Category: Mergers and Acquisitions
Clear ResultsMergers and Acquisitions
Breaking Down Rollover Equity: Why Buyers Love It and What Sellers Need to Know
For many business owners, the goal of selling their company is turning their years, and often decades, of hard work into liquidity. But in some cases, retaining a stake in the company could prove to be fruitful for both the buyer and the seller. That is where rollover equity comes into play. Below is a breakdown of the benefits and risks of rollover equity, and what sellers need to know. Rollover Equity Explained The concept of rollover equity is simple. Instead of paying a seller entirely in cash, a buyer acquires 100% of the target company while allowing founders and key shareholders to retain a stake in the new ownership structure. The seller still receives some immediate liquidity at closing, exchanging the remaining portion for equity in the post-transaction business. This is certainly not a new concept and has been common in private equity transactions for some time. However, it is becoming an increasingly important tool today as buyers and sellers work to bridge valuation gaps and align their incentives in today’s more cautious deal environment. The Benefits of Rollover Equity One of the most obvious benefits of this deal structure is that it reduces the amount of cash required to close a transaction. This is a significant benefit for buyers who are motivated to preserve capital whenever possible, particularly in today’s market when financing costs are elevated, and lenders are scrutinizing leverage more carefully. Buyers do not have to fully fund a transaction with cash, but they still obtain full control of the entire company. Additionally, when founders remain involved, there is an increased confidence that the management team and employees will remain motivated and stay onboard. Continued seller participation can also help to preserve relationships, maintain operational continuity, and retain institutional knowledge after the deal closes. These non-economic factors can be critical to the company’s future success. Rollover equity can also be a tool to bridge valuation disagreements between a buyer and seller. A frequent issue that arises is a seller’s belief their business deserves a higher valuation based on its growth potential vs. the buyer’s hesitation to fully underwrite those projections in cash. A rollover structure provides a bridge for both sides to move forward despite the disconnect on valuation. The seller gets to walk away with immediate liquidity while still retaining the opportunity to benefit from the upside if the company continues to grow. That second bite at the apple can prove to be extremely valuable for a seller if the company later sells at a higher valuation. They can see returns that far exceed anything they would have generated from an all-cash transaction up front. This makes rollover equity particularly attractive for sophisticated sellers who see the opportunity to continue participating in value creation alongside the buyer. The Risks of Rollover Equity While there are many upsides to rollover equity, it is not without risk. Most importantly, sellers must fully understand what they are receiving in exchange for the portion of the sale they are not receiving in cash. The rolled equity is typically a minority stake in a buyer-controlled entity. The seller will have minimal control over future decisions, including exit timing. Therefore, the rights associated with the rollover are incredibly important and should be carefully negotiated. Rollover equity can also include some restrictions for the seller. For example, there can be mandatory hold periods, drag-along provisions, or other limitations that can affect how and when the seller can monetize their investment. The capital structure of the post-closing entity also matters. If the new entity is highly leveraged, the seller may face a very different set of risks than they did as the original owner. As with any transaction structure, a rollover transaction comes with its own set of tax considerations as well. When structured properly, rollover equity can come with the added benefit of tax deferral in certain instances for sellers, but the rules here are complex and highly dependent on deal structure. It is essential to bring in legal and tax counsel early on to ensure everything is structured appropriately and aligns with the seller’s financial goals. Rollover equity can be a highly beneficial tool for both buyers and sellers, and it will no doubt continue to be increasingly used in today’s M&A environment. But there are many considerations, especially on the sell side, that must be addressed from the start. Working with effective legal counsel throughout the process can help to reduce the risk, increase the benefits, and set up sellers for even greater success in the future.
July 6, 2026
Business
Why Real Estate Issues Slow ETA Deals
Most buyers expect environmental issues to be the real estate risk. In many deals, the larger risk is operational disruption. Real Estate Is Involved in Most ETA Transactions Real estate shows up in the vast majority of lower middle market transactions in some form. According to the 2025 Small Business Credit Survey published by the Federal Reserve: approximately 59% of operating businesses with employees operate from leased facilities approximately 17% operate from owned facilities approximately 17% primarily operate from a residence or without a dedicated operating facility That means roughly 83% of entrepreneurship through acquisition transactions involve some form of real estate or occupancy issue. In many deals, the primary issue is not ownership of the property itself. It is whether occupancy, control rights, lease assignment provisions, lender requirements, zoning, or permits could interfere with the business continuing to operate after closing. Those risks often become the primary real estate issues affecting the transaction. Most Buyers Initially Focus on Environmental Risk Environmental exposure absolutely matters. Particularly in: manufacturing industrial logistics automotive fuel-related operations older commercial corridors Phase I and Phase II reports remain critical diligence tools. But many search funders, independent sponsors, and ETA buyers do not place enough weight on operational interruption risk. While the business may technically exist independent of the property, operationally, it often does not. Location Becomes Part of the Business Most of these businesses are highly dependent on their physical operating environment. Examples include: machine shops with specialized electrical infrastructure distributors dependent on loading access and trucking routes contractors relying on outdoor storage rights restaurants dependent on parking and liquor licensing healthcare operators dependent on permitted use manufacturers operating under grandfathered zoning protections The issue is not simply whether the business can move. The issue is: cost of relocation operational downtime customer disruption employee retention permitting risk lender reaction transition timing Many ETA buyers do not fully appreciate this until diligence deepens. Lease Problems Often Surface After LOI One issue that repeatedly appears in ETA deals is whether the business can continue occupying the property after closing under the existing lease arrangements. Many buyers initially assume that the lease will (and can) transfer automatically at the time of closing. That is often incorrect. Most commercial leases contain assignment restrictions, consent requirements, or change-of-control provisions that must be examined carefully during diligence. Buyers need to identify: anti-assignment clauses landlord consent requirements change-of-control provisions expired lease terms undocumented extensions side agreements reflected only in emails use restrictions relocation rights held by landlords personal guarantees tied to the seller While the business operated successfully under these arrangements for years, a transaction introduces scrutiny, diligence, lender review, and operational friction. Lenders Underwrite Real Estate Issues Aggressively Occupancy stability becomes especially important in financed transactions. Particularly: SBA-backed deals owner-occupied industrial acquisitions cash flow sensitive businesses location-dependent operations Lenders often focus heavily on: remaining lease term renewal rights assignability ownership structure related-party lease economics appraised value environmental exposure zoning compliance A business with strong EBITDA but only 18 months remaining on a lease can quickly become a financing issue. Especially if the landlord has leverage during the closing process. Owned Real Estate Creates a Separate Transaction (and Separate Issues) Buyers often assume owned real estate simplifies the acquisition. In reality, it frequently creates a separate parallel transaction with its own diligence process, timeline, costs, and risks. The buyer must now perform diligence on both the operating business and the real estate itself, including: title survey and boundary issues easements zoning environmental exposure permits deferred maintenance tax exposure utility access stormwater compliance shared access arrangements The ownership structure also becomes critical, with many ETA deals using separate entities for the business and real estate. For example: one LLC owns the operating business another entity owns the real estate the operating company leases the property from the real estate holding company That structure often creates cleaner liability separation, financing flexibility, estate planning opportunities, and long-term control over the property. The larger problems often appear when the business and property were never properly separated in the first place. Many older lower middle-market businesses operate under informal ownership structures where: the seller personally owns the property family members own portions of the real estate title ownership differs from operational control there is no formal lease occupancy economics were never documented properly related-party arrangements evolved informally over decades That creates a very different set of diligence and execution risks. Buyers now need to examine: who actually owns the property whether all owners are participating in the transaction whether any family members must consent whether the operating business has formal occupancy rights whether market rent materially changes EBITDA whether lender underwriting changes once rent is normalized whether personal use or mixed-use issues exist whether title, tax, or succession issues affect the property whether post-close disputes could arise around occupancy or control Real Estate Distorts EBITDA More Than Buyers Expect Normalized occupancy costs also frequently change the underwriting. This issue regularly shows up in entrepreneurship through acquisition transactions, causing the business to appear more profitable because the seller owns the building. The company may operate with: below-market rent no formal lease favorable related-party occupancy terms deferred maintenance underreported capital needs Once the buyer normalizes rent, maintenance, taxes, insurance, market occupancy economics, and other carrying costs, the cash flow can compress quickly. That affects: leverage availability DSCR calculations valuation purchase price expectations post-close cash needs This is particularly important in manufacturing, warehouse, automotive, and hospitality acquisitions. Zoning Problems May Remain Hidden Until Diligence It can be a misconception to assume: “The business already operates there, so zoning must be fine.” Not always. A lack of zoning compliance can significantly disrupt operations. Businesses sometimes operate under: grandfathered nonconforming uses historical variances undocumented expansions expired permits improper outdoor storage occupancy inconsistencies signage violations prior approvals tied to historical ownership A transaction can trigger: new permit review lender diligence insurance underwriting review municipal scrutiny updated inspections The business may have operated without issue for years, but that does not mean the use remains protected post-closing. Real Estate Risk Can Show Up Everywhere Real estate issues quickly spread into: financing operations integration employee retention transition planning insurance working capital timing of closing The issues then become larger than the property itself. Real estate issues are most prevalent in lower middle market acquisitions where: documentation evolved informally occupancy arrangements were relationship-driven operational processes were never built for institutional diligence In these ETA deals, the answer to the real estate question ultimately controls: “Can the business continue operating the same way immediately after closing?”
