases are a good option if you’re looking for more flexibility and don’t want to pay for unwanted assets. Further to that point, it means less risk of assuming unknown or undisclosed liabilities. Asset purchase transactions are generally more favorable to a buyer and at times less favorable to a seller. Some buyers may be deterred by asset acquisitions because they’re more complex than stock purchases. The buyer has to spend time identifying the assets it wishes to acquire/assume. By doing so, the buyer may potentially overlook an important asset required to run the business it’s acquiring. Asset purchases have more formalities and documents since they require a separate transfer for each of the identified assets and liabilities of the target company. They may also require more third-party consent since the contracts assumed by the buyer are likely to contain anti-assignment clauses (which prevents either party the ability to assign tasks to a third party without the agreement of the non-assigning party). Whether you’re considering a stock purchase or an asset purchase, it’s always best to discuss it with an M&A attorney first. Selecting the form of the transaction is a key consideration when targeting the purchase of a business. There are many variables to consider as to why a transaction is set as a stock purchase versus an asset purchase. Originally posted on 9/9/2020, no content changes.
August 29, 2024
Business
From the Field to the M&A Negotiating Table, Every Successful Team Shares The Same Dynamics
They say there’s no “I” in “team.” Tellingly, for the parties in merger or acquisition, it’s also impossible to spell “team” without an “M” or an “A.” But I’d like to introduce you to a different set of letters. Even though you can’t find them in the word itself, every team should contain three “Cs”: cohesion, collaboration, and culture. Over the course of my career as a business attorney and advisor, I’ve seen many transactions succeed—and witnessed many more fall apart. Every deal that’s gone through could not have happened if not for a cohesive, collaborative, culturally connected team. Speaking as a sports fan, I could say the same about a squad like the Ravens, the Bulls, or the Bruins. Whether we’re talking about a sports team or a corporate team, the Three Cs are paramount for optimal results: Cohesion is the team’s capacity to stick together, through the good times and the difficult moments. It’s the fundamental element every group needs to take on risk and uncertainty, survive failure, and doggedly pursue its goal. Without cohesion, there is no team. Collaboration is how the team works together as a unit, maximizing each team member’s strengths to become something more than the sum of their individual abilities. Collaboration ensures the team is operating at its full capacity. It’s how team members keep each other accountable, engaged, and in the game—be it a real game or a metaphorical one. Culture is everything the team cares about and stands for—the values, principles, beliefs, assumptions, and personalities that make the team unique. A team’s culture determines how and why the team does what it does. Culture eclipses everything else; it’s how Joe Namath led the Jets to triumph over the Colts, the so-called “greatest football team in history,” in Super Bowl III. The Three Cs are essential ingredients of all successful teams, but they aren’t the only qualities that matter. Many teams with extraordinary M&A records have been together for a long time—sometimes years. Time not only imparts experience, but builds team confidence and predictability. Diversity matters as well. An M&A advisory team should be comprised of individuals from different disciplines, such as leadership, accounting, law, and investments. Many successful sellers and buyers build teams from their networks: they tap their closest colleagues and associates for support; hire attorneys, bankers, and other M&A consultants; and then bring in trusted advisors from their organizations’ boards of directors, executive suits, and finance departments. Finally, even the smartest, most experienced and diverse teams need to watch out for dysfunction. Everyone on the team should share a single goal: deal consummation. Internal dysfunction can impact everything from timing to cost structures. With that in mind, effective M&A teams work on resolving conflicts early, build open lines of communication, and save their competitive energy for the playing field—or negotiating table. Originally posted on 1/25/2019, no content changes.
