In the latest episode of The Selling Successfully Podcast, Portage Founder and Partner Jim Friesen and Kevin Fernandes, Partner at KMB Law, discussed the critical role M&A lawyers play in rounding out a seller’s comprehensive and competitive deal team.
Here are the 5 key takeaways for business owners thinking about or ready to sell.
- Seek specialization.
Some business owners or sellers wonder why there is a need for counsel beyond that of their corporate lawyer. A simple analogy can help answer that question. Ask yourself whether you’d allow your GP to perform heart surgery? Most likely, that answer would be a resounding, “No!” You would require and feel much more confident and comfortable with a specialist in charge. The same concept applies to making deals.
An M&A lawyer lives and breathes this space. They have the ability to clearly see what’s going on, evaluate the allocation of risk and reward, and have an understanding of what’s market and deal tested. When you enter into a relationship with an M&A lawyer, you can expect the following differentiated services:
- Specialized Legal Expertise and Guidance: Navigate complexities and ensure compliance. M&A transactions involve complex legal issues, including contract law, securities regulations, antitrust laws, intellectual property rights, tax implications, and more.
- Transaction Structuring and Negotiation: M&A lawyers help you devise the most advantageous legal structure, negotiate favorable terms, and protect your interests. Their expertise in contract law and deal negotiation ensures that you achieve your objectives while minimizing risks and maximizing value.
- Due Diligence and Risk Management: M&A transactions require thorough due diligence to assess the legal and financial aspects of the target company. An M&A lawyer conducts or coordinates due diligence activities, identifies potential legal risks, and helps you evaluate their impact on the transaction. They assist in developing strategies to mitigate risks, protecting you from unforeseen liabilities and legal issues.
- Ask hard questions.
This is one of the most important transactions of your life which makes finding the right fit, personally and professionally, of paramount importance. Keep the following top of mind when looking at firms.
- Find Someone You Like: You will work closely with your lawyer throughout the M&A process, focus on finding one you like. Meet with the lawyer several times as well as engage with them in a more casual environment. Ask the lawyer questions. Learn about their approach to business. Your lawyer should share your view of the business world and the types of things that matter.
- Experience and Expertise: Look for an M&A lawyer with significant experience and a strong track record in handling mergers, acquisitions, and other corporate transactions. Assess their expertise in the specific industry or sectors relevant to your transaction.
- Negotiation and Deal-Making Skills: Look for a lawyer who possesses excellent negotiation skills and has a proven ability to protect their clients’ interests while fostering collaborative relationships with counterparties.
- Retain those rich in resources.
A proficient M&A lawyer should offer comprehensive legal services, including due diligence, regulatory compliance, tax considerations, intellectual property issues, and any other relevant legal matters. They should also have access to a network of experts or resources, such as tax advisors, valuation experts, and industry specialists, to provide well-rounded support throughout the transaction.
The magic happens within the deal team. Having collaborative, strategic and passionate experts at the table with one common goal will help get the deal to the finish line faster and with a more favourable outcome.
- Practice practicality.
Find a firm that doesn’t mix up business decisions with legal decisions and empowers you to make your own choices while moving the transaction forward with win-win solutions.
A common concern or objection M&A lawyers hear often focuses on earnouts or vendor take backs (VTB). Earnouts are a financial arrangement in which a seller of a business agrees to receive future payments based on the business’s performance after the sale. Although sellers tend to be hesitant to entertain a deal with this inclusion, earnouts are effective in filling the value gap between what they believe their business is worth and what a purchaser believes it’s worth. A VTB is in essence a promissory note which is quite common, especially in share sales.
Regardless of deal structure, it’s important to keep in mind there’s no one way to do a transaction. They’re very specific to the context, risk tolerance and the relationship between the parties. There’s a certain allocation of risks and rewards. These conversations happen in tandem with advisors across the seller’s deal team to ensure the strategy is sound, creative and makes sense for their interests in that particular transaction.
- Understand timing matters
The earlier you can involve your M&A lawyer, the better. While some may wait until the last minute to avoid having a lawyer on the clock, Fernandes cautions against this, “If you plan early and give more time, it actually ends up costing less.” In addition to being more economical, it’s a smoother process.
Your M&A lawyer will not only help with the planning component with your wealth managers, tax advisor and your M&A advisory firm, but also help you look your strongest and most complete when you do go out to market.
Sellers who proactively engage an M&A lawyer as part of their comprehensive and competitive deal team are putting themselves in an advantageous position to not only attain a better deal but also accomplish it within a shorter period of time.
If you’d like to get in touch with Kevin you can find him at kmblaw.com or contact him via email at firstname.lastname@example.org.
To learn more listen to the full episode, The M&A Lawyer Leverage, here.