June 10, 2026
Mergers and Acquisitions
When the Deal Gets Personal: The Emotional Inflection Points of Selling a Business
Selling a business is largely viewed as a financial transaction shaped by valuation, structure, diligence, and closing. However, for founders and owners, selling a business is also an emotional journey that can be a highly stressful event. That stress can be compounded when a corporate attorney is brought in late in the process when many sellers have already experienced the early and most precarious stages of the deal. Many sellers work with an investment banker to take the company to market, vet buyers, and there may even be a letter of intent (LOI) on the table before an attorney is brought on board. While the seller feels they are making progress, from a legal and strategic standpoint, this early stage is where complexity and stress begin to escalate and legal counsel is critical. We have discussed the importance of bringing in legal counsel early in the process in multiple posts, and that cannot be emphasized enough. Below, we examine the most stressful components for sellers in any deal and how bringing in legal counsel early can help to ease the burden. Letter of Intent The LOI is one of the earliest inflection points in the deal process. Sellers often underestimate its significance because they see it as non-binding on economic terms. But this is a false sense of flexibility because exclusivity and time restrictions are binding. Once that LOI is signed, the seller is essentially off the market for a determined period and cannot engage in discussions with other interested buyers. This is where leverage begins to shift from the seller to the buyer. The buyer now has two things that are very valuable: time and access. On the other side, the seller is now increasingly invested, both financially and emotionally, in making the deal happen. It is now harder for the seller to walk away from the deal, even if circumstances change. Diligence The leverage shift becomes more pronounced when the deal enters the diligence stage. Buyers are highly disciplined as they approach this phase of the transaction, particularly when they are sophisticated financial sponsors. Diligence is not about buyers just confirming what they have been told, but rather testing assumptions, looking for weaknesses, and then recalibrating valuation based on their findings. It is common for buyers to reassess price or deal structure because of what is uncovered during diligence, and for sellers who entered the process with a clear expectation of value, that can be jarring. The business they have spent years or even decades building is now being evaluated through a different lens. Consistent Performance Another layer that multiplies the pressure on the seller is the expectation that the business continues to perform at the same level throughout the entire process. Entering negotiations to sell does not equate to a pause in operations. It is simply a process that runs parallel to day-to-day operations. Sellers must manage diligence requests, respond to buyer questions, and engage with all their advisors, all while effectively running the company. They cannot afford for performance to dip, even for reasons that have nothing to do with the transaction. That can lead to a reason for renegotiation, with buyers adjusting terms, implementing additional protections, or even revisiting the valuation entirely. This creates constant tension for the seller who is trying to execute the deal and simultaneously maintain the underlying business. Delayed Engagement of Legal Counsel When a seller brings in legal counsel later in the transaction, it can feel disruptive at first. This is because the job of an attorney is to identify and address risks, clarify what has already been agreed to, and ensure that the documents accurately reflect the intended deal. If they are not involved from the jump, they may have to revisit assumptions or unwind understandings that developed earlier in the process. This can feel like friction or a change in direction for sellers, and that can be avoided when counsel is engaged from the start. The issues become even greater when the buyer is a private equity (PE) firm. These repeat players operate with well-established playbooks and experienced deal teams. This is in stark contrast to a first-time seller who sees this as a once in a lifetime event. For a PE firm, this is just a routine transaction. The imbalance this creates can heighten the emotional stakes, particularly when discussing complex deal components. The Personal Dimension The personal dimension of the deal overlays everything. For a seller, their business represents years of work, relationships, and their identity. Their company is not just an asset they are selling; it is often their life’s work. Layer in concerns about their employees, customers, and their legacy, and the personal connection to the business complicates everything. Sellers often carry the weight of the transaction on their own, while they must continue to lead their company, One other very important reality for sellers is that the deal is not done until it is closed. It is easy to get excited and assume that signing an LOI or moving through the diligence process means the outcome is assured. But the truth is that transactions can, and do, change late in the process. Terms evolve, issues emerge, and sometimes, deals fall apart. It is critical to maintain perspective and discipline and attempt to put emotions to the side. The bottom line for sellers is that every transaction must be approached with preparation and support from the start to minimize the significant stress that comes with every stage. Bringing in skilled legal counsel very early in the process can alleviate that stress and help sellers to not only maximize value, but also bring clarity to the many complexities of a sale, resulting in a deal that truly reflects the seller’s goals.
June 1, 2026
Business
Post-Close Alignment in Lower Middle Market M&A: Where Deal Stress Begins to Fracture
Most sellers and buyers in lower-middle-market M&A, including search funds, entrepreneurship through acquisition (ETA), and independent-sponsor transactions, begin to suffer from deal fatigue and welcome the post-closing phase of a business acquisition or M&A transaction. No more due diligence, no more negotiations, no more redlines. However, in many cases, the post-close phase is fertile ground for additional disputes to emerge. Most post-closing friction in lower-middle-market M&A deals is not caused by something that was absent from the deal. To the contrary, it is actually related to the negotiated documents governing the relationship between seller and buyer in the post-close transition phase. Consulting agreements, employment agreements, and corporate governance documents in rollover equity transactions seek to govern the relationship, but the relationship is still new in this phase. The parties are experiencing, for the first time, what it is like to work together after the change in dynamics (seller-owner to exited owner; buyer with funding to operator managing debt service and performance expectations). In this example, the seller rolled equity in the transaction and was now an equity holder in the buyer's platform company. The post-closing issues did not stem from a missing provision, but from ambiguities that existed across multiple documents that were meant to align and work together: seller notes, management agreements, and governance documents were all in play and created more confusion than clarity. That pattern is more common than most buyers expect, particularly in search fund, entrepreneurship through acquisition (ETA), and independent sponsor deals where post-close roles and governance tend to be more fluid. The LOI to Close Gap in M&A Transactions Most of these issues are not created at closing. They are created in the window between LOI and signing. At LOI, the parties align on high-level economics and general expectations: The seller will stay involved The business will transition smoothly Equity will keep everyone aligned in the case of rolled equity, or amounts due pursuant to the seller note will incentivize cooperation But those concepts get translated into separate documents depending on the deal: Employment agreement Consulting agreement Operating agreement Purchase agreement Each document answers a different question. Very few processes force those answers to be reconciled into a single operating model. That is where the gap forms. By the time you reach closing, the documents are “complete” but not always aligned. Where Post-Closing Issues Show Up in Business Acquisitions Employment Terms in Post-Closing Transition Buyers often assume that key individuals, particularly a selling owner transitioning into an operating role, will continue “as expected.” The employment agreement is where that expectation either becomes a reality or breaks down. The most common issues include: Role definition is too broad or not tied to actual authority Termination provisions do not reflect how performance issues will be handled Compensation structures do not match the deal model Example: A seller stays on post-close in a senior operating role (e.g., general manager) under a two-year agreement while the buyer installs its own CEO or operating partner. The buyer expects to reshape reporting lines and decision-making authority over time. The agreement, however, includes strong severance protections and defines material changes to duties or authority as “good reason.” Six months in, the buyer begins shifting responsibilities to its operating partner. The seller asserts “good reason” and triggers severance or other protections, despite the buyer viewing the changes as part of the planned transition. Nothing is technically wrong in the document. It just does not reflect how the buyer intended to transition control of the business. Consulting Roles and Transition Services Agreements Consulting arrangements are often treated as secondary or low-risk. In practice, they can drive real execution outcomes. This is especially true in customer transition and institutional knowledge transfer. Where this tends to go wrong: Scope of services is loosely defined Time commitment is not specified Compensation is not tied to outputs Example: A seller agrees to a 12-month consulting arrangement to support transition. The agreement references “reasonable availability” but does not define hours, deliverables, or response expectations. Post-close, the buyer expects active involvement in customer introductions and onboarding. The seller views the role as limited advisory support that can be provided from a remote location and not on-site. The result is predictable. The buyer feels unsupported. The seller believes they are complying with the agreement. Again, nothing is broken in isolation. The expectations were never aligned. Rolled Equity and Post-Close Governance Rolled equity is typically framed as a tool to align the parties in furtherance of a more profitable enterprise. In practice, it can be alignment in concept only, not in execution. Where this tends to go wrong: Different expectations around liquidity timing Limited clarity on governance rights Misunderstanding of distribution mechanics Example: A seller rolls 20% of proceeds into the new structure. The buyer plans to reinvest cash flow into growth and limit near-term distributions. The seller expects periodic cash flow similar to how they operated pre-sale. The operating agreement permits discretion on distributions, but the practical application of that discretion was never aligned. This is not a legal defect. It is an operating mismatch that surfaces quickly once capital allocation decisions begin. Why Post-Closing Misalignment Occurs in M&A Deals During the deal process, these items are negotiated in parallel: Purchase agreement Employment agreements Consulting agreements Equity and governance documents Each document may be internally consistent, but the following question should be asked: Do these documents, taken together, reflect how this business will actually be operated on day one? More specifically: Do they clearly define what the seller is required to do, what authority they retain or lose, how they are compensated for that role, and what happens if those expectations change or break down? If the answer to those questions is unclear, the issue is already embedded in the deal. Practical Considerations Pre-Close in Lower Middle Market Transactions This is almost always easier to address before closing than after. In practice, a strong lower-middle-market post-close package tends to do six things: Define the role with objective deliverables. Move beyond titles. Specify outputs, metrics, and decision rights that tie to how the business will actually be operated. Clearly classify the relationship. State whether the seller is an employee, consultant, or board-level advisor. Blurred status tends to create both operational and legal ambiguity. Precisely frame “cause” and “good reason.” If the buyer retains flexibility to change duties, reporting lines, compensation, or authority, that flexibility should be clearly bounded. Well-defined “cause” and “good reason” concepts are what translate flexibility into enforceable expectations. Separate consulting economics from deal economics. Consulting fees should stand on their own unless the parties intentionally link them to purchase price or earnout mechanics. Unintended overlap often creates disputes about what is being paid for performance versus transition support. Build explicit consequences for disruption. If authority is stripped or termination occurs outside the expected framework, the documents should address the outcome. That can include tolling, acceleration, deemed achievement, or extension concepts tied to equity or earnouts. Preserve a practical enforcement path. Rights are only useful if they can be exercised. Escrow access, information rights, expert determination procedures, and specific performance provisions tend to make these arrangements function in practice. Closing Thought on Post-Closing Risk and Deal Execution These are not technical refinements. They determine whether the post-close relationship functions when conditions change. Most post-closing issues do not come from a single broken provision. They come from small inconsistencies across multiple documents that were never forced to align into a single operating framework. If you are under LOI or in diligence, this is typically the window to fix that alignment without disrupting the deal. After closing, you are no longer interpreting intent; you are operating within the structure you drafted. If you are working through this in a live deal, step back and ask: Do these documents, collectively, dictate how decisions get made, how the seller participates, and how economics actually flow? If not, then the risk is not theoretical. It is already built into the deal.
