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Pat Linden in 2024 Best Lawyers In America®

Posted on by PLinden

Pat Linden was recently included in the 2024 edition of The Best Lawyers in America® for Corporate Law. Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Best Lawyers recognitions are compiled based on an exhaustive Purely Peer Review® evaluation.

For the 2024 edition of The Best Lawyers in America®, more than 12.2 million votes were analyzed, which resulted in more than 71,000 leading lawyers honored in the new edition.

To learn more about Pat’s practice and background. In addition to the Best Lawyers® designation, Pat was recognized as Colorado’s best M&A attorney in 2018 and 2020 by Law Week Colorado in its annual Barrister’s Best publication and was named Colorado’s best private equity attorney in its 2019 and 2021 editions. He was also one of approximately ten Colorado attorneys to be recognized by Super Lawyers® for mergers and acquisitions in each of 2020, 2021, 2022, and 2023.

2023: Maximize Company Sale Value

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How to Sell Your Company in 2023 for Maximum Price

Selling your business can be a life-changing event, but maximizing the sale price can be a daunting task. With proper planning, preparation, and guidance, you can make the most of this opportunity and achieve a successful exit. In this blog post, we will walk you through the steps to sell for the highest price possible, from preparing your business for sale to closing the deal and transitioning ownership smoothly.

Short Summary

  • Prepare your business for sale by assessing its financial health and business processes, streamlining operations, and reducing owner reliance as part of your initiative to attract buyers.
  • Value the company through professional appraisers or valuation multiples based on annual profit or EBITDA.
  • Work with a qualified broker or investment banker to identify and qualify possible buyers, negotiate the sale price, assist with the selling process, and close the deal successfully for maximum value.

Preparing Your Business for Sale

How to Sell Your Company in 2023 for Maximum Price

Before diving into the process of trying to sell your business, it is crucial to prepare the business for sale in advance as part of your exit strategy. Many small business owners overlook the importance of assessing their company’s financials and business tax returns, streamlining operations, and reducing owner reliance, which can make a significant difference in attracting buyers when it’s time to sell your business. Partnering with a small business M&A advisor can provide valuable guidance and resources to ensure your business is in the best possible position for an optimal sale outcome. You want to present your business in the best possible light to fetch the highest price when the right buyer comes along. Taking the time to prepare your business for sale will help ensure that you maintain a strong negotiating position through the entire process and get the best return on investment. Doing so will also help you get to the finish line as often time weaker deals fall through.

Assessing Your Company’s Financials

An essential aspect of preparing your business for sale is ensuring your financial records are transparent, well-organized, and demonstrate profitability. Buyers will scrutinize your financial statements, intangible assets, tax returns, and outstanding debt to evaluate your annual cash flow, so it’s critical to have these documents in order. Consider working with your accountant or a qualified valuation professional to analyze your financials and tax returns, and identify areas for improvement. Remember, a financially healthy business is more likely to attract interested buyers and command a higher sale price. This is particularly the case if a buyer will be relying on a loan backed by the U.S. Small Business Administration.

Streamlining Operations and Reducing Owner Reliance

Next, optimize your business operations and minimize your dependence on the owner as part of your exit strategy. Possible buyers may perceive a company heavily reliant on the owners as acquiring a job instead of a scalable business. To make your business more appealing, establish manuals and standard operating procedures (SOPs), and automate processes where feasible. Diversify your customer base if a single customer accounts for more than 20% of revenue, and invest in technology and employee training to add long-term value to your business. Also endeavor to lock in your management team for the years to come, including after you transfer ownership.

Valuing Your Business

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Once your business is ready for sale, the next step is determining its value. Understanding different methods of business valuation and the factors affecting your company’s value is crucial to setting a fair market value. Enlisting the help of a broker, investment banker, or valuation expert can lend credibility to your asking price and ensure you’re not undervaluing or overvaluing the business.

Methods of Business Valuation and Factors Affecting Value

There are several methods to value small businesses, such as using a professional appraiser or calculating valuation multiples based on annual profit or EBITDA. Small businesses typically sell for 2-4x their annual profit (EBITDA), while larger companies may command higher multiples, ranging from 5-10x (EBITDA). Engaging a certified valuation specialist or a professional appraiser can provide a comprehensive professional valuation of your business’s worth and lend credibility to your listing price.

Several factors can influence your company’s value, including market demand, industry desirability, recurring revenue, and differentiation. For most deals, a stable customer base and recurring revenue opportunities suggest sustained sales, which is a fundamental factor in determining business value. Analyzing these factors and understanding how your business compares to others in the market can help you set a realistic asking price that attracts buyers and maximizes your returns.