August 22, 2024
Mergers and Acquisitions
Four Reasons Sellers Have a Natural Disadvantage in M&A Transactions
“The roulette table pays nobody except him that keeps it. Nevertheless, a passion for gaming is common, though a passion for keeping roulette tables is unknown.” So wrote George Bernard Shaw, the Irish playwright and London School of Economics co-founder, over a century ago. Were Shaw alive today, he would make a shrewd mergers and acquisitions (M&A) advisor. In an M&A transaction, the keeper of the roulette table is the buyer: the organization, group, or individual interested in purchasing a company. Sellers are at an inherent disadvantage because they’re engaging on the other party’s terms. They’re sitting across from someone who sets the rules, who holds the chips, who has bet—and won—numerous times before. To attempt to outsmart or overpower the buyer is to play against the house: you’re almost certain to lose—and wind up in a worse position than where you started. If this sounds dramatic, that’s because it is. While no deal is a pure gamble, there’s always some level of risk and uncertainty involved. And if a seller doesn’t adequately prepare and check their expectations, they could be putting millions of dollars and countless hours on the line. Consider some of the basic advantages buyers have over sellers during an M&A transaction: 1. The Buyer Tends to Have More Resources A business owner may have a hot commodity on the market, but a buyer has money. Guess who has better leverage? Moreover, capital is just one of the acquiring party’s many resources. Buyers tend to work with specialized teams of investors, bankers, accountants, and valuation professionals. Sellers may lack the means or knowledge to access outside expertise and build equally formidable rosters. 2. The Buyer Brings More Knowledge and Experience Most business owners will only sell a company once, if ever, over the course of their lifetimes. Many buyers, by contrast, make deals for a living. There’s a good chance your prospective buyer has negotiated dozens of transactions before. They probably understand M&A activity in your industry better than you do. They may have grounds to challenge your assumptions about your company’s value and can back up their assertions with detailed data. 3. The Buyer Has More Time and Energy to Spend Sellers have a fundamental limitation in terms of capacity—they need to balance the pressures and demands of deal-making with ongoing business operations. Again, for buyers, the transaction is the job. If the transaction is already underway, they can dedicate their full time and attention to it. As a result, they’re less likely than sellers to experience burnout and better equipped to vigorously defend their position as negotiations drag on. 4. The Buyer Is More Prepared to Walk Away Business owners are deeply attached to the companies they’ve built. When a deal starts to materialize, it represents the culmination of years of hard work and usually follows a series of serious, passionate conversations and tough decisions. But while a seller’s emotional investment in the company—and the transaction—is only natural, the buyer is wise to keep some distance. Think about the different meanings a closed deal has for either party: for the seller, it’s the next stage of life; for the buyer, it’s another opportunity that may or may not work out. Originally posted 9/12/2019, no content changes.
August 15, 2024
Business
For Attorneys and Clients, the Internet Is the Great Equalizer
Not long ago, hiring an attorney was a lot like visiting a doctor. If you needed legal help, you would drive to your local law office. The building’s windows or signage would be emblazoned with two words: “Law Office,” often lacking identifying names or law firm branding. You would check in with a receptionist, pour yourself a cup of coffee, and wait in the lobby for the next available appointment. When the attorney was ready to see you, he—and it was almost always a he—would call you into his office, you would explain your situation, and the attorney would either offer advice, schedule a follow-up, or refer you to a colleague with specialized knowledge. As quaint as that may sound, it still reflects reality in some small towns. Moreover, the image of the local law office—a community’s elemental, all-purpose legal resource—continues to shape lawyers’ practices everywhere. Many modern-day firms cling to the notion that clients are a given and that presence alone will generate business. They think of themselves as essential services first and brands second. But where healthcare industry regulations effectively preclude any marketing effort on the part of a doctor’s office, the legal industry is relatively unhindered. And the technological developments brought by the 21st century—namely, the rise of the internet and social media—give attorneys and firms unprecedented opportunities to compete for clients’ business. The internet and social media have democratized the field both for people seeking legal assistance and those providing it. To borrow from an old adage, God may have made lawyers, but Google made them equal. Today, someone looking for a mergers and acquisitions attorney, for example, can simply type “m&a attorney” into their search bar and immediately browse listings of practices and firms in their area, along with guides on choosing the best lawyer for the job. One doesn’t need to rely on connections or blind faith to access a qualified legal advisor. It is, therefore, essential for lawyers to proactively market their firms and differentiate themselves online. If you don’t use the internet and social media to attract clients’ and prospects’ attention, a competitor