May 29, 2026
Mergers and Acquisitions
First Time Buyers: Avoiding Analysis Paralysis
For first time buyers, the diligence phase of an acquisition can be overwhelming. Every document review, identified risk, and unanswered question, can lead to hesitation, and hesitation can quickly turn into something known as “analysis paralysis.” This can be a dangerous place for a transaction as it leads to a loss of momentum or even loss of the deal entirely. It is important for first time buyers to understand that no deal is without risk. You cannot eliminate risk entirely, but you can understand it, quantify it, and allocate it appropriately. When first time buyers recognize this reality early in the process, they are far more likely to move through the diligence process with confidence and ultimately have a successful closing. Below we look at some of the ways first time buyers can help to avoid analysis paralysis and build in the kind of protections that will allow them to move forward with ease. Bring in Advisors Early One frequent error among first-time buyers is delaying the engagement of experienced advisors, especially legal counsel. Legal counsel should be involved before the Letter of Intent (LOI) is signed, as their early participation enables the deal team to identify key issues, recognize potential risks, and structure the transaction to align price with risk effectively. Early involvement of advisors ensures that, upon reaching the diligence stage, the team is prepared to execute a strategy that has been thoughtfully designed from the outset, rather than developing one mid-process. Shifting Risks To allocate certain risks from the purchaser to the seller, it is essential to include precise representations and warranties, along with unambiguous indemnification clauses. When concerns arise, such as outstanding liabilities or matters identified during due diligence, targeted indemnities can significantly strengthen the buyer's protection. These safeguards enable buyers to move forward with a transaction even when not every issue has been conclusively resolved. Financial Structuring The financial structure of a transaction is equally significant as the inclusion of contractual safeguards. Transactions may be designed to incorporate financial protections for the buyer, such as escrow arrangements, holdbacks, or promissory notes. Additionally, earnouts provide further protection, particularly in situations where future company performance remains uncertain. By linking a portion of the purchase price to post-closing results, buyers can mitigate the risk of overpayment while enabling sellers to realize their preferred valuation. Deal Momentum One of the most important considerations for first time buyers is maintaining deal momentum. Conditions can shift quickly as transactions progress from market conditions to financing terms to business performance. If the diligence process is stalled, it allows more time for these conditions to shift, often leading to increased risk or erosion in value. When sellers lose confidence in the transaction, they could begin to entertain a competitor’s bid. Shifting conditions could also lead to a need for price adjustments or renegotiation of other terms. This is exactly where advisors prove invaluable. They can help buyers to distinguish between those issues that need immediate attention and are true red flags, as opposed to those that can be addressed through deal structure. Advisors can instill the kind of confidence in first time buyers that allows deals to move forward, even if every variable is not perfectly resolved. For those buyers entering the M&A process for the first time, the key is not to avoid risk, but to manage it intelligently. With the right team and a disciplined approach to maintaining momentum, buyers can avoid analysis paralysis and position themselves for a successful closing.
May 4, 2026
Mergers and Acquisitions
M&A Nuggets: Take It Personally - It's Goodwill
A common quandary facing sellers taxed as C corporations is the double tax that will result from a sale structured as an asset purchase — one level of tax to the corporation on the sale of its assets and a second level of tax to the stockholders on distribution of the net proceeds from the sale. This double tax can equal close to 50% of the total purchase price. The best way to avoid the double tax is to convince the purchaser to engage in a stock sale. That, however, is not always possible. In that case, serious consideration should be given to whether a portion of the purchase price can be allocated to the personal goodwill of the seller’s owners, as opposed to company goodwill. Any part of the purchase price allocated to personal goodwill will be subject to one level of tax. An additional benefit to the seller is that amounts allocated to personal goodwill are subject to capital gains tax rates. From the purchaser’s viewpoint, it can deduct amounts attributed to personal goodwill over 15 years, which is the same result as with amounts allocated to company goodwill. Personal goodwill is the goodwill of the individual owner of the seller that results from the person’s unique expertise, reputation or relationship with vendors and/or customers. Personal goodwill does not exist in every business. Before agreeing to an allocation to personal goodwill, an analysis should be made to determine the likelihood that the allocation will withstand any challenge by the Internal Revenue Service. The most quoted personal goodwill legal case involved a distributor of ice cream products who sold part of his business to Häagen-Dazs. In that case, the court recognized that the most valuable asset of the business was the owner’s business relationships with the business’s customers; the success of the business depended entirely on the owner. Another important factor was that the owner did not have a non-compete agreement. The court held that the owner, not the company, sold his assets to Häagen-Dazs. If the factors identified by the court in the Häagen-Dazs case apply and personal goodwill exists, a seller can obtain a significant tax benefit. That would be a very nice dessert on top of the main event of the business sale.
April 16, 2026
Mergers and Acquisitions
Financial Readiness: Fixing the Problems Before Going to Market
When a business owner is considering a sale, financial statements are often the first point of contact with a potential buyer. Before any discussions commence regarding strategy, growth potential, or culture, buyers are going to ask the question, “Can we see your financials?” Your financials tell the story of your business. When they are clear, credible, and well-prepared, they create momentum and instill confidence in the buyer. But when they are inconsistent, unclear, or require significant explanation, the transaction may stall or halt before it ever really started. Or it could result in an offer that doesn’t meet the seller’s expectations. Carefully prepared financials are critical to any transaction, and this must be handled before entering the market. It is one of the most important steps a seller can take to protect valuation and keep the deal on track. The First Test for Buyers When reviewing a potential acquisition, buyers are going to first evaluate two fundamental issues: the historical earnings of the business and its future earning potential. The historical performance is the foundation for determining valuation. This means the financial statements must clearly demonstrate profitability and reliable cash flow. When there is uncertainty, it can translate into a discounted offer or a decision to walk away. Sometimes the issue is not that a business is underperforming, it is just that their financial statements are not clearly reflecting the true earning power of the business. Addressing “Add-Backs” It is common for many privately held businesses to run a variety of expenses through the company that are not directly tied to operations. When this happens, it can distort the financial picture if these are not identified and adjusted. This can include personal expenses that are run through the business, vehicles or travel not tied to operations, above-market owner salaries, compensation to family members that are not active in the business, and more. When preparing for a sale, these kinds of expenses will typically be “added back” to EBITDA to reflect the company’s normalized operating performance. When add-backs are properly documented, it can significantly improve the evaluation of the business. But they must be adjustments that are credible and clearly supported, or it can lead to additional concerns and a slower negotiation process. Quality of Earnings Reports Within the past few years, Quality of Earnings (QoE) reports have become increasingly common early in the process to review the company’s financial performance. Sellers are now commissioning these reports before entering a sale process as opposed to a buyer conducting this analysis during the due diligence process. Because an independent accounting firm is conducting the analysis, it lends a level of third-party legitimacy and validation to the company’s earnings profile. This serves to further reduce uncertainty and can help accelerate the process overall. It can also help to instill confidence for the buyer that can lead to stronger initial offers. Preparation is Key in Today’s Market We have noted in previous posts looking at the current M&A climate that today’s buyers are more disciplined than ever. They are focused on financial clarity and risk management, and they are spending more time evaluating every aspect of a target’s financials. When a seller enters the market with well-prepared financial statements, along with supporting analysis from a third-party, they are often able to move through the diligence process more efficiently and have even greater leverage in negotiations. It is more important than ever to engage legal and financial advisors very early in the process. This allows ample time to clean up financial statements, resolve inconsistencies, identify areas of adjustment, and prepare supporting documentation. Presenting these kinds of financials that clearly demonstrate historical performance, and future potential allows buyers to justify a higher valuation. Part of every transaction is storytelling, and your financials must tell a credible story for buyers to have confidence in where the business has been and where it is going. Addressing any issues early in the process, well before going to market, is going to help eliminate surprises and strengthen the position of the seller. This is key to positioning the company for a successful transaction.