Working with a Business Broker or Investment Banker

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A broker or investment banker can be an invaluable partner in the sale of your company. They can assist in developing your business into one suitable for sale, formulating the narrative of your business, advertising to and locating prospective buyers, evaluating multiple buyers, controlling the deal flow, aiding buyers in obtaining funding, guiding you through the due diligence process, and helping to maximize your earnings.

In this section, we’ll discuss how to select the right broker or investment banker and understand their role in helping get your business ready and assisting you throughout the sales process.

Selecting the Right Business Broker or Investment Banker

Choosing the right broker or investment banker is crucial to a successful sale. Consider qualities such as persistence, motivation, proficiency, competence, a strong moral compass, a good reputation, networking skills, negotiation skills, industry knowledge, analytical mindset, organizational skills, communication skills, and a proactive approach. Optimally they should also be familiar with other businesses similar to yours that have recently sold.

Ensure the broker or banker has experience in the same industry as your business and a validated history of successful sales, as this demonstrates their capability to effectively manage the process of selling a business and getting the best price.

The Role of the Business Broker or Investment Banker

A business broker or investment banker serves as a mediator between the seller and the buyer, taking on many laborious tasks throughout the sales process. They can help craft the narrative of your business, advertise it to possible buyers to create a competitive environment and manage the negotiation process. Moreover, a business broker or investment banker can assist with assessing buyers’ financial capabilities, business experience, and readiness to purchase, preventing unsuccessful transactions and ensuring a smooth sale.

Identifying and Qualifying Potential Buyers

Potential Buyers

Finding the right potential buyer for your business is essential to a successful sale. In this section, we will explore how to reach out to each potential buyer and evaluate their suitability. Ensuring they have the financial capabilities, business experience, and readiness to purchase your company is key. Researching each potential buyer is the first step when selling businesses. You can use online resources to find information.

Reaching Out to Prospective Buyers and Evaluating Suitability

To identify buyers for your company, leverage your business broker’s or investment banker’s network, digital outlets, and professional acquaintances. Keep in mind that evaluating potential buyers based on their financial resources, industry experience, and strategic fit is crucial to ensuring a successful transaction. By casting a wide net and utilizing various channels, you increase the chances of attracting the right buyer for your business.

Once you have identified potential buyers, it’s essential to assess their suitability. Evaluate their financial capabilities by examining their financial statements, credit history, and other relevant financial documents. Consider their business experience, including their previous record of successful business acquisitions, familiarity with the industry, and ability to manage the transition period. Finally, ascertain their preparedness to purchase by evaluating their timeline, ability to obtain financing, and eagerness to negotiate.

Negotiating the Sale

Negotiating

Negotiating the sale is a critical step in maximizing the sale price of your company. In this section, we will delve into the negotiation process and the various deal structures that can affect the final sale price. Understanding these aspects will help you make informed decisions during the negotiation process and secure the best possible deal for your business.

It is important to understand the different types of deal structures that can be used in a sale.

Understanding Deal Structures and Navigating the Negotiation Process

Different deal structures can impact the sale price and terms of your business sale. Familiarize yourself with asset vs. equity purchases and earnouts to determine the best option for your business assets in tandem with your retirement planning.

An asset purchase involves the buyer acquiring all or specific assets of the business, while an equity purchase entails acquiring the entire business’s equity (assets minus liabilities). Earnouts are arrangements where the seller stays with the business for a specified period, potentially receiving additional compensation based on the company’s financial performance.

Effectively negotiating with potential buyers is crucial to securing a favorable deal for your business. Understand the motivations of the other party, establish realistic expectations, and be prepared to compromise. Employ tactics such as patience, active listening, and persuasive language during negotiations.

Remember, a successful negotiation should result in a deal that benefits both parties and ensures a smooth transition of ownership.

Closing the Deal and Transitioning Ownership

Deal

After reaching an agreement with the buyer, it’s time to close the deal and transition ownership. In this final section, we’ll discuss how to ensure a smooth transition.

First, you need to finalize legal agreements. This includes signing contracts, transferring titles, and other transaction agreements. Strong legal contracts are important and will make a difference in helping your transaction get to the finish, as often times poorly documented deals fall through.

Finalizing Legal Agreements and Managing the Transition Period

Work with a business M&A lawyer to prepare and finalize necessary legal documents, such as a non disclosure agreement, purchase agreement, employee agreements, non-compete agreements, and intellectual property transfers. These documents are crucial to protect your interests and ensure all parties understand their obligations during the transition process. While it may seem counterintuitive at first glance, a good M&A attorney will also help you save money by identifying areas of the contract that may not adequately protect your financial interests. Your M&A attorney will also help you maintain confidentiality.

