You have arrived at the decision to sell your family business and you have hired a highly recommended investment banker. As part of the process, your investment banker suggests that you hire a new law firm, one that specializes in helping business owners like yourself sell your business – a business sale lawyer. You likely already have a law firm and a good one that handles virtually all of your needs. You have a good long term relationship with that firm, as they typically do a good job and are very cost effective. However, your business is your and your family’s legacy and your most valuable asset so it would be prudent to at least meet with some business sale lawyers. Below are some questions you should consider asking prospective business sale lawyers:
1. How will you add value to the transaction? Perhaps as important as a closing is keeping all of the money you have received or reducing the risk that you have to return any amount. When you are selling a house, the buyer and seller agree on a price, the buyer conducts an inspection, buys some insurance at closing and the seller walks away never having to worry about that leaky roof ever again.
That is not the case when you sell a business. Businesses have all kinds of risks that can not necessarily be uncovered upon inspection and the legal terms of your transaction will determine how much of that risk you continue to bear following the closing.
During this white hot M&A market, your experienced investment banker will likely obtain a number of compelling offers pricing your business as high as possible. But a bid is not a closed sale and you need to negotiate the legal terms of the transaction before that money actually changes hands. Savvy counsel will reduce or even eliminate your liability or exposure post-closing.
2. What kind of transactions have you worked on? Be certain that your buyer, whether a private equity firm or strategic purchaser, will hire a shark that has virtually unlimited resources, who has done a number of sophisticated transactions like this and probably a number of deals like this for that specific buyer. You need someone who can match that experience and temperament. You need someone who understands every trick in the “buy-side playbook.”
Does this law firm regularly sit across the table on deals like this one with the largest law firms in the country or the world? Every national law firm will generate an impressive list of transactions the firm has concluded in the past several years. Ask your prospective attorneys which deals they completed. Ask them to tell you some “war stories” to get a feel for how they approach difficult situations and give you a sense of what you are in for in this transaction.
3. What resources and capabilities does your firm provide? The legal teams you will be meeting with will have expertise in sell-side M&A transactions. Ideally, they will also be a part of a law firm that has a deep and broad expertise in several areas, both inside and outside your industry. As you and the buyer allocate the existing and potential risks that face the business, you want that firm to be able to handle anything and everything in connection with your deal. This could be an environmental issue that pops up, an intellectual property dispute, data privacy and security matters or even a labor or employee problem. They will also be able to address extremely sophisticated tax structures for the transaction and even be able to assist in any estate planning matters that arise both before and after closing.
4. Have you structured and closed deals incorporating the latest M&A trends? Sophisticated seller’s counsel will be very familiar with the most recent M&A techniques and tactics, like representation and warranty insurance and novel tax strategies. Many deals will include an earnout based on post-closing performance of the business. Thoughtful lawyers can propose language to maximize your opportunity to obtain that earnout.
Often deals will also include a “rollover,” whereby you would only sell say 80%, keeping 20% of your business. Sophisticated counsel will propose mechanisms to preserve and protect your rollover investment, along with providing suitable and customary liquidity options for this equity. Buyers typically do not want to address these seller concerns, but good lawyers make them do so. These trends are constantly evolving so a lawyer needs to be up to date on the most recent market trends.
5. How will you fight for me? Many smaller firms with less sophisticated lawyers may simply agree to what the buyer proposes, viewing their role as simply a communicator and facilitator of a proposed transaction. Some lawyers believe their role is limited to explaining the terms of the agreement so that their client understands what they are agreeing to. It take a fearless and courageous lawyer to question everything the buyer’s counsel proposes to get you the absolute best deal possible. That does not mean your lawyer should fight for everything. In fact, the best lawyers will be able to make recommendations about what is realistically worth asking for based on market trends and their experience.
6. How much will all of this cost? Any business sale lawyer should be willing to discuss the range of potential costs based on certain assumptions. But bear in mind that these will likely simply be estimates past on past experience. Each deal is different.
In addition to the foregoing, when you meet with prospective lawyers, remember that every deal has unexpected twists and turns. You will truly be in the trenches with your advisors for perhaps the most significant transaction of your life. As a result, it is crucial that you meet someone you feel you have some chemistry with and that you think will be fully candid and honest at every juncture.
David J. Kaufman and Nathan Viehl are members of Thompson Coburn's Corporate practice group.