April 6, 2026
Mergers and Acquisitions
Preparing to Sell: The Most Common Deal-Killing Mistakes Business Owners Make, and How to Avoid Them
For many middle-market business owners, 2026 could present an ideal window to explore a sale. With financing markets improved and private equity (PE) sitting on significant amounts of dry powder, strategic buyers are in a prime position to pursue acquisitions that offer them growth and efficiency. Smart sellers will be prepared to take advantage of these improved conditions and strike while the iron is hot. But even in healthy deal environments, deals can fall apart, and most of these failures are preventable. As a corporate M&A attorney, what I typically see are the same avoidable issues that derail transactions. Below, we look at the most common mistakes business owners make before going to market and most importantly, how to avoid them. Sloppy or Unvetted Financials An easy way to erode buyer confidence is to present unreliable financials. Buyers expect clean financial statements, normalized EBITDA with clearly supportable add-backs, transparent revenue recognition policies, and thorough documentation. This requires significant preparation and engagement of advisors early in the process (at least 12 to 24 months before a contemplated sale). Taking the time to get your financials in order can help reduce friction, prevent re-trades, and ultimately protect your company’s valuation. Failure to Clean Up Your House Failure to clean your corporate house before going to market is a very common mistake owners make. Before engaging in any sale process, sellers should take a critical look at everything in the business, making sure it is all in order. This includes ensuring customer contracts are in writing, properly assignable, and free of any change of control termination rights that can present problems. Vendor agreements should also be scrutinized, making sure they clearly document pricing terms and are commercially sustainable. Do your debt structures contain restrictive covenants? And are your equity records and governing documents accurate and up to date? Is your intellectual property ownership properly documented? A deep dive into all of this and more is critical. Buyers do not like surprises in the diligence process. Further, having to “clean-up” the business in front of the buyer can cost credibility as well as deal value. Conducting a thorough pre-sale legal audit can help eliminate surprises as well as the costly delays (or worse). Limiting the Potential Universe of Buyers Assuming you already know your ideal buyer can be a major mistake. Many owners assume they will sell to a competitor or a PE firm, but the universe of buyers in 2026 is much larger. Limiting yourself to only certain types of buyers can materially depress value. Today’s buyers span strategic acquirers seeking bolt-on growth, family offices in search of long-term cash flow, international buyers looking to enter the US market, and more. To ensure you are maximizing your valuation and considering all options, there must be a broad, well-run process to vet buyers. This will increase competitive tension, which in turn, drives up the price and lays the groundwork for better deal terms. Overlooking Tax Structuring Tax structuring is not an afterthought. It must be a part of the strategy. After all, taxes drive transactions. How your transaction is structured matters. Whether it is an asset sale, stock sale, rollover equity arrangement, or partial liquidity event, it can materially impact net proceeds. Therefore, it is important to coordinate early with both legal and tax advisors who can dramatically change the “after-tax” outcome of your transaction. That is the number that truly matters. The Owner is the Business There are some red flags that buyers look for in an acquisition in relation to the owner and their role within the organization: Is the owner the primary salesperson? Are they the sole keeper of customer relationships? Are they the only decision maker? Without the owner, does the organization run into an operational bottleneck? If the answer is yes to these questions, then you do not have a truly transferable business. This creates a real issue for buyers, as they discount businesses that rely entirely on a founder. They want systems and processes in place, depth of management, and a company that can exist without its owner. Start working early to develop a solid management team, formalized processes, and institutionalized customer relationships to decrease risk and increase value. Failure to Incentivize Key Employees When key employees start to feel uncertain or that they are unprotected, it can negatively impact a transaction. Employees want some clarity, and buyers are looking for continuity. That means you must plan and communicate regularly and effectively. Retention plans, bonuses tied to the transaction, or equity offers are all incentives that can help preserve stability during and after the close. Failure to Plan Ahead Selling a business is a major financial event, but it is also a significant life transition. Most owners have spent years, if not decades, building their business, and it has become a part of their identity. So, it is surprising that they don’t often consider the role they will play (if any) with the company moving forward. Nor do they consider what’s next. What lies beyond the day after the sale? These might seem like afterthoughts, but they are not. They must be considered upfront so that expectations with the buyer are clearly communicated and there is no tension or dissatisfaction on either end. Waiting Too Long to Involve Advisors If you wait too long to involve your legal and financial advisors, you may have already lost your leverage. You cannot wait until you have received an unsolicited offer. Involving advisors early in the process is the key to success and to avoiding the mistakes we have discussed. Reach out to your advisors 12-24 months before considering a sale so that you can address any issues and ensure preparedness. By engaging experts early on, you are shortening diligence timelines and strengthening your negotiating position. And remember, valuation can be significantly eroded by avoidable preparation failures. Prepare your business, and yourself, for the outcome you want.
March 2, 2026
M&A Nuggets
M&A Nuggets: Stop Signs
Contrary to popular belief, most business purchases do not succeed. That is not necessarily a bad thing, because occasionally the best deal is the deal that does not happen. To avoid closing a bad deal, the acquiror should be on the lookout for big red stop signs. Some stop signs are obvious, like material litigation, declining revenues, downward profits or a seller that engages in a particularly risky business. Some stop signs are not so obvious. These more subtle stop signs can spell disaster for a business combination. Examples include: a lack of symmetry in business culture between the purchaser and the seller the seller’s lack of proper recordkeeping, such as poor financial books and records, corporate documents or human resources files a seller who is unable to express a rational reason for sale a seller who appears recalcitrant in its position and/or somewhat aloof in the negotiation process Special attention should be paid to these last two items. Starting early in the process, the acquiror should ask a seller about its motivation to sell and its plans for devoting resources to the sale, and then track whether the seller’s actions follow its words. Otherwise, an acquiror could be negotiating with a seller who is not “all in,” wasting months of time and resources on a fruitless endeavor.
February 23, 2026
Business
Rethinking the Early Exit: How Gen X and Millennial Owners Are Selling Smarter in 2026
While much of the exit-planning conversation has centered on Baby Boomers approaching retirement, Millennial and Gen X founders are also a growing segment of today’s middle-market sellers. These generations collectively own a large portion of small and middle-market businesses, and they often do not hold on to their businesses as long as previous generations, prioritizing exits at a stage when they can still pivot to new ventures. This means that earlier-in-career exits are becoming increasingly common, and they present a distinct set of considerations for these younger generations, particularly for those looking to make a move in 2026. Market Conditions in 2026 Starting in 2025, we began to see a much more active merger & acquisition (M&A) market than we have the past few years, and that is expected to continue as we move through 2026. Strategic buyers remain active, private equity firms continue to deploy record levels of dry powder, and financing conditions (particularly in private credit) have improved. At the same time, buyers remain disciplined, and valuations favor businesses with predictable cash flow, strong management teams, and scalable operations, even where growth remains the primary story. For younger founders, this kind of dynamic can cut both ways. Many younger companies are still scaling, reinvesting, or professionalizing operations, which can limit valuation if pursued too early. Therefore, one of the most critical drivers of outcome this year is timing the market, while also allowing the business to mature operationally. The Impact of Boomer Sales on Timing and Valuation It is important for Gen X and Millennial business owners to note that right now, there are many Boomer-owned businesses that are coming to market. While this wave of Boomer business sales is fueling buyer interest, it does present another layer of complexity for younger sellers. Unlike legacy businesses with decades of operating history, companies owned by Gen X or Millennials may lack the same kinds of long-term financial track records. While buyers in 2026 are still willing to underwrite growth, they are going to expect clean financials, recurring revenue, and evidence that performance is durable, not founder dependent. This is why strategic exit planning, often beginning 12 to 24 months before a sale, can materially improve valuation by allowing time to normalize earnings, strengthen leadership, and reduce execution risk. Market cycles and competitive sale dynamics also matter, particularly as so many Boomers will be selling over the next few years. Choosing the Right Deal Structure for Long-Term Wealth Younger sellers typically have decades of professional life ahead of them, making deal structure equally as important as price. Partial liquidity events, rollover equity, earn-outs, and minority recapitalizations remain common in 2026, particularly in private equity transactions. Remember that the structure you choose will have significant tax, risk, and governance implications and should be addressed early with experienced legal and financial advisors. This will all impact your long-term wealth, so choosing wisely here is critical. Gen X and Millennials are certainly taking a different approach to business ownership and exit timing than earlier generations, opting for exits earlier in life that afford them flexibility and opportunity. While there can be incredible benefits to these early exits, in today’s competitive and disciplined M&A environment, younger owners must think beyond valuation alone, considering timing, structure, and how each decision will impact their long-term wealth. Ultimately, a successful exit for today’s younger business owners is not defined by the sale itself, but by how deliberately it positions them for sustained financial security, future ventures, and the next chapter of their professional lives.