A well-drafted and negotiated purchase agreement can prevent misunderstandings and potential disputes down the line. Getting to the final terms of an M&A acquisition agreement can be an arduous process, so be sure to engage an experienced M&A lawyer who is familiar with what to look for and understands how to negotiate the purchase agreement.

The successful handover of your business is the culmination of the sales process. Plan for a smooth transition by providing sufficient transition time and offering ongoing support to the new owner. Ensure the new owner assimilates into the company culture, as this is essential for a successful transition.

By effectively managing the transition period, you can ensure a positive outcome for both you and the buyer, setting the stage for your business’s continued success under new ownership. This will be important for most buyers when selling a business.

Conclusion

Selling your business for the maximum price requires thorough preparation, accurate valuation, effective negotiation, and a smooth transition of ownership. By following the steps outlined in this blog post, you will be better equipped to navigate the complex process of selling your business and achieve a successful exit. Remember, the key to a successful outcome lies in understanding the process, partnering with the right professionals, and being prepared for every stage of the journey that comes with selling small businesses in the vast majority of cases.

Frequently Asked Questions

Is it a good idea to sell your business?

For owners who have experienced persistent burnout, selling the business can provide a valuable opportunity to pursue more fulfilling activities.

Therefore, it is generally a good idea to sell your business before burnout sets in.

Is it easy to sell a company?

Selling a company is a complex and lengthy process that requires preparation, documentation, and action from both the buyer and seller. Consequently, it is not an easy task.

How can I sell my small business quickly?

Follow the 7 steps outlined in the process to sell a small business quickly: button up your business financials, create a confidential information memo, confidentially market your small business, screen and email interested buyers the CIM, negotiate an offer, manage due diligence, and handle the closing.

Creating a confidential information memo (CIM) is the first step. This document should include all the necessary information about the small business, such as financials, operations, and any other relevant information.

The second step is to confidentially market your business. This can be done through a variety of methods, such as advertising the business online, or through the business broker or investment banker you engage.

What factors should I consider when preparing my business for sale?

Consider your company’s financial health, streamline operations, and reduce owner reliance to maximize the attractiveness of your business to potential buyers. The more iron clad these items are, the more likely you will reach the right business deal.

The M&A Deal: A Marathon, Not A Sprint

Posted on by PLinden

Introduction

Selling your company might appear on the surface to be a swift sprint toward success. However, an M&A deal is more like a marathon or a hard-fought boxing match.

To successfully complete M&A deals, selling business owners must thoroughly understand the complexity involved. This includes understanding operations, sales, cash flow, revenue recognition, balance sheets, income statements, accounting policies, and the roles of financial and legal advisors. Prepare for the M&A endurance race.

The Misconception: A Quick Sprint to the Finish Line

Starting a new venture can be thrilling, and the same goes for selling a business when you’re the target company. Just as marathoners feel excitement at the starting line, the prospect of an M&A deal can get pulses racing. Don’t be fooled. The journey is complicated and requires a close look at, for example, sales, revenue and other financial records, a business plan, and details like adjusted EBITDA, working capital, cash flow, net income and your associated income statement, analysis of expenses, taxes, earnings quality, and a quality of earnings report. Buyers will also focus on a seller’s command of their sales and business operations.

The Reality: Why It’s Harder Than You Think

1. M&A Due Diligence:

This phase is critical for a potential buyer and the seller, including for example, sales, operations and financial due diligence, analyzing due diligence reports, and responding to extensive M&A checklists and informational requests to help assure the business is a viable long-term investment for the buyer.

2. Uncharted Territory:

Many sellers are beginners in the M&A field, confronted with the task of managing accounting models, intellectual property, a virtual data room, and much more that will test the limits of the target company’s ability. It is also important that sellers not lose focus on their sales and other business operations during the deal process as dips in performance or profits before closing can negatively impact the ultimate purchase price.

3. The Complexity of the Deal:

Even straightforward M&A business sales can present red flags or unexpected challenges. Tactical changes may become necessary throughout the deal in order to aching the primary purpose – an optimal deal outcome which maximizes the seller’s profits and other deal objectives.

4. Timing: Longer Than Expected

Complexity equals time. M&A deals require meticulous attention, drawing out the timeline.

5. Skillset Mismatch:

Success in business doesn’t directly translate into M&A expertise. It’s a whole new ballgame.