will. At the same time, attorneys must contend with self-service, on-demand legal providers, such as LegalZoom, who ostensibly offer greater convenience at a lower cost. Fortunately, it’s possible for any attorney and any firm to stand out, establish credibility, and build trust with clients and prospects. All it takes is commitment, strategic planning, and a few hours per week. First, you need to develop marketing content related to your practice and interests. Content serves multiple purposes, from education to branding to lead generation and networking. Indeed, it’s at the core of nearly every marketing strategy. Blog posts, articles, videos, podcasts, and infographics are all great ways to drive traffic, cultivate an audience, and start conversations. For attorneys and firms, the type of content matters less than its consistency and authenticity. Next, find ways to distribute that content and amplify its reach online. This is where social media comes into play. LinkedIn, Twitter, Facebook, and other social networks provide means to connect with a target market, share information and links, and forge relationships with influencers—i.e., people well-positioned to broadcast your message to larger audiences. (Keep in mind that social media is one channel of many; email newsletters, for instance, remain as effective a form of content distribution as ever.) In addition to content creation and distribution, firms and attorneys can employ a number of digital marketing tactics to outrank their competitors. Through search engine optimization (SEO), you can boost your website and content’s visibility for visitors searching for specific keywords. Online advertising and paid search (e.g., via Google AdWords) also make a difference—and a small investment can go a long way. To succeed, these initiatives must complement and flow from a group’s overall business strategy. At my firm, for instance, our content development and distribution platform is part of a larger, ongoing effort to create relationships with and provide value to business owners. The internet and social media don’t replace in-person meetings and handshakes, but technology does empower us to more fully and consistently connect with the right clients. It’s the difference between passively assuming the role of generalized “law office” and actively leading with the singular skills, knowledge, and perspective you and your team bring. And digital marketing is critical for attracting not only clients and prospects but recent law school graduates and lateral hires as well. Attorneys pay attention to your firm’s marketing efforts, and if those efforts don’t support their practices and goals, they’ll look for positions elsewhere. In an era of choice, the onus is on us to guide people toward the best decisions for themselves, their families, and their organizations. In that respect, at least, the legal business hasn’t changed. Originally posted 4/5/2020, no content changes
August 8, 2024
Business
Five Phases of a Deal from a Sell-Side Perspective
M&A can be complex. For most sellers, it is a one-time event and likely their most significant financial transaction in life. Given the complexity and the stakes, many sellers can be confused as to what is essential and where to focus. I understand. To help, I created the below infographic as a cheat sheet for sellers to organize the various advisors involved, the different phases of their transaction, and what the seller should be focused on. Most importantly, sellers need to keep their eyes on their business during the sale transaction. As obvious as it sounds, a seller has not sold his/her business until the deal closes (and the money hits their account!). Deals can be exhausting, and deal fatigue can set in. Plus, buyers can lure sellers into a sense of combination that is not yet legally transacted. Don’t make this mistake. If the deal does not close (for whatever reason), the seller needs to be able to move forward with the business. Don’t lose sight of your prize. Further, sellers should weigh the transaction details through two lenses. First, the seller needs to understand the purchase price and how the price will be paid. Second, the seller needs to understand trailing liabilities. This is a big item as most sellers do not need to worry about personal liability for their business during the operational phase. However, most buyers make a seller guarantee all aspects of their business in a transaction. Again, M&A can be complex. Make certain to hire good advisors to provide practical advice. ANATOMY OF THE DEAL 5 Phases of a Deal from a SELL-SIDE PERSPECTIVE: The Players and Their Involvement Pre- Transaction Planning Phase Rule: Find and eliminate skeletons; create multiple options Phase I: Letter of Intent Phase Rule: Know what you want and get it in writing as the LOI may be your high water mark Phase II: Due Diligence Phase Rule: Disclosure is your friend Phase III: Contracts Phase Rule: Confirm Business terms and Phase IV: Closing Phase Rule: Time is your enemy Phase V: Post Closing Phase Rule: Remember to dot the I’s and cross the t’s to meet all conditions Post-Transaction Planning Phase Rule: Enjoy your new status in life; make sure you’ve considered life without the business Sell Side M&A: Three Rules of Thumb for the Transaction Rule #1: You haven’t sold your business until you’ve sold your business Rule #2: Get your money upfront (as soon and as much as possible) Rule #3: Reduce and eliminate your trailing liabilities Originally posted 3/26/2021, no content changes
August 1, 2024
Mergers and Acquisitions
Delaware Passes Amendments to Delaware’s Corporate Law to Override Judicial Precedents and Simplify Corporate Governance in M&A Transactions.