January 30, 2026
M&A Nuggets
M&A Nugget: Qualified Small Business Stock Update
In 1993, Congress passed a tax law intended to incentivize entrepreneurs to invest in early-stage companies. This tax law, often referred to as QSBS (Qualified Small Business Stock) allows stockholders to exclude from tax a substantial portion of the gain on certain business sales structured as stock sales. Last year, the law was amended to expand tax savings. Here is how the QSBS tax exemption works: If a stockholder holds shares of stock issued initially and currently held in a C corporation, and The shares of stock have been owned for at least three years, and The corporation has assets of less than $50M or $75M (depending on the year the stock was acquired), and At least 80% in value of the corporation’s assets are used in the active conduct of a “qualified trade or business”, then When stock is sold in a business sale, between 50% and 100% of the gain can be excluded from tax. A “qualified trade or business” means any trade or business, except certain service businesses (usually involving the rendering of professional services), banking and insurance businesses, and certain real estate-related businesses. The most significant change in 2025’s QSBS amendment was to increase the amount of gain that can be excluded from tax. For stock issued before July 4, 2025, the maximum exclusion is $10M. For stock issued on or after July 4, 2025, the maximum exclusion increases to $15M. The tax savings can be substantial. For example, on the sale of a business in a stock transaction for $20M, if the original ownership was acquired before July 4, 2025, $10M can be excluded from federal tax (as long as the stock was held for at least five years), resulting in tax savings in excess of $2M. Planning Opportunity A stockholder that is not a corporation is eligible for the QSBS. This includes individuals and trusts and presents an extraordinary planning opportunity for an individual to create a trust to hold a portion of the company’s ownership. If the trust is structured as a separate taxpayer, the individual and the trust can each take advantage of the QSBS tax exemption. Many strict requirements must be satisfied to qualify for the QSBS, and anyone considering use of this tax law should engage a professional advisor who has experience with those requirements.
January 22, 2026
Mergers and Acquisitions
Preparing for a Sale in 2026: What Retiring Business Owners Need to Know
As we begin 2026, we find ourselves right in the middle of “Peak 65,” the period of time between 2024 and 2027 when approximately 4.1 million Americans will turn 65 each year. Also known as the “gray tsunami,” this powerful demographic shift has profound implications for closely held and family-owned businesses. For many of these business owners finding themselves at retirement age, 2026 will be a pivotal year, particularly for those who want to exit on their own terms through a sale. We previously examined this issue in 2025, but as the next round of business owners look at a potential sale in 2026, it’s time to revisit the issue and some of the specific considerations for sellers this year. Market Timing and Buyer Behavior In 2026, buyers are still disciplined. They will pay for quality, predictability, and growth, but they will penalize uncertainty. This means it is important to position the business as “recession-resilient,” showing recurring revenue, diversified customers, and stable margins. Sellers should also avoid sending a signal of urgency. Many buyers view a retirement-driven sale as a “must sell.” This can weaken the leverage on the seller’s side. In 2026, sellers should also anticipate longer diligence and tougher deal terms, especially if your house is not in order. Financial Readiness Having strong, clean financials is the single biggest value driver. 2026 buyers are going to heavily scrutinize everything from the last 24-36 months of financials to working capital trends to cash flow vs. EBITDA. This means it is important that your financials tell a clean story. Look carefully at issues such as owner compensation, what family is on the payroll, personal expenses, and one-time expenses. Remember that buyers will discount anything that is unclear or that you must overly explain. If it takes more than 30 seconds to explain an adjustment, you can likely expect pushback. Owner Dependence and Transition It is important to understand that buyers are not buying you. They want to buy a business that works without you. They will be looking for red flags such as too much control over key customer relationships or pricing, hiring or spending. If the owner is the only one who really “knows how things work,” it doesn’t instill confidence in the future of the business. Make sure you are delegating customer relationships, creating formal processes for pricing, approvals, and reporting, and identifying or elevating a second in charge or leadership team that can carry the torch moving forward. You should also document key processes and procedures so that there is a clear roadmap once you exit. Deal Terms In 2026, deal terms are going to be just as important as the headline price. Many sellers are focused just on the price, but they will regret the deal terms down the road. This year, buyers will be focused on terms such as earnouts tied to performance, seller notes, escrows and indemnity exposure, and post-closure employment or consulting obligations. Before you decide to sell, you must determine how long you are willing to stay involved, as well as what level of risk you’re willing to tolerate after the close. Are you looking for certainty or are you looking for upside? The more clarity you have on these issues going into negotiations, the less likely you are to make an emotional decision you will regret later. Family Dynamics One often overlooked issue that sellers do not consider is the dynamics of the family within the business. Emotional risk is viewed as financial risk, and this can be tricky when a family business comes up for sale. Do you intend for any children or relatives to stay on with the business? Is everyone aligned on value and timing? And what kind of family perks are embedded in the business? All of these are vital questions to answer well ahead of a sale. 2026 buyers will move away from uncertainty around family involvement or adjust the price accordingly. Looking Ahead For retiring business owners, selling a company is one of the most consequential transactions of their lives. In the context of the gray tsunami and an increasingly active middle-market M&A environment, 2026 is filled with opportunities as well as risks. With thoughtful preparation, it is possible not only to maximize value, but also to protect the legacy built over decades and transition into the next chapter on favorable terms.