6. Sophisticated Buyers:

Seasoned buyers and their investors normally have the advantage. Their experience can outmatch novice M&A sellers, emphasizing the need for expert financial, accounting, and legal advisors to help selling business owners navigate each phase of the transaction.

Quality of Earnings: The Heartbeat of the Deal

What it Means:

Quality of earnings (Q of E) refers to the sustainability and authenticity of revenue, net income and cash flows, i.e., the earnings quality. In most M&A deals, the buyer’s outside team of accountants will prepare a quality of earnings report as a financial reporting tool to be used as part of the buyer’s and its investors financial analysis of the target company’s earnings to provide the buyer with a complete picture as it evaluates symmetry with its typical investment decisions. A seller’s financial performance over the trailing twelve month period is a particularly important income measurement. Potential buyers will also be wary of too many related party transactions and add back expenses.

The Q of E Process:

Having a clean quality of earnings report builds trust with potential buyers. The process of doing the work to prepare the quality of earnings report is similar to an audit of your financial statements conducted by the buyer. Among other things, for example, the earnings report will evaluate the seller’s revenue and expenses, income statement (and/or profit and loss statement) and associated net income, working capital, free cash flow, balance sheet, fixed assets, accounts receivable, accounts payable, other current assets and current liabilities, and the detail supporting this financial information. A seller’s financials will normally be adjusted to examine what they would look like under generally accepted accounting principles (GAAP). The buyer will be interested in whether the accounting shows declining net income or whether there has been any earnings manipulation. Sellers are often required to provide detailed reports to assist the buyer’s advisors with their examination of the target company’s expenses, taxes, financial statements, financial accounting practices, and previously reported earnings. Sellers may also be asked to model financial projections for future periods or including sensitivity analyses to take into account other variable factors.

Impact on Valuation:

Consistent revenue and strong net income and associated quality of earnings report enhances the valuation (and any prior earnings presented) of your company as it means your company will likely have sustainable earnings quality for a specific period after the closing.

The Risk of Deal Fatigue:

1. The Long Game: 

The lengthy process can lead to deal fatigue. The momentum wanes, mistakes occur, and the final M&A transaction outcome may not be as good.

2. Psychological Readiness:

A seller must mentally prepare for the long haul and steel themselves for what will seem like a need to respond to endless tedious and exhausting discussions, deal negotiations, and exchange of documentation.

3. Building the Right Team: 

Assemble a skilled team of M&A advisors, including financial and legal advisors who are M&A specialists, to help you successfully manage the deal and assist you in your analysis.

Avoiding Common Pitfalls: Lessons from the Trenches

1. Over-optimistic Expectations:

Realism is key in the business plan presented to prospective buyers for analysis of a potential transaction.

2. Lack of Preparation:

The due diligence process requires meticulous preparation, including assessing and reworking financial statements.

3. Poor Communication with the Team:

M&A communications are very important, and therefore consistent discussions and coordination with your deal advisors are crucial throughout the deal cycle.

The Importance of Resilience: The Marathoner’s Mindset

1. Expect Deal Setbacks:

An M&A deal always presents unexpected challenges. Resilience is your ally for the long term in M&A transactions.

2. Learn from Mistakes:

Every phase of the M&A cycle provides insights, and there will likely be deal mistakes. A few mistakes can be overcome, as long as you are a quick study, learn from them, and change deal tactics as needed.

3. Embrace the Journey:

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Final Thoughts: The Finish Line is Worth the Effort

Selling your business to the right buyer isn’t a sprint or leisurely jog. It’s a demanding marathon requiring planning, persistence, and determination. Embrace the marathon and make the most of this vital chapter in your entrepreneurial journey.

Understanding M&A deals, and the dynamics between sellers and buyers, is valuable when you plan for the long term. With the right mindset, preparation, and team of M&A advisors, you can not only reach but exceed well beyond the distant finish line.

Considering Selling Your Company?

At Linden Law Partners, we specialize in orchestrating all aspects of M&A transactions. Our experience, unique insights, and personalized attention make us an ideal partner in this exciting but challenging adventure. Contact us today to discuss how we can help.