Changes to the Delaware General Corporation Law (“DGCL”) were signed into law last week by Governor John Carney. SB313 will now take effect on August 1, 2024, and will apply retroactively to all agreements (including merger agreements) made by a Delaware corporation and all agreements and instruments approved by the board of directors of a Delaware corporation, except for the agreements and board action in pending litigation on or prior to August 1, 2024. These changes were in response to several Delaware Chancery Court (“Court”) rulings affecting stockholder agreements, merger agreements and corporate governance requirements applicable to merger transactions. The amendments propose a legislative override over recent decisions to implement changes that allow for greater freedom of contract for stockholder and merger agreements and the elimination of technical, seemingly non-material governance requirements applicable to merger transactions. A new DGCL § 122(18) permits corporations to convey the rights to consent and approval of corporate action to persons through stockholder agreements unless such conveyance is specifically prohibited by the corporation’s certificate of incorporation. This amendment nullifies the recent decision in West Palm Beach Firefighters’ Pension Fund v. Moelis & Co. where the Court found a stockholder agreement requiring the majority stockholder’s approval for certain corporate actions “an impermissible internal governance restriction” in violation of DGCL § 141. Addressing the Court’s finding of a violation of DGCL § 251(b) when the board approved a draft version of the merger agreement in Sjunde Ap-Fonden v. Activision Blizzard, Inc., the new DGCL § 147, eliminates the requirement for board approval of the ‘final form’ of agreement if, at the time of approval, all of the material terms are determinable through information and materials presented to or known by the board, and second, the new DGCL § 268(b) clarifies that disclosure schedules and the like are not required to be a part of the merger agreement for board approval pursuant to DGCL § 251(b). Doubling up on the results of Activision, in response to the Court’s finding of a violation of DGCL § 251(c) where the corporation had included a brief summary of the merger agreement in the proxy statement sent with a separate notice to the stockholders that did not include a brief summary of the merger agreement, a new DGCL § 232(g) allows a corporation to satisfy the stockholder notice requirement for a merger agreement when such agreements and brief summaries are “enclosed with the stockholder notice or annexed or appended to the notice.” A third byproduct of the Activision decision, a new DGCL § 268(a) allows a board to approve and file a certificate of incorporation of the surviving corporation of a merger following the effectiveness of the merger if the surviving entity will be wholly-owned and controlled by the buyer and all of the shares of capital stock of the constituent corporation issued and outstanding immediately before the effective time of the merger are converted into or exchanged for cash, property, rights or securities (other than stock of the surviving corporation). In Crispo v. Musk, the Court denied a stockholder plaintiff’s claim for lack of standing where the plaintiff sued for ‘lost stockholder premium’ damages despite a provision in the merger agreement that specified that the buyer would be liable for ‘lost stockholder premium’ in the event buyer breached the merger agreement. DGCL § 261(a)(1) specifically allow parties to a merger agreement to include provisions requiring the payment of penalties and ‘lost stockholder premiums’ in the event the merger is not consummated and allow parties to enforce these payment provisions. New DGCL § 261(a)(2) confirms that the stockholders of a constituent party to a merger agreement may irrevocably appoint one or more persons to serve as a representative of all stockholders and delegate to such person the exclusive authority to enforce the rights of all stockholders under such agreement, after consummation of the transaction as an agent of the stockholders of the constituent corporation whose shares are canceled and converted in the merger into the right to receive cash or other property, and to enter into a binding settlement on behalf of all shareholders, a principal of corporate law. Seemingly, this amendment codifies stockholder representative authority articulated by the Court in Aveta Inc. v. Cavallieri, where the Court found that the stockholders were bound to the results of a post-closing adjustment and subsequent arbitration decision when the stockholders appointed a stockholder representative to represent the stockholders and the representative utilized facts ascertainable outside the merger agreement to derive post-closing adjustments on behalf of all stockholders using a calculation method clearly and expressly set forth in the merger agreement and subsequently pursued the final determination through the use of a neutral arbitrator.
July 25, 2024
Mergers and Acquisitions
Fine Wine, Cheese and M&A?
What do wine and cheese have to do with M&A? Well, unlike fine wine and good cheese, M&A transactions don’t age well (I heard this analogy recently at a TAB Board meeting). M&A transactions are driven by timing considerations, both internal and external. Market conditions continually change and having your transaction consummated when the market is most receptive is paramount. Missing the mark can have heavy consequences on items such as taxation or valuation. Likewise, internal commitment and momentum make for efficient transactions. Deals require continual, steady movement forward; transactions without momentum waffle and struggle to gain pace. Some timing can be controlled by the parties. For example, responding to inquiries and questions as quickly as possible. Letting emails sit, even for a day, can have major impacts given that most M&A transactions have many parties involved. Slow-moving parties can trigger rippling impacts that may lead to unintended consequences. M&A transactions do not adhere to a 9 am to 5 pm workday. I always advise clients, especially sell-side clients, that they should work their business 9 am to 5 pm and sell their businesses 5 pm to midnight (and of course weekends). Like a marathon runner, M&A deals need to find the pace and stick to that pace to finish the race strong! Originally posted 1/22/21, no content changes.