January 6, 2026
Business
Middle-Market M&A at the Close of 2025: What Business Owners Should Expect in 2026
As 2025 ends, the merger and acquisition (M&A) market, especially in the $5–$100M deal range, is closing out the year on firmer footing than it began. After two years defined by higher borrowing costs, valuation gaps, and cautious buyers, the middle market spent 2025 recalibrating. Today, we’re seeing disciplined but real momentum. There is better alignment between buyers and sellers, renewed lender appetite, and a more predictable rate environment that is finally allowing exit windows to open. Heading into 2026, small and mid-sized business owners should feel cautiously optimistic. Deals are getting done, but strong fundamentals matter more than ever. Below is a year-end look at the data, the trends, and the opportunities for middle-market deals. Deal Volume For transactions involving PE firms, deal volume appears to be on the rise in late 2025. According to a report from EY, while deal value was down for PE deals in October, deal volume in this area was up, indicating a move to more mid-market and smaller transactions for PE firms as opposed to mega deals. In terms of the overall picture for the M&A market, Deloitte’s 2026 M&A Trends Survey signals that while total deal value rose 56% in Q3, total deal volume only jumped 1.6%. They say this could “present an opportunity for increased value realization, especially with midmarket and smaller deals.” Valuation Gaps EY’s Private Equity Pulse from Q3 of this year also points to a narrowing valuation gap between buyers and sellers. In their most recent global general partner (GP) survey, two-thirds of respondents cite a narrowing valuation gap that is allowing “buyers and sellers to find common ground and move forward with confidence.” So, what is driving this gap to close? More stable interest rates and improved credit access are two of the most significant factors, along with sellers adjusting their expectations and buyers who are willing to use structure (earnouts, seller notes, rollover equity) to bridge any gaps. Sellers entering the market prepared with reliable financials, clear forecasts, and realistic expectations are the ones securing the strongest multiples. Financing Conditions EY’s Private Equity Pulse from Q3 also indicates significantly improving financing conditions. They say direct lenders are staying highly active and offering competitive pricing and flexible structures, while the broadly syndicated loan market has reopened for larger buyouts. Their report cites PitchBook LCD data showing that in the U.S., syndicated loan activity reached a record $404 billion in Q3, reflecting renewed confidence from both borrowers and lenders and signaling stronger overall credit availability heading into 2026. The 25 basis point rate cuts by the Fed in September and October have been a much-needed bright spot in 2025, freeing up access to capital, and we could see one more before the end of the year. Deloitte’s 2026 M&A Trends Survey says that if that next rate cut materializes, it would be a “welcome tailwind for deal activity.” Strategic Buyers While private equity remains active, strategic buyers were the surprise strength of 2025. Solomon Partners M&A Outlook and Trends from October indicates that strategic M&A remains steady, with strategic deal volume up 21% in Q3 2025 vs 2024. They highlight elevated cash reserves and tariff-driven cost pressures as two factors that are encouraging consolidation. Strategics are also less rate-sensitive than financial buyers, giving them more room to compete on valuation. What Small & Mid-Market Sellers Should Expect in 2026 A Healthier, but Highly Selective, Universe of Buyers Expect a strong pipeline of buyers in 2026, but not necessarily for every business. Buyers are increasingly becoming more selective, prioritizing factors such as strong margins and stable cash flow, as well as recurring or contractual revenue. AI-enabled operations or meaningful data visibility, clean financials with audit-ready records, and a clear, demonstrable growth runway will continue to drive premium valuations. Businesses that lack these characteristics should anticipate more intensive diligence and a greater reliance on structured deal terms. Diligence Will Be Even Tighter Buyers will continue to push for deeper and more comprehensive diligence in 2026, making quality of earnings reports a baseline expectation and expanding operational reviews to cover technology infrastructure, cybersecurity, and AI adoption. They will scrutinize things such as inventory practices, working-capital trends, and customer concentration more closely, while also increasing their focus on data-privacy and overall regulatory compliance. Well-Prepared Sellers Will Have the Advantage Owners considering an exit in 2026 should begin preparing now. The most successful sellers in 2025 entered the process with 12–24 months of clean, normalized financials, a strong management team ready to support the transition, and early engagement with their legal, tax, and accounting advisors before going to market. This level of preparation consistently results in shorter diligence timelines and more secure, defensible purchase prices. While the market is improving, buyers remain disciplined, and seller-friendly terms are not guaranteed. Overall, the outlook for 2026 is cautious optimism with real opportunity. If 2025 was defined by recalibration, 2026 is poised to be a year of execution, particularly in the lower and middle markets. For business owners considering a sale, 2026 may present the best environment we have seen since 2021, but only for those who are preparing today to seize the opportunity of tomorrow.
December 2, 2025
Mergers and Acquisitions
Bridging the Gap: The Art of Communicating with First Time Sellers
It is estimated that 75 million baby boomers could retire by 2030. Many of these boomers have built successful businesses over decades, and they are now ready to sell as they move into the next phase of their lives. This is leading to a rise in M&A activity involving first-time sellers who are financially sophisticated and emotionally invested in their business, but they have not experienced the pace, process, or complexity of an acquisition. When this kind of first-time seller is involved, there can be some tension if buyers bring in large law firms who utilize their standard “big deal” approach. This specific client needs more clarity, connection, and practical guidance as opposed to layers of process. The Process Can Overwhelm the Person When a large law firm comes in on the buyer’s side, they bring an undeniable level of horsepower to transactions. But the same approach taken for billion-dollar deals isn’t necessarily a fit for the sale of a closely held business, and it can lead first-time sellers to feel sidelined and overwhelmed by complex jargon, unexpected costs, or rigid workflows. It can also lead the seller’s counsel, who they have likely worked with for years, to feel out of step with the tempo and expectations of the larger firm. The result is often an erosion in goodwill between the buyer and seller before the deal closes. The Advantage of the Middle-Market and the Art of Adapting This significant disconnect has created an opportunity for middle-market firms that understand both sides of the table. Middle-market firms offer sophisticated, deal-tested counsel who still prioritize communication and trust. They are better able to breakdown the jargon of big firms into advice business owners can understand and act on, helping these first-time sellers to feel informed and empowered, rather than frustrated and intimidated. But bridging this kind of a gap isn’t just about legal skill. It also requires a level of emotional intelligence and the ability to recognize when a seller needs context or reassurance. It also requires an understanding that every negotiation does not necessitate a 100-page response. There is an art to adapting the process to the client’s needs and experience level without compromising the quality of the transaction. The Importance of Nuance There is no one size fits all approach to transactions. They are all different, and they all require a nuanced approach. If a first-generation business owner is selling their life’s work to a PE firm, there is a very different set of concerns involved than if a serial entrepreneur is on their fifth exit. It is critical that counsel knows how to balance structure with flexibility and sophistication with accessibility, meeting clients where they are as opposed to forcing the client into a transactional template. Applying this kind of nuance to transactions can lead to a smoother process and a collaborative closing. There is significant value in the firms that can operate in the middle. They bring the kind of insight and technical strength expected from big firms, but they also have the responsiveness and reliability expected from small firms. As the market becomes further shaped by generational transitions and first-time sellers parting with their closely held businesses, the balance that middle-market firms bring to the table is more than just a competitive advantage. It is what gets this kind of deal done.
November 4, 2025
Mergers and Acquisitions
How Early Legal Counsel Shapes a Smooth Deal
Selling a business is never just about numbers on a page, it’s about preparation, people, and navigating the unexpected. Mike Mercurio presents a compelling series of conversations with client and former Fireline owner Anna Gavin, as she shares the real story behind her company’s sale. From the private moment she first decided to sell, to the surprise challenges of disclosure schedules, and the essential role of trusted advisors, Anna offers a rare, inside look at what the process truly feels like. Whether you’re years away from a sale or already planning one, her journey provides invaluable lessons on timing, team, and trust. In Part 6, the last of our Selling Your Business series, client and former Fireline owner Anna Gavin shares how early involvement from legal counsel Mike Mercurio and Offit Kurman set the tone for the entire transaction. Beyond just reviewing Letters of Intent (LOIs), the legal team played a crucial role in educating and mentally preparing her for complex steps ahead well before they became urgent tasks. This proactive approach helped avoid surprises and ensured the process moved smoothly, highlighting the value of strategic legal guidance from day one.
October 24, 2025
Business
Due Diligence: It's Not Just a Checklist
Selling a business is never just about numbers on a page, it’s about preparation, people, and navigating the unexpected. Mike Mercurio presents a compelling series of conversations with client and former Fireline owner Anna Gavin, as she shares the real story behind her company’s sale. From the private moment she first decided to sell, to the surprise challenges of disclosure schedules, and the essential role of trusted advisors, Anna offers a rare, inside look at what the process truly feels like. Whether you’re years away from a sale or already planning one, her journey provides invaluable lessons on timing, team, and trust. In Part 5 of our Selling Your Business series, client and former Fireline owner Anna Gavin reflects with her M&A attorney, Mike Mercurio, what it really felt like to go through due diligence and how even with a well-run, clean business, it was more intense than expected. Initially confident and prepared to tackle a long checklist, she quickly realized that diligence wasn’t just about ticking boxes it was a full-blown deep dive into every corner of the business. From finances and leases to operations and infrastructure, nothing was off limits. She compares it to an IRS audit but ten times. If you're heading into diligence, this is a must-watch for understanding what could be ahead.
October 16, 2025
Business
The Unsung Heroes of a Successful Exit: Your Advisors
Selling a business is never just about numbers on a page, it’s about preparation, people, and navigating the unexpected. Mike Mercurio presents a compelling series of conversations with client and former Fireline owner Anna Gavin, as she shares the real story behind her company’s sale. From the private moment she first decided to sell, to the surprise challenges of disclosure schedules, and the essential role of trusted advisors, Anna offers a rare, inside look at what the process truly feels like. Whether you’re years away from a sale or already planning one, her journey provides invaluable lessons on timing, team, and trust. In Part 4 of our Selling Your Business series, M&A attorney Mike Mercurio along with client and former Fireline owner, Anna Gavin touch on the critical role that advisors, including financial advisors and Offit Kurman as legal advisors, play throughout the deal process, especially in those intense final weeks leading up to closing. From reviewing contracts and translating legalese into plain English, to offering a safe space for honest questions, Anna reflects on how her legal team became both a guide and sounding board. If you’re thinking about selling, this is a reminder that having experts in your corner isn’t a luxury, it’s a necessity.