Key Considerations When Hiring an Investment Banker or Business Broker

Posted on by PLinden

Deciding to hire an investment banker or a business broker is a significant step in the journey of any business owner. Whether you’re considering an acquisition or selling your company, these professionals can be instrumental in helping you navigate the complex M&A landscape. Here are a few key considerations to bear in mind before you make your selection:

  • Experience & Expertise: Does the broker or banker have a proven track record in your specific industry? Their knowledge about your sector’s landscape, trends, and key players can make a big difference.
  • Deal Size and Structure: Both investment bankers and business brokers have their specialties when it comes to deal sizes. Make sure their expertise matches the scale of the deal you’re planning to execute.
  • Network: One of the primary reasons to hire a banker or broker is their network. Do they have strong relationships with potential buyers, sellers, or investors in your industry?
  • Fee Structure: Understand their fee structure thoroughly and are often negotiable. Fee structures routinely include a retainer and success fee (and sometimes the retainer can be applied against the success fee). Fee percentages and terms can vary widely and are typically negotiable. The smaller the deal, the higher the fee percentage in most cases. Sometimes there are tiered structures on fees, i.e., a set percentage if the deal is at or below a certain amount, with increasing percentages for agreed upon levels above that (e.g., X percent for amounts above $10 million and below $12 million, Y percent for amounts above $12 million and below $14 million, Z percent for amounts above $14 million, and so on).
  • Tail Period: Also pay close attention to the “tail-period,” which is negotiable. The tail is the duration of time following the termination of the engagement during which the banker/broker is still entitled to receive its success fee if a transaction is completed. The most common tails range between 12 and 24 months.
  • Communication: The M&A process can be lengthy and stressful. Having a professional who communicates effectively and promptly is crucial.
  • Personal Fit: Like any professional relationship, it’s important to feel personally comfortable with the banker or broker. This often-overlooked aspect can play a key role in the success of your deal.

Conclusion:

Remember, hiring the right investment banker or business broker could be the difference between just closing a deal and closing a deal that exceeds your expectations. Take the time to choose wisely. Contact us if you have any questions or need any advice on this important step.

Calculated vs. Blind Risk: What is the Difference? Startup Founders Guide

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Startup Founders: Smart vs. Blind Risks in Influencer Era 

When starting a business, ‘risk’ is not just a word, but a crucial part of the founder’s journey. Every decision has some risk, whether it’s entering a new market, seeking investor support, or introducing an innovative product.

However, it is important to recognize that not all risks are the same. The ability to navigate through this uncertain territory successfully is what sets apart experienced entrepreneurs from beginners. It is crucial to understand the distinction between ‘calculated risks’ and ‘blind risks.’

Influencer culture presents business ownership as glamorous and risk-taking as an exciting game with the motto ‘no risk, no reward’. Simplifying this overlooks the fact that uninformed, reckless choices can lead to severe consequences. These consequences can include financial ruin or the downfall of a potentially successful startup.

Successful startup founders, venture capitalists, and other investors take calculated risks, but they are not daredevils. They scrutinize every risk and its potential impact before taking a step forward. Blind risk-taking is not a part of their playbook, no matter how exciting or challenging the business idea may be.

The Mirage of Influencer Culture and Risk Taking

On social media, influencers show a positive view of business ownership. But it’s important to distinguish between what’s good and what’s not. Successful people rely on data, analysis, and planning, even though social media posts may suggest otherwise.

Influencers focus on the benefits of taking risks but don’t talk about the negative consequences of failure. This can lead their followers to have a limited understanding of business ownership. However, it’s essential to remember that high-stakes gambling and being a founder are not the same. The former is a game of chance, while the latter is a strategic play of calculated risks.

Real-life entrepreneurs know that they’re playing a long-term game, and one wrong move can result in disastrous consequences. They appreciate the fact that while risk-taking is necessary, it should never be blind.

The Difference Between Calculated and Blind Risk

A blind risk is one taken without any substantive assessment of its potential repercussions. It’s akin to diving into an unknown body of water without first checking its depth or any underlying hazards. Such risks may occasionally result in success, but it’s usually a product of sheer luck rather than strategic planning.

A calculated risk is a carefully assessed chance that considers the possible result and how possible it is to do. Moving forward, aware of the difficulties, but ready to confront any obstacles that may come our way. It’s not about avoiding risks; rather, it’s about taking intelligent, informed risks.

The maxim ‘fortune favors the bold’ should ideally be ‘fortune favors the informed and prepared.’

Calculated Risks: The Cornerstone of Business Success

Every successful entrepreneur or investor has a tale or two about a calculated risk that paid off. They rely on data, their experience, market trends, and professional advice before embarking on any risky endeavor.

Jeff Bezos left his well-paid job on Wall Street to start Amazon. Reid Hoffman founded LinkedIn during a tech bubble. These calculated risks led to great success.

Why do startup founders consider calculated risk-taking critical? The answer lies in the benefits it brings:

  • Opportunity Recognition: Spotting opportunities requires careful assessment of risks that others may not notice.
  • Competitive Advantage: Making informed decisions can position your startup to capitalize on industry trends, giving you a competitive edge.
  • Better Preparation: Understanding potential risks allows you to prepare for contingencies, thereby reducing their impact.
  • Increased Confidence: Taking calculated risks fosters increased confidence, as individuals back every decision with careful analysis and planning.

