Tips for Sellers & Buyers

For Sellers

Lawyers… Your M&A Friends!

Repeat after me - "Lawyers are your friends," especially when selling your business.

While all entrepreneurs want to minimize legal costs associated with the sale, experienced M&A attorneys bring value to the transaction not available from anyone else on your team, including in-house counsel if one is employed.

M&A counsel will advise on a host of issues inherent to the sale - representations and warranties, indemnity, assumed or excluded liabilities, post-transaction adjustments and escrow accounts, for instance.

  • Buyers naturally want you to earn the value they pay for your business. Purposely or inadvertently, they can erect barriers to obtaining maximizing consideration at closing. Lawyers work to tear down those barriers, or at least help you make sense as to why they exist.
  • Law firms in the practice of M&A usually have savvy tax attorneys schooled in the art of tax minimization as a result of the sale transaction. Choosing the correct deal structure can enable sellers to keep more of the proceeds from the sale.
  • M&A attorneys spend much of deal negotiation in protecting and preserving the consideration paid to selling shareholders from being recouped by buyer. Lawyers will help you allocate as much of the deal risk to the buyer, while limiting seller exposure to post-transaction recoupment claims.
  • Experienced M&A counsel is familiar with current market conditions for various deal terms (such as indemnification caps, minimum thresholds and earn-outs) and can assist you in determining the reasonableness of buyer requests.
  • Attorneys provide a useful foil to negotiate with the buyer and its counsel, allowing you to probe the buyer's position and then emerging with a compromise that you can live with (and the attorney can absorb any ill-will for overreaching).

None of the above means that your legal checkbook must be open-ended. Try to get a budget range from legal counsel for the acquisition project prior to signing a letter of intent with a buyer.

This may be difficult for counsel as many variables can occur, but least understand the relative cost of such variables. One example is the need to construct a 'disclosure document' for shareholders in your company, under requirements from federal securities regulations.

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For Buyers

Talk About It

Just like the selling of your products, executives in the buying company need to 'sell' employees of the seller on the merits of the transaction.

Where possible, salesmanship in this form needs to take a particularly human quality rather than an impersonal business one. Speak to the emotion that selling employees may well feel toward the loss of certain colleagues, the departure of their prior company's owners, and the coming strangeness of new systems, people and priorities.

At the same time, reinforce the value of the acquisition, highlighting these attributes:

  • enhanced career opportunities
  • discounts on buyer company products
  • additional educational benefits
  • new technical, marketing and management challenges
  • improved, employee benefits

Good M&A communications from the buyer also require structure and speed. Be sure to adhere to the following points:

  • Over- communicate, and do so early in the process. Do not assume that the obvious is apparent.
  • Precede external M&A announcement with internal ones; employee trust can be built right away with this simple gesture.
  • Educate your own and seller employees. Considerable effort should be spent on telling each others' workforce about the buyer/seller.
  • Schedule time in your joint, post-transaction management meetings for communication issues. Collaborate on how to address rumors.
  • Publish a 'merger newsletter,' addressing the issues of introduction, integration and education, that is sent electronically to employees in both companies for at least a few months after closing.

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