October 9, 2025
Business
Due Diligence in M&A Transactions: Why First-Time Buyers Should Avoid Analysis Paralysis
For many first-time buyers, the initial instinct in M&A transactions is to scrutinize every financial detail, prolonging the diligence process until they have an answer to every single question. This is certainly understandable, particularly for first-time buyers; however, this approach can often do more harm than good. The reason many deals fall apart is because they lose momentum, conditions shift over time, or sellers simply lose patience and walk away. All of these are considerable risks when the diligence process extends too long. Over-Diligence While thorough diligence is essential in any M&A transaction, when there is too much focus on financial minutiae, it can result in decision making paralysis. For first-time buyers, this can be difficult as they struggle to quantify risk and get caught in over-diligence, or a cycle of analysis and re-analysis. What can end up happening is analysis paralysis, meaning the fear of the unknown stops a deal from progressing. When buyers engage in over-diligence, it can lead to deal fatigue, where one or more parties lose interest or confidence as the process drags on for too long. When the diligence process stretches out, market conditions can also shift during the delay, or there could be internal changes such as an executive departing or a new business challenge arising. Timing is Essential In any transaction, momentum is key, and timing is everything. During the diligence process in M&A transactions, there are three ways in which timing can make a critical difference. First, timing is essential to the overall process. By keeping diligence tight, you can better ensure that the entire process will be compact and efficient. Then, there is timing of the market. When external factors such as regulatory shifts or new competitors pop up, they can start to impact deal value when a deal lingers. And finally, there is the internal timing of the target company itself. Over time, internal challenges could arise with leadership or operations that can lead to unnecessary hurdles. So, when diligence drags on too long, buyers run a significant risk of paying the same price for a business that could be fundamentally different, or even losing the deal all together. Buyers should also consider the period of exclusivity to complete diligence outlined in the LOI. That period of exclusivity can run out, and buyers could be forced to request extensions if they spend too much time focusing on incremental details. At a minimum, this can erode confidence, and at the worst, the seller could walk. Built In Protections It important for first-time buyers to understand one constant in M&A transactions: there is risk in every deal. But equally as important to understand is that you do not need to chase every risk. That is why there are built-in protections in transactions to help buyers move forward even when every minute detail is not fully uncovered during the diligence process. Buyers should work closely with legal counsel and advisors to structure agreements that include contractual provisions such as representations, warranties, indemnifications, and insurance solutions to protect parties from anything that was not uncovered. These kinds of tools are designed to balance the interests of buyers and sellers, and they allow buyers to focus their diligence efforts on those issues that affect valuation or viability of the deal, rather than wasting valuable time attempting to eliminate all risks. At the end of the day, diligence is designed to manage risk, not to eliminate it entirely. When you resist the tendency to over analyze financials, and stay focused instead, you can better maintain the necessary momentum and avoid paralysis. This leads to deals that close with confidence and are set up for long-term success.
October 6, 2025
Business
The Part of the Deal No One Warns You About: Disclosure Schedules
Selling a business is never just about numbers on a page, it’s about preparation, people, and navigating the unexpected. Mike Mercurio presents a compelling series of conversations with client and former Fireline owner Anna Gavin, as she shares the real story behind her company’s sale. From the private moment she first decided to sell, to the surprise challenges of disclosure schedules, and the essential role of trusted advisors, Anna offers a rare, inside look at what the process truly feels like. Whether you’re years away from a sale or already planning one, her journey provides invaluable lessons on timing, team, and trust. In Part 3 of our Selling Your Business series, client and former Fireline owner, Anna Gavin chats with her M&A attorney Mike Mercurio about a step that often catches sellers completely off guard — disclosure schedules. After what feels like the heavy lifting of diligence, you're suddenly asked to translate everything into a legal document that modifies your reps and warranties. It’s tedious, detailed, and critical to the final outcome. Anna shares her first-hand surprise at how complex this stage was and why having the right legal support made all the difference.
October 2, 2025
Mergers and Acquisitions
Finding the Right Deal Partners: Why Pace and Fit Matter
Selling a business is never just about numbers on a page, it’s about preparation, people, and navigating the unexpected. Mike Mercurio presents a compelling series of conversations with client and former Fireline owner Anna Gavin, as she shares the real story behind her company’s sale. From the private moment she first decided to sell, to the surprise challenges of disclosure schedules, and the essential role of trusted advisors, Anna offers a rare, inside look at what the process truly feels like. Whether you’re years away from a sale or already planning one, her journey provides invaluable lessons on timing, team, and trust. In Part 2 of our Selling Your Business series, Anna Gavin dives into one of the most overlooked but critical aspects of selling a business: choosing the right partners for the deal. She discusses with her deal counsel, M&A attorney Mike Mercurio, that from legal advisors to teammates, not everyone is the right fit for every situation. From the sell side perspective, she shares how important it was to align not just on expertise, but on pace, communication style, and approach. Keeping things simple, focused, and moving forward became the guiding principle and it made all the difference.
September 25, 2025
Mergers and Acquisitions
What Really Happens When You Decide to Sell Your Business?
Selling a business is never just about numbers on a page, it’s about preparation, people, and navigating the unexpected. Mike Mercurio presents a compelling series of conversations with client and former Fireline owner Anna Gavin, as she shares the real story behind her company’s sale. From the private moment she first decided to sell, to the surprise challenges of disclosure schedules, and the essential role of trusted advisors, Anna offers a rare, inside look at what the process truly feels like. Whether you’re years away from a sale or already planning one, her journey provides invaluable lessons on timing, team, and trust. In Part 1 of our Selling Your Business series, client and former Fireline owner Anna Gavin shares her personal and professional journey that followed her pivotal decision to sell her business. From quietly sitting with the decision for a year to finally voicing it to her spouse, she walks M&A attorney Mike Mercurio, who served as her counsel and deal attorney, through the early steps she took to get informed and prepared. By attending panels, listening to expert advice, and beginning the groundwork a year in advance, her story highlights the importance of planning and just how early that planning really needs to begin.
September 18, 2025
Business
Strategy and Deal Making: Understanding the Nuances of the Buy Side Approach
When it comes to today’s deal market, no two buyers approach acquisitions in the same way. For companies exploring a sale, or for boards weighing offers, understanding the distinct perspectives and motivations of private equity (PE) firms vs. strategic buyers is a key component in the decision-making process. Most data shows that strategic buyers are involved in a larger percentage of acquistions in the U.S. than PE firms, with some estimating they make up about 70% of transactions. While both categories of buyers are interested in achieving growth and value creation, their objectives, timelines, and deal-making strategies differ in ways that can shape everything from valuation to the post-closing integration process. What Drives Different Types of Buyers At the heart of every acquisition lies one simple question: What is driving the buyer? Understanding the why is essential as it determines factors such as how the deal will be structured, how risks will be allocated, and what life will look like post-closing. For most M&A transactions, buyers generally fall into three categories: Private Equity (Financial Sponsors) – These investment firms are highly focused on financial returns, have shorter investment horizons, and a defined exit strategy. They are looking to acquire a company with a goal to exit for a profit. Strategic Buyers (Operating Companies) – This category is made up of public companies, large private corporations, or industry leaders who concentrate more on finding synergies, long-term competitive positioning, and importantly, the integration of the target into their existing organization. Hybrid and Alternative Buyers – This group may include family offices, sovereign wealth funds, and consortiums, which may offer a blend of financial discipline and strategic motivations. Private Equity’s Playbook Private equity buyers typically operate within defined fund cycles, translating into a clear investment horizon, which is often five to seven years. Their acquisition strategy centers on unlocking value, whether that is through operational improvements, growth initiatives, or bolt-on acquisitions. There are several key hallmarks of the private equity approach, including discipline surrounding valuation. PE firms are very focused on returns, which can make them much more price sensitive than other buyers. They also utilize leveraged financing as a core component of their capital structure. This can magnify returns, but it also includes an additional risk factor. PE buyers also enter the transaction with the end in mind. They are concentrated on the exit event, whether that is a sale down the road, IPO, or recapitalization. For sellers, partnering with private equity can mean access to growth capital and operational expertise that can be invaluable, but it likely will not provide the kind of long-term “home” that a strategic acquirer would. The PE buyer is looking to exit as soon as the time is right. The Strategic Buyer’s Perspective As opposed to their PE counterparts, strategic buyers, pursue acquisitions to achieve synergies and create competitive advantages. They are motivated by expanding their market share, entering new regions, or acquiring complementary technologies. Strategic buyers often have longer investment horizons and could be willing to invest more heavily on the front end, knowing that they are looking to achieve returns over a longer time frame. This means that they might pay more of a premium when they can justify it through cost savings, revenue growth, or vertical integration over time. These buyers are going to be looking to integrate the target into their existing operations, which can impact culture, systems, as well as management continuity. Sellers may see strategic buyers as a more stable option as they are “in it for the long run.” The Rise of Hybrid Buyers There is an increasingly important category for sellers to consider, and that is the hybrid buyer. This category can include family offices, sovereign wealth funds, or corporate-backed investment arms which blend the return-driven discipline of a PE buyer with the more patient objectives of a strategic buyer. For certain sellers, for example founder-owned businesses, this option can be an attractive middle ground that presents a “best of both worlds” scenario. On the sell side, understanding the nuances of the buy side is essential to making the right decision. The “best” buyer isn’t always the one that comes in with the highest offer, and it is important to consider things such as long-term vision, cultural alignment, deal certainty, and growth support as well. There are some distinct differences between buyers, and to best negotiate terms and maximize value and long-term success, sellers must appreciate these differences and prepare accordingly.