July 24, 2024
Business
Figure These Two Things Out Before You Sell Your Business
Your business is in good shape and you’re feeling ready to sell. You have your key value drivers in place: skilled employees, strong sales numbers, a pattern of consistent growth. You’ve assembled an advisory team, conducted a thorough sweep of your organizational records, and eliminated the proverbial skeletons in your closet. You’ve also performed the deep, difficult work of preparing yourself emotionally and psychologically for the journey ahead. Time to hit the gas—right? Perhaps, not quite yet. Yes, all of the above are fundamental success factors and important steps to take before engaging in a merger, acquisition, or another type of business transaction. But they’re only the basics. Polishing every surface and tightening every screw won’t make a difference if the business isn’t built on a rock-solid foundation. To adequately prepare for M&A, business owners need to proactively strategize and fortify their organizations for potential curveballs. As a seller, you need to think ten steps ahead of a buyer. You need to know what they want before they want it. It pays to err on the side of paranoia. Here are two critical questions every seller must answer before stepping into the market: 1. Is the Business Structured Correctly? One factor sellers frequently ignore is business entity structure. The way your business is structured today may not be the ideal structure during an M&A transaction. Say your company is operating as an S corporation. You have detailed records of your finances and meetings, a strong leadership team in place, and—best of all—lower taxes than you’d have if the company was structured differently. You may think this shows prudent business management—and in most cases, it would. In M&A, however, S corps at times fare poorly. That’s because certain buyers like to acquire LLC interests—not S corporation stock. The same vehicle that may shield you from high tax payments may create obstacles for a buyer during a sale. In an environment less robust than the current market, it even could cause a potential buyer to pass on the deal. Thus, as an S corporation owner, you may need to do an “F-reorganization,” a tax-free structuring technique that changes your business so that you’re selling LLC interests. A corporate restructure may improve your chances of closing the eventual sale. If you do have to restructure, you’ll need to do so in the pre-transaction phase. 2. Are Employees in It for The Long Run? Your people are the lifeblood of your business. Without them, your organization wouldn’t be worth what it is, nor would it be well-equipped for continued success in the future. Most sellers realize this, and yet a fair number neglect to lock down their key employees until well into the transaction. These business owners compartmentalize the deal and their day-to-day business operations separately. What they don’t realize is one domain frequently spills over into the other. A rocky M&A negotiation damages employee morale, and vice versa. By the time a transaction is nearly consummated, an ill-prepared business may have missed projections or dropped in value due to unexpected employee departures. Always stay focused on your employee engagement and retention rates—before and during the transaction. Figure out how you’ll incent your people to cooperate and continue performing at their best while the deal is pending, and to stay with the new ownership after you’ve closed. Put plans into place early, well in advance of courting a buyer. The longer you wait, the less effective your efforts will be. For sellers, employee retention and business structure are two vital pre-transaction considerations. But they’re only a couple of many. If you’re thinking about selling your business, you need to prepare for anything and everything that could go wrong. Familiarize yourself with Murphy’s law, and start strategizing as soon as possible. Forethought and planning today can save you serious time, money, and frustration tomorrow. Originally posted 12/20/2019, no content changes
July 18, 2024
Business
Don’t Use an M&A Attorney for an Investment Banker’s Job
Most people will never experience a merger, acquisition, or other business transaction firsthand. Of those business owners who do sell their companies, few will go through the process more than once. Therefore, M&A professionals exist. When you’re embarking on the most complex and challenging business deal of your lifetime, it pays to have a few people in your corner who know what they’re doing. One of the biggest mistakes a seller can make is neglecting to build a team of experienced M&A advisors. Yet sellers frequently go to market without sufficient support. Occasionally, they attempt to handle the entire transaction themselves. This is tantamount to representing yourself in court— you’re almost always guaranteeing a victory for the other side. Similarly, when you spend less than you need to access qualified help, you can expect to get the result you pay for. Hiring an investment banker is one necessary cost sellers too often overlook. Perhaps the seller sees a banker as an unnecessary middleman, thinks their deal is too small to warrant involving one, or doesn’t understand the value the individual brings to the deal. Other times, a business owner will use an investment banker during the early stages of the transaction and dismiss them once a buyer is found. To be clear, one of the investment banker’s primary roles during a business transaction is to connect the seller to an interested buyer. Most business owners can’t simply wake up one day and find someone willing to purchase their company, which is why it’s important to work with a professional with a network and the ability to pitch the business. But your banker is much more than a matchmaker. Think of them as the overall quarterback of the