Selection of Counsel
We are often asked by our friends, intermediaries and future business partners what advice we would give to them in selecting counsel for the sale of their company. This is a paramount issue for any seller, since the sale of a company can be one of the most significant events in the life of an entrepreneur, and the selection of the right counsel can be critical to the success of the transaction. In this article, we offer our views on what sellers should be considering in selecting the right lawyer for the sale of their company.
To help understand the attributes we consider important for lawyers in a deal, we have divided a deal into three parts, the preparation period, the negotiation period and the closing.
In any mergers & acquisitions (M&A) transaction, the lead lawyer is the quarterback of the deal for your team. He or she should be providing leadership and guidance to you as to a number of tasks and issues that you will need to address for a successful outcome. Quality counsel will know how to prepare your company for the sale, what due diligence will need to be provided to the buyer, and help you discover issues that you may not be aware of. In the beginning of the deal, your counsel should be very involved in the provision of due diligence documents to not only ensure that you are providing the buyer complete and comprehensive responses to the numerous items that need to be provided, but more importantly, you will want your counsel to address the issues that invariably come up in the course of the due diligence process. Since there is no such thing as a “second first-impression,” it benefits you to have solved problems in advance rather than to merely present the problem to your future business partner and/or buyer. Quality counsel will not only spot issues that exist, but also know what is missing, such as a lack of customer or vendor contracts, employee non-competes, etc. In addition, many sellers want to expedite the sale process, but end up getting bogged down in the due diligence production. Quality counsel can help tremendously with the due diligence process, saving time and minimizing the distraction to management.
Negotiations between a buyer and a seller typically start with a letter of intent, which sets forth the principle terms of a deal. Your counsel should be involved in advance of your signing a letter of intent so that the letter of intent reflects your tax planning, the critical deal points of the transaction, and those ancillary matters that are important to you. Your lawyer needs to have a comprehensive knowledge of what are market terms, to not only get you the best deal you can obtain, but more importantly, to not to lose a good deal by making unreasonable, non-market requests. Many sellers have lost good deals because they hired a litigator or other non-M&A lawyer to negotiate their deal. These lawyers can get stuck on the wrong issues, or do not understand the appropriate risk allocation between the buyer and seller. As a result, they sometimes advise their client to fight a point that substantially all buyers would require. Quality M&A lawyers not only understand both sides of the typical issues that will arise in a deal, but should also have creative solutions for the novel issues that may be unique to your circumstances. M&A counsel will know what risks are inherent and appropriate in any deal, as well as address any risks that are unique to your circumstances.
Once the terms of the deal have been struck, sellers are usually eager to get to a quick closing. You will want lawyers who are not just responding to the pace of the buyer, but actually leading the deal to close as expeditiously and efficiently as possible. In the case of law firms, time is money, and your execution risk (the risk of the deal not closing) is directly related to the time period to closing. You will want counsel that is focused on your deal, capable of revising documents overnight, and prescient to know what the next steps are. Your lawyer should be coordinating with your management team and others to ensure that the various parts of the deal come together on schedule, so that the employment agreements, the escrow arrangements, the schedules to the purchase agreement, etc. have been well reviewed and finalized, and third party consents and other documents have been obtained, in anticipation of signing and/or closing the deal.
Many sellers are surprised by the voluminous documentation that it can take to successfully close a deal. Quality counsel is not only a master of all the documents and details, but is able to walk your shareholder group through them comfortably and well in advance of the closing. It is not uncommon for your partners to have numerous questions regarding the deal and their particular circumstances; you want counsel who will be able to address their concerns and provide them comfort as to the deal.
In conclusion, we find that everyone benefits by the sellers selecting sophisticated M&A counsel. It speeds up the deal, avoids unnecessary issues, and allows both parties to creatively solve unusual or unique problems. At Boyne, we like to move swiftly to meet or exceed our partners’ expectations and we seek to strike a fair and market deal; it certainly helps to have seller’s counsel with the same philosophy.