February 15, 2018

The way it was in 2017: M&A chapter

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For Framework Legal, 2017 was a busy year for advising those buying and selling businesses, a.k.a. M&A (mergers and acquisitions). No two deals are alike but, they all come with a fair amount of pain, even when there is a big payday at the end. Why? Because finances + emotion + lack of control is typically not a good fit for an entrepreneur's personality.

It is a fraught time, indeed. However, I love helping people during this part of the life cycle of their business. These transactions are a very good complement to my personality and the way I practice. The work also gives me a catbird seat to observe trends and issues the average lawyer doesn’t see. Here’s a look at lessons learned during last year’s sales transactions.

1.   You, the Seller or Buyer, will be in the thick of it. It’s unavoidable. Even if you are working with an investment banker, business broker or a lawyer, you must establish a relationship with the Buyer or Seller and negotiate directly on points that matter. Remember when all the smoke clears, and particularly if there is an “earn-out” or transition period, you (not your broker or lawyer or accountant) will be communicating with these folks. That’s really hard if you have been shielding yourself, are angry with them, or tend to let others do the messy work (often because they say “let me handle it”). You need to dive in and walk through the conflicts that inevitably arise. The long-term success of a transaction depends on the relationship between Buyer and Seller.

2.  Enhance your team. A recent survey shows that CPAs are the trusted advisor entrepreneurs rely on the most. It's great to have that level of comfort but realistically your CPA and attorney may not be the right fit for the single biggest transaction of your life. M&A advisors are happy to work with your core team but may recommend adding additional expertise. Take that ask seriously. Don’t make the mistake of not getting the right resources in the room and on your team from the beginning.

3.   Listen. Listen. Listen to what your advisors say. We understand you know your business better than anyone and, as an entrepreneur are used to doing things your own way. But when a transaction team member raises a red flag and asks you to look at it, do it. Rely on their experience to guide decision-making you may not be familiar with.

4.   If your Buyer is exhibiting bad behavior or you get a bad feeling know this as fact -- It. Will. Only. Get. Worse. Don’t pretend it is not happening.

5.    Talk to someone who has sold his or her business. Really. These are things that I’ve heard directly out of owners’ mouths in 2017. They are so powerful:

  • I wish I knew what the last week before close would be like.  I wasn’t prepared.  
  • Earn-outs are stretch goals, not a given. People should know you may never see a dime of it.  
  • I didn’t think it would cost so much in fees (taxes, legal, cpa, etc.).​  
  • Disclosure Schedules--I didn’t understand why I had to attach this stuff to the agreement since I already gave it to them in due diligence.  
  • I didn’t think enough about what I would do after I sold the company.  
  • I didn’t think enough about whether I could stand being an employee again and actually work with the Buyer for a certain period of time.  
  • We (Buyer and Seller) didn’t come up with a good game plan to talk to customers after the sale and the Buyer lost a bunch of customers right off the bat.  
  • The whole process is exhausting.  
  • I wasted a year on this. It fell apart. I see now the Buyer had no intention of closing.  
  • During the process I lost staff and my operations are now in really rough shape. I have to rebuild but I’m really tired.  
  • I wish I would have discussed my “won’t bends” from the beginning.  I didn’t want to make the Buyer mad. That was a mistake.

6.   If you are being bought by a bigger player, push hard to simplify documents. No one needs to spend money going through 61 pages just because “it’s our standard form”. Don’t settle for complication if your deal doesn’t warrant it.

One final thing, if you are thinking about selling your business in the next 3-5 years, prepare yourself and your business. With so many baby boomer’s looking to sell and retire, understand that it is very much a Buyer’s market and will be for a long time to come.

If you don’t spend time, energy and effort on preparing your business, it is highly unlikely you will be able to sell yours.