I recently underwent a full scale renovation to my house, and during the process, I noticed many similarities between the role of the general contractor and my role as an attorney who specializes in mergers and acquisitions. The general contractor was in charge of everything from permits to the survey to ordering the knobs and light fixtures. Of course, there were PLENTY of decisions that I, the client, had to make, but the general contractor was tasked with organizing the project and ensuring it is completed successfully and (reasonably) on time.
A buyer should view their business purchase in the same light. It is a large, complicated project that needs to be managed, organized, and attended to by someone with the skill and expertise to better ensure an efficient and successful closing. I am sure at this point you are thinking to yourself, “of course this M&A attorney is going to oversell his role in these transactions.” And that is certainly understandable as there is a common misconception by many that attorneys are merely involved in these transactions to draft documents. However, this post will walk you through the important stages of purchasing a business and how an experienced M&A attorney can be helpful and, in many cases, essential at each stage.
Stage One: General Analysis
Stage one typically involves general analysis by the Buyer of their motivations to purchase the business, financing needs, if any, and identify an appropriate target. While most of the decisions at this stage are business related, there is still some value that an M&A attorney can bring to the Buyer, if included at this stage.
Experienced M&A attorneys have worked on numerous transactions, both on the Buyer’s side and on the Seller’s side, and have developed a skill in identifying the speed bumps that could arise along the way, whether it is a characteristic of the target business or some financing contingency or hurdle that would need to be dealt with down the road. At this stage, the M&A attorney would act as a skilled advisor to the Buyer in assessing the opportunity and evaluating the chances at a successful result. Involving the M&A attorney at this early stage allows the Buyer and his attorney to develop their relationship and approach each stage of the transaction through the closing in a team-like fashion, both working together to reach a common goal.
Stage Two: The Offer
If a Buyer has successfully made it through the first stage, they are ready to prepare an offer and begin due diligence. At this stage is where the M&A attorney becomes essential, both to ensure legal protections are in place for the Buyer, and to begin managing all parties that will be involved in the transaction to bring the deal to a successful and efficient closing.
This stage of the transaction begins with the preparation, negotiation, and finalization of a letter of intent or term sheet. Involving an M&A attorney here will afford the Buyer with an opportunity to address a handful of legal issues, which, in most cases, leads to a more efficient closing. Additionally, having the M&A attorney working side-by-side with the Buyer at the letter of intent/term sheet phase of the transaction gives the M&A attorney a head-start on identifying potential issues that need to be researched in the due diligence phases, and ultimately addressed in the formal documentation.
In performing due diligence on a target business, the M&A attorney’s role is clear: ask the right questions in order to uncover any hidden risks, liabilities, or pitfalls that the Buyer could be stepping into. While a Buyer may have a one or two pages of due diligence requests, an M&A attorney will have six or seven pages of requests, all carefully crafted to both:
(1) identify the risks and potentials liabilities, but(2) to also make sure the Buyer has a clear, complete and accurate picture of the business they are purchasing.
This is a very time-consuming stage of the transaction, and typically, the Buyer has a handful of other tasks to address that they are unable to devote the required time to this. The M&A attorney takes the burden off the Buyer and manages the initial due diligence and any subsequent due diligence, and he or she can sift through the information and only discuss with the Buyer the major concerns, questions, or issues that have arisen during the due diligence review.
Stage Three: Formal Documentation
If the Buyer and his/her attorney have made it through the due diligence phase, it is time to prepare the formal documentation. It is at this stage when it is most common for a Buyer to engage an attorney and usually provide a tight timeline to draft the documents and close the deal. I would argue that while doing this may save a Buyer on legal fees for this transaction, it could lead to a much larger future liability for the Buyer.
Imagine being the M&A attorney and having to step in at this stage without the benefit of knowing all the initial analysis that was done, having to develop a client relationship at this late stage, not knowing all of the negotiations and conversations that surrounded the letter of intent or term sheet, or the issues that arose during due diligence. Ideally, having all this knowledge at the outset of the transaction would clearly allow the M&A attorney to draft documents with the appropriate protections for the Buyer and address the issues and concerns the Buyer has in this particular transaction.
It is also at this stage where the management of all the different facets of the closing and the M&A attorney again alleviates the burden on the Buyer to coordinate everyone and everything for closing. Specifically, the M&A attorney will coordinate with the Buyer’s attorney to ensure all required disclosures and document deliveries are made before they are at closing; they will work with the lender’s attorney to make sure that all of the lending institution’s requirements are met so they will fund the transaction on-time; they will confirm receipt of any required consents, assignment, lien releases on assets and any other deliveries needed for a successful closing; and once the M&A attorney has confirmed all of the above, the Buyer will have the comfort that the transaction was closed efficiently and completely.
Contact a qualified M&A attorney today
At Cohen Pollock Merlin Turner, we specialize in helping our clients through the mergers and acquisitions process from start to finish. If you are seeking to buy a business, it is important to understand that not all transactions are the same. Not all businesses are the same. Each deal is unique, and it is important to the success of the transaction for the Buyer to ensure his or her attorney is fully informed, heavily involved, and the Buyer is using their attorney to help analyze risks, liabilities and potential future pitfalls. This will almost certainly lead to a success transaction and a higher probability for a profitable future for the Buyer. Contact us today and let us help you through the legal ins and outs of your M&A.
Legal Disclaimer: This blog post is for informational purposes only and is not intended to be, and should not be interpreted as, legal advice. Please contact an attorney with any questions pertaining to the information contained herein.