deal. Like a QB, they lead the team and call the plays, always focusing on the end zone. Much of the work gets done in the huddle, so to speak. Normally, an investment banker starts by putting together a memorandum to market the business, coming up with a market strategy by analyzing the business—what it’s worth, what contracts it has in place, its revenue, and so forth. It’s the banker who understands the business better than anyone; they know the company inside and out and can see things more objectively than the owner can. Once a letter of intent has been signed—i.e. the ball has been thrown—the banker acts as a buffer between the selling principal(s) and the buyer’s people. At this point, they’ve passed the bulk of the work off to an attorney, but they remain active in the sense that they’re running interference. When lawyers are emphatically arguing for our clients’ interests, bankers are the ones keeping both parties calm, on track, and optimistic. They relay what are often heated messages (to put it mildly) in a composed and productive manner. Deals that lack this important cushion tend to flounder or implode as the parties argue and lose sight of their shared goals. I’ve worked with several sellers who didn’t realize the extent to which their bankers helped—even saved—the transaction. I’ve also had clients who linked up with buyers on their own, chose not to bring on investment bankers, and exposed themselves to intense periods of stress as a result. These clients had no one who could run interference. Worse, they created serious risks for themselves and their organizations. After signing an LOI, for instance, a buyer and seller may set an agreed-upon amount of net working capital (or operating capital) left in the business. If negotiations drag on and the seller needs more money to continue running the company in the interim, who gets to decide what kind of adjustment is fair? Who can determine how much cash the business really needs to keep in the bank? Attorneys can’t—we’re not financial people. And unlike bankers, who get paid at the end of the deal, we bill hourly. For these reasons, it’s not in your best interest to heavily involve your legal representative in any tasks better suited for your financial partner. Take it from someone who’s been there numerous times: you need an attorney and an investment banker. You wouldn’t hit the field with only a QB or only a center. Both jobs are essential, and their roles are certainly not interchangeable. Originally posted 10/3/2019, no content changes.
July 11, 2024
Business
Beyond Finances: If You Don’t Consider a Business’ Practices, You’re Missing Half the Story
It seems like a win-win: Anya is buying Barry's masonry business and both parties are happy with the transaction. The negotiations went smoothly. The sale price feels fair. Anya is getting a successful company with a clean bill of health. Nothing out of the ordinary appeared during diligence into Barry's accounts, vendor contracts, equipment, and so forth. Plus, Anya analyzed the business and found ways to make it even more profitable. Meanwhile, Barry is getting a really nice retirement package. He was able to leave the business earlier than he expected and with a sizable chunk of cash. There's just one problem: Anya and Barry have a culture clash and neither party knows it...yet. Anya has spent her career in the hands-off world of corporate finance, while Barry has worked hands-on in construction. The white-collar buyer and the blue-collar seller have fundamentally different attitudes, beliefs, and organizational practices and norms — none of which were discussed during the transaction. What Anya doesn’t yet realize is that masons are extremely hard to come by. Much of the industry’s labor force, including Barry’s, is undocumented. Anya now owns a business that generates money but is not in compliance with immigration and employment laws. To say the least, the company is rougher around the edges than she expected it to be. What Barry doesn’t realize is that Anya isn’t like most business owners in the masonry space. She isn’t comfortable with what he perceives as run-of-the-mill labor and employment risk. And once she finds out about it, he could face post-closing liability. She’s going to make her problems his problems. This kind of situation happens more frequently than one might expect. Many people don’t realize there’s more to business analysis beyond cash flow and financial spreadsheets. Buyers and sellers fail to appreciate the differences and nuances between their points of view and they run into trouble as a result. Issues don’t get communicated because one or more parties assume those issues aren’t important enough to bring up. They don’t understand how apparently minor differences shape significantly divergent practices. In mergers and acquisitions (M&A), no one can afford to assume anything. Everything is worth bringing up. This is why proper due diligence is essential. Buyers need to prepare to thoroughly investigate every single aspect of the target business from finances and contracts to worker status, organizational culture, and leadership philosophy. Buyers and sellers also need to consider working with teams of M&A professionals as early on as possible. An attorney or another close advisor can clue you in to potential issues, red flags, culture clashes, and areas of uncertainty that may seem otherwise inconsequential or invisible. Remember: a business transaction is an unusually challenging and stressful event. Without help, it’s normal for first-time sellers and buyers to overlook serious problems. There are countless legal, financial, organizational, and personal matters to manage — and it can all become overwhelming if you manage it alone. Don’t wait until you meet your Barry or Anya to discuss your exit strategy with an M&A advisor. Originally posted 8/15/2019, no content changes.