How to Take Calculated Risks?

So, how do you shift from taking blind risks to calculated ones? Here are some steps to consider:

  • Collect Information Before Deciding. Know your market, competition, and how your choice will impact key stakeholders.
  • Think About the Good and Bad. Choices have results. Consider the possible gains and dangers. This will help you decide if the gains are worth the dangers.
  • Get Expert Advice. Don’t ignore the importance of professional guidance. Talking to business advisors or lawyers can give you new ideas. They can help you see risks from different angles, so you understand them better.
  • Create a Risk Management Plan. A plan to manage risks helps you get ready for possible problems. The plan should include finding risks, knowing their impact, making strategies to reduce them, and setting up a monitoring system.
  • Adopt a Growth Mindset. Taking planned risks needs a growth mindset. See failures as chances to learn instead of obstacles. This mindset will aid you in dealing with the uncertain challenges of starting a business with strength and determination.

Conclusion: The Calculated Path to Success

Risk-taking is part of the founder’s journey. Yet, the type of risk you take can mean the difference between failure and success. Successful startup founders, venture capitalists, and savvy investors don’t take blind risks. Instead, they take calculated risks, carefully considering the potential outcomes, benefits, and downsides before deciding.

In the world of startups and business ownership, it’s not about avoiding risks; it’s about understanding them. Founders should look before they leap. The calculated risk, while less sensational than its blind counterpart, is a slow, steady, and strategic path to sustainable success.

Remember, if you take smart risks, you can overcome any obstacle. Sophisticated founders navigate the highs and lows of business through informed decisions. Don’t gamble on your dreams; invest in them with calculated risks – it’s the true path to unprecedented success.

Navigating the realm of calculated risk isn’t a solo journey. You need the right partners and guides by your side. Our seasoned team of business law professionals are ready to assist you in identifying, assessing, and managing your business risks. With us, you’re not just taking a leap of faith; you’re making a strategic move towards success.

To quote Mark Twain, “Good decisions come from experience. Experience comes from making bad decisions.” Let’s embark on a journey to make informed decisions, gain invaluable experience, and, ultimately, achieve business success.

About Linden Law Partners

At Linden Law Partners, we’ve helped hundreds of founders, startups, and investors with their businesses and investments. Contact us to discuss how we can help you.

Selling Your Business: Optimize Financial Performance and Accounting Practices Before Going to Market

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Question: What’s the most common area of a business needing improvement before being marketed for sale?

Answer: Financial performance and accounting practices.

Prospective buyers will closely scrutinize the financial health of a business, including profitability, cash flow, revenue trends, and growth potential. Ensuring financial records are accurate, up-to-date, and well-organized can significantly impact the perceived value of the business.

Selling Your Business with 6 Practices Before Going to Market

Here are some key aspects to focus on that will go a long way to netting you substantially more money when you’re ready to sell:

1. Clean Financial and Accounting Records.

Organize and maintain clear accounting records and financial statements, including profit and loss statements, balance sheets, and cash flow statements. Ensure that all transactions are accurately recorded, and there are no discrepancies.

2. Minimize High-Cost Debt.

Pay off or reduce outstanding debts, particularly those with high-interest rates. Excessive costly debt can deter potential buyers and negatively impact the company’s valuation.

3. Improve Profitability.

Identify areas where you can cut costs, increase revenue, or improve operational efficiency to boost the bottom line. This could involve renegotiating supplier contracts, streamlining processes, or investing in cost-saving technologies.

4. Optimize Working Capital.

Efficiently manage inventory, accounts receivable, and accounts payable to ensure adequate cash flow and demonstrate effective financial management.

5. Financial Projections.

Develop realistic financial projections that showcase the growth potential of your business. This can help prospective buyers understand the return on investment and future potential earnings.

6. Tax Compliance.

Ensure all tax filings and payments are up-to-date and in compliance with relevant laws and regulations.

So, have you done all you can with your financial and accounting practices to make a lasting impression on potential acquirers of your business?

At Linden Law Partners, in addition to being M&A legal specialists, we also understand the full spectrum of components required for an optimal M&A exit event. To this end, we support our clients from the outset and before going to market to greatly increase their odds of maximizing the outcome of their business sale. This includes not only advising on the process and initial advance preparations, but also helping them obtain access when needed to qualified accountants, investment bankers and other M&A specialists to ensure they (A) position their business as advantageously as possible before going to market for sale, and (B) assemble a first-rate deal team to navigate them through the process.