September 10, 2025
Mergers and Acquisitions
Deal Flow Thawing: Is the M&A Market Finally Finding Its Footing?
After a rocky past six months, there is cautious optimism that merger and acquisition (M&A) activity is beginning to unfreeze. For much of the past year, there have been mismatched expectations around valuations and limited access to capital that have caused activity to stall. According to a recent report by PwC Global, “lending rates have long been one of the two key factors influencing M&A activity, the other being valuations.” So, while buyers were eager and sellers were hopeful, the numbers rarely lined up. But things could now start to change. The Valuation Tug-of-War One of the biggest barriers to getting deals across the finish line has been price. Many sellers have been holding onto lofty valuations based on pre-2022 market highs that simply aren’t realistic today. Meanwhile, buyers, who have been dealing with tighter credit markets and greater scrutiny from lenders, have been laser-focused on the fundamentals. All of this has resulted in a frustrating standoff where deals collapse not due to a lack of interest, but because no one can agree on what the business is truly worth. In fact, earlier this year, Arrowpoint Advisory noted a 26% decline in deal volume in North America, due in large part to “valuation mismatches between buyers and sellers.” We're now seeing a slow realignment. Valuation expectations are coming back to earth, with PwC noting that in today’s uncertain environment, it is important to not overreach on valuations. Deal structures are also evolving to bridge the remaining gaps, with earnouts, seller financing, and rollover equity becoming more common. It is this kind of flexibility that is helping to get deals done. A Shift in Diligence Dynamics Another notable change has been the quality of earnings (QoE) process. Two years ago, it was often a buyer-driven analysis, completed after signing a letter of intent (LOI). Now, many sellers are proactively conducting QoE studies before going to market. It’s a smart move to arm themselves with clean, vetted financials that can help to accelerate buyer confidence and reduce the risk of retrading. But there is a catch. Even with a proactive QoE, once a deal goes under LOI, buyers are digging deeper than ever. Diligence is intense, and the time from LOI to closing can stretch longer than expected. KPMG’s 2025 Deal Market Study points to heightened diligence and risk assessment as top challenges for 52% of corporates and 42% of private equity sponsors in the current economic landscape. And 47% of corporates also pointed to prolonged deal closing timelines as an issue, highlighting the link between deeper diligence and slower transactions. So, by the time due diligence wraps, earnings may have shifted, or market conditions may have changed, sometimes to the point where the lender’s original terms no longer match the reality of the deal. The Capital Crunch is Real, But Not Fatal Banks are still lending, but there is an increased level of caution and a decreased appetite for risk. We’ve seen situations where buyers get a term sheet for, say, $8 million in debt financing, only to find that after diligence or revised financials, the deal no longer pencils out, or the loan size is cut. That kind of late-stage shift can derail even the most promising transaction. That’s why it’s more important than ever to stress-test the deal early. Build in buffers, anticipate lender concerns, and don’t underestimate the importance of aligning everyone (seller, buyer, and lender) on realistic numbers from the start. The M&A market may not be booming, but the ice is cracking as valuations find firmer footing, buyers adapt to longer timelines, and sellers are more prepared. If you're contemplating a transaction on either side, now is the time to get your house in order. Quality of earnings, capital access, transparency, and flexibility will be the make-or-break factors in the deals that get done in the second half of 2025.
August 4, 2025
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
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
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
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
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
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
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
Mergers and Acquisitions
Is Your M&A Attorney an Advisor or a Consultant?
For many people, selling a business is their largest, lifetime financial transaction. And typically, it is a one-time event. And further, most people have little experience with this transaction type. Consequently, surrounding oneself with good advisors and advisory teams is paramount. An M&A sale is essentially one really large commercial transaction. Of course, the transaction is documented with contracts containing a host of legal provisions. However, the details of the agreement essentially spin around a sophisticated circumstance where 2 or more parties are negotiating a financial transaction. Hence, understanding market and what are reasonable terms within the “bell curve” of options is important to the seller. The seller’s attorney must routinely work in the M&A space to have the current knowledge base of what is considered market. M&A is not a place to dabble. M&A attorneys must provide their clients with recommendations and suggestions – not merely options, information, and forks in the road. Reviewing complicated purchase agreements and understanding the terms is most basic; providing true counsel and advice is a must. I have practiced in the M&A space for more than 25 years representing both buyers and sellers. My practice and my colleagues at Offit Kurman have successfully concluded hundreds of transactions by carefully subscribing to the formula of (i) educating our clients on the circumstances; (ii) making concrete and definitive recommendations; and (iii) understanding the client’s risk tolerance and ultimate objectives to assist the client with arriving at their decision. Because in the end the M&A transaction is likely the largest financial transaction for most clients. Originally posted on 12/4/2020, no content changes.
May 30, 2024
Mergers and Acquisitions
3 Questions and 3 Pieces of Advice: In a Hot M&A Market, Is Now the Time to Sell Your Business?
The M&A market has been very robust over the last few years. This year the market is still receptive to deals. With all of the momentum this M&A momentum, many business owners have a once-in-a-lifetime opportunity to retire wealthy. To take advantage of that opportunity, however, owners need to act fast. The market won’t stay receptive for much longer. And with a potential economic downturn ahead, the next window to maximize sales value may be five or 10 years out. As I have been telling my clients, now is the time to choose a path: a) get ready to sell your business as soon as possible, or b) prepare to keep running it through the next few years. To determine which path is right for you, consider the following questions: Do you feel emotionally ready to sell? The sale of a business is likely the most sophisticated and largest transaction a seller will encounter in the course of their career. There’s a reason most only go through with it once. Even with years of preparation, no owner can fully predict the myriad of issues and uncertainties in M&A until a buyer commences diligence. You need to be ready for ups and downs, back and forth negotiations, false starts and sudden surprises. Do you know what your business is really worth – and how much M&A may cost? Get a valuation – perhaps more than one. Owners are too close to their businesses to assess their worth objectively. Once you truly understand the value of your company, be prepared to set aside more than you think you’ll need to sell your business. Even if you achieve ideal terms, you will need to be ready to cover any trailing liabilities post-closing. How long will you have the energy to continue running your business? The older you get, the more critical the decision to sell your business becomes. Owners need to be realistic about their abilities and limitations, particularly if things were to go sour: e.g. contacts disappear, key employees leave or industry disruption makes the business irrelevant. Even if a potential deal doesn’t seem perfect, an owner selling now would have a longer runway to retirement. Otherwise, the owner would need to spend the next few years working harder than ever to carve out better numbers. Whichever path you choose – selling now or waiting – there are three steps you can take to set yourself up for M&A success: Commit to your plan. Do not let others set the terms of your business’s outcome for you. Use the market to your advantage. If you’re thinking of selling now, don’t sign the first letter of intent that comes your way. If you’re waiting it out, don’t concede to a mediocre offer in a couple years; instead, turn into an opportunity to create competition over your business. Focus on creating conveyable value. This one is simple: maximize your earnings, minimize your risks and secure your greatest assets – be they contracts, intellectual property, real estate or skilled employees. Build the team. Whether selling now or later, consider hiring an M&A advisor – they tend to pay for themselves. At the very least, discuss your exit plan with your financial planner, CPA and attorney. Look within your organization for people you can trust to go to bat for the business during negotiations with a buyer: executives, board members and finance personnel are good candidates. Make no mistake: M&A is a challenging and costly prospect no matter what the market looks like. But by developing the right strategy, setting the right expectations and finding the right allies early on, any business owner can begin their exit with confidence.
May 23, 2024
Mergers and Acquisitions
M&A: Matching Priorities – Buyer and Seller
In the context of M&A, frequently the priorities of a buyer and a seller differ, especially at the outset of a transaction. In sum, what may be important to a buyer, frequently is not on the radar of a seller. Why? Simply put, how a seller operates its business day to day most times is not focused on risk mitigation and value drivers. For example, frequently I find that seller’s have promised key people compensation in the event of the sale but just have never gotten around to documenting the details. Or simpler yet, numerous sellers cannot locate their stock certificates or recall the basics of their corporate governance. These details, while important, do not rise to top priorities for the entrepreneur focused on the next sale or cash flow issues. A buyer, however, is most focused on a return on their investment and related risk mitigation. Hence, the disconnect. So, what’s the solution? Proper planning. The simple fact is that how an entrepreneur operates his/her business will not be how he or she sells the business. As such, if the entrepreneur has the luxury of some time before the sale, then he/she should use the ramp up as a means to check on the readiness of the business for sale. Too many sellers become faced with the “triple threat” during the sale of their business: (i) selling their business; while (ii) adjusting their business to the expectations of the buyer; all while (iii) still operating their business. I can assure you this is no easy task.
May 16, 2024