July 3, 2024
Business
M&A Market Opportunity: Is Now The Right Time To Sell Your Business?
Is now the right time to sell your business? Just as every business is unique, so is every sale. Some companies are well-positioned now; others need a longer runway. Still, others may find that market conditions in several years will yield even greater benefits, provided owners are ready to bear the potential downturn ahead. To find out where your business sits and determine the timing of your exit strategy, take a look at this infographic. When you’re ready to take the next step, Offit Kurman’s M&A attorneys are ready to make the deal happen. For more information and infographics about the current M&A market, click here. Market IS Highly Receptive; Business IS NOT Optimized Get a valuation Check your assumptions Be realistic about longevity Consider demand-to-risk ratio Protect valuable employees and assets now Discuss exit options with attorney Market IS NOT Receptive; Business IS NOT Optimized Button up any risks and uncertainties now Build a board, or join an advisory group Cultivate your network Secure talent and valuable assets Develop long-term exit plan Market IS Highly Receptive; Business IS Optimized Commit to the process Create competitive environment Assemble selling team Assess and take care of legal, financial skeletons Maximize value Hit the market Market IS NOT Receptive; Business IS Optimized Analyze market and alternative options with attorney Get to know potential, eventual buyers Create conveyable value Stay on top of market conditions Be patient
June 27, 2024
Mergers and Acquisitions
Infographic: The Sell-Side M&A Attorney Team
Mergers and acquisitions (M&A) are a team sport. It takes multiple people to successfully close a business transaction: the business owner or owners, the buyer, each side’s accountants and advisors, and multiple attorneys working together. For the seller, their M&A process will involve a number of attorneys through the deal lifecycle, including the corporate attorneys driving the transaction and several subject matter attorneys weighing in on select deal aspects (like tax issue, for example). To help sellers navigate the process, we’ve put together an infographic showing the lifecycle of a sell-side transaction and the sell-side attorney team’s participation and timing throughout a transaction. Below, you’ll discover what attorneys you’ll need to bring on, and when, along with a few key tips and considerations for closing the deal. To talk to an experienced M&A legal advisor, be sure to contact Mike Mercurio at mmercurio@offitkurman.com or 301.575.0332.
June 13, 2024
Mergers and Acquisitions
About to Sell Your Business? Don’t Schedule Vacation Yet
Perhaps, you’re like a number of business sellers I’ve recently worked with and you’re planning to exit your company. If you’re a business owner and you’ve already received a letter of intent (LOI) from an interested buyer, a massive payday may appear to be right around the corner. I’m sure it seems like the perfect occasion to schedule that long-awaited trip to Costa Rica, right? Not so fast. It’s understandable why a seller would get excited about an LOI. It’s certainly a significant mergers and acquisitions (M&A) milestone. It’s often the first time the seller sees a price in writing. It’s a tangible, formal-looking document that signals yes, this deal is really happening. But an LOI doesn’t indicate the end of the deal and unfortunately, it’s far from the end. LOIs are rarely legally binding and as their name suggests, they simply express a buyer’s intentions and solidifies their interest. An LOI is unlikely to reflect the eventual purchase price, or even indicate that the deal will in fact close. Many sellers fail to recognize this. They see a dollar amount — typically the largest sum they’ve ever encountered — and immediately start spending money they don’t have. One of the first things eager sellers do is book a vacation 30 days out to celebrate…but deals hardly ever consummate in 30 days or less. When M&A transactions do close, the final sale usually comes after months of hard work and negotiations. The receipt of an LOI is the wrong time to plan a trip. What an LOI means is that now it’s the time to hunker down and get serious about selling your business as quickly as possible. Save your vacation for when you’ve closed the deal. Besides, then you’ll be richer and more relaxed for it anyway. Originally posted 8/16/19. Updated 6/6/24.
June 6, 2024