Contact us to discuss how we can help.

Selling Your Business: Do You Need to Prepare in Advance?

Posted on by PLinden

Spoiler alert – YES, you do! Tackling a complex new undertaking – such as the business sale process with its many moving pieces, new concepts, and special terminology – brings with it a learning curve. It demands thought, attention to detail, and time to fully process various concepts. In addition to moving up the learning curve, when preparing to sell your company you will also have work to do on the business itself, Just as you might paint or complete repairs around your home in preparation for a sale or Selling Your Business.

You may be thinking, “When the time comes, I’ll just hire a couple of experienced M&A professionals and we’ll get it sold.” Or you find yourself overwhelmed with questions wondering how to get started. Regardless, there are several reasons why the most successful sales processes begin long before your business goes on the market.

Ensure your personal readiness.

Before you plunge into the sales process, take time to dig deep into your reasons for selling, must-haves in the deal, and future plans. Too many sellers decide to sell based on a bad quarter (or year), only to realize midway through the process they’re not especially motivated to sell. That’s not only a substantial waste of time and resources for you, your M&A professionals, and potential buyers – it’s also a red flag when you are truly ready to sell. Like the boy who cried wolf, your credibility will be suspect. And sellers should spend quality time with their financial planner and tax accountant in evaluating their future so that when potential buyers make offers, they can be systematically compared against needs. Sellers often jump at a seemingly attractive offer for their business, only to realize late in the process that it won’t net what they need for their desired new lifestyle. Every business owner has a different set of wants and needs, including financial goals as well as plans for the company, its employees, and their legacy; every M&A deal is structured differently depending on the motivations of the parties. One of the keys to success in an M&A deal is immersing yourself in the process so you recognize the best fit deal when you see it, because the best fit probably entails far more than just the highest price.

Learn about the sale process.

Selling your company is a big deal (yes, pun intended) involving a complex M&A process that has its own set of customs and requirements. You can minimize surprises if you learn about the many steps in the process, what will be expected of you, what to expect from buyers, normal time frames, and typical valuations in your industry. You can study the mistakes sellers frequently make and avoid making them.

A prepared, savvy seller is another way to impress potential buyers and maintain their confidence during the process – which is most critical when they will be working closely with you after the sale as many sellers continue to have skin in the game post-closing.

Assemble and lock in your management team. Selling your company usually means you’ll be walking away within some defined period after closing. Undoubtedly, as the owner, you perform multiple functions at the company. Have you developed a well-rounded, seasoned management team that is ready to step up and run the company successfully without you? Some, but not all, buyers bring management talent to the table, so you will be limiting your universe of potential buyers if you don’t have a complete, seasoned management team in place.

And is your team adequately incentivized to stick around during an exit event? (read more in our article, Profits Interests Explained). Hiring and keeping stellar employees is always a challenge, and both the risks and stakes escalate during a sales process. Developing and incentivizing your team is obviously not a simple or overnight fix.

Develop a great M&A deal advisor team.

Experienced deal professionals, including financial, legal, and investment banking experts, are essential to a well-run M&A deal. Begin well in advance of selling your company to seek out recommended M&A specialists and develop relationships with them. To take advantage of the best offer, you need a cohesive, well-oiled team that will help you move through the sales process effectively and minimize hitches, hiccups and delays.

Refine your business records. Essential steps in the M&A process include assembling a data room that is populated with the necessary documentation and providing financial statements that attractively position the company for the potential buyer. Prior to putting your company on the market, your M&A professionals will guide you through the time-consuming data room setup and work with you to get your accounting in order to best showcase your company.

These tasks will continue throughout the sales process as potential buyers make new and different requests, but you’ll be well served by getting the bulk of the materials assembled early.

Keep running your business.

Selling your business is an exceptionally demanding undertaking all by itself even when you have a team of deal professionals to manage the process. Assume you will be fully engaged with coordinating your deal team’s efforts, responding to prospective buyers’ inquiries and requests, negotiations, and recasting financial statements. And, even while all these activities are moving full steam ahead, your potential buyers will also be evaluating the business and the financial results up to and beyond the closing table.

If you take your eye off the ball during this critical period, you risk flat performance, missed targets, and lackluster financials. Potential impacts can range from a drop in buyer confidence to a lowered price and even a lost deal. While you’ll still be running full throttle while selling your business, advance preparation will ease the load during the crazy breakneck process. 

Thoughtful preparation for the sale of your largest asset will help you run a smooth process and prime you to take advantage of the best-fit deal. Completion of several essential tasks, deserving of adequate time to really think them through, is not an overnight fix – but will pay off when the time comes to sell your business. You can prepare in advance to sell your company, or you can play catch-up throughout the deal process when your leverage is lowest.

Selling Your Business: Best Ways To Prepare In Advance

At Linden Law Partners, we specialize in quarterbacking all aspects of M&A deals, and we’ve represented buyers and sellers in hundreds of M&A deals. While there are many common threads among the most successful transactions, we recognize the uniqueness and personal attention required for each deal. Contact us to discuss how we can help.

Selling Your Company: Bridging the Gaps Between Financial and Legal Advisors

Posted on by PLinden

Mergers and acquisitions (M&A) are complex transactions involving a wide array of financial, legal, and operational considerations. The M&A process requires a deep understanding of various business disciplines, with financial and legal advisors working in tandem with the goal of ensuring the deal proceeds smoothly.

Clients rely on their professional advisors for this information, which is often not understood by all parties, sometimes resulting in a lack of overall deal cohesion. This disconnect may exist because financial professionals may struggle to fully grasp the technical contractual nuances of M&A, while conversely legal professionals may find it difficult to understand various technical accounting and financial nuances.

This article examines the reasons behind this disconnect and explores possible solutions to improve collaboration and communication between these two critical groups of deal advisors.

1.Potential for Disconnect Between Financial and Legal Professionals in M&A

In the M&A realm, financial and accounting professionals are primarily responsible for conducting financial due diligence, analyzing, and developing valuation models and financial statements, and negotiating the parts of the deal related to these elements.

On the other hand, legal professionals are primarily tasked with conducting legal due diligence, drafting contracts, negotiating legal terms, and ensuring compliance with regulatory requirements. While both groups play a vital role in M&A deals, their differing areas of expertise can lead to a lack of understanding and cohesion between them.

According to a 2019 study by Deloitte, only 42% of surveyed M&A professionals believed collaboration between financial and legal professionals was effective, with the majority citing a lack of understanding of each other’s roles and responsibilities as the primary cause of the disconnect (Deloitte, 2019).

Furthermore, a 2017 survey conducted by Ernst & Young found that 75% of respondents identified misaligned expectations between deal parties as a major factor leading to failed transactions (Ernst & Young, 2017). These statistics highlight the pressing need for better integration and collaboration between financial and legal professionals in M&A transactions.

2. Causes of the Disconnect

A. Limited Understanding of Each Other’s Domains 

The specialized nature of financial and legal professions means that individuals in each field may not have a comprehensive understanding of the other’s area of expertise. This can lead to misinterpretations and incorrect assumptions, ultimately hindering effective communication and collaboration.

B. Misaligned Objectives 

Financial and legal professionals may have different objectives in M&A transactions. For instance, some financial professionals may focus solely on valuation while underappreciating that legal implications can result in financial losses for the client. Conversely, some legal professionals may overly prioritize risk mitigation and regulatory compliance while failing to appreciate the overall financial picture. Regardless, these divergent goals can create tension and impede cooperation.

C. Inadequate Communication 

In the fast-paced world of M&A, effective communication is paramount. However, professionals in different disciplines often use jargon and terminology unique to their fields, sometimes making it difficult for the other party to fully understand the intended message.

D. Insufficient Training 

Financial and legal professionals often receive specialized education and training, with limited exposure to the other’s discipline. This lack of interdisciplinary training can exacerbate the disconnect between the two groups.

3. Some Examples of Negative Implications Due to the Disconnect

A. Inadvertent Inclusion or Exclusion of Key Financial Terms: 

The accounting and financial provisions of the acquisition agreements (such as around working capital and EBITDA based price adjustments) sometimes inadvertently include, exclude, or misapply key components because the nitty-gritty of the acquisition agreements failed to capture, describe, or apply them correctly, whether because:

  • The financial professionals (1) didn’t look closely at the contractual provisions, (2) didn’t understand the contractual provisions, or (3) didn’t otherwise closely coordinate with the attorneys; AND/OR
  • The legal professionals (1) didn’t look closely at the financial statements and calculations underlying the key financial and accounting provisions of the acquisition agreements, (2) didn’t understand the basics of the accounting and financial information, or (3) didn’t otherwise closely coordinate with the accounting and financial professionals.

Remember, spreadsheets and financial statements aren’t contracts, but the contracts must accurately reflect what’s in those spreadsheets and financial statements. And it takes some work and thought to make sure they’re properly integrated when it comes to the volume of financial and legal information underlying any M&A deal of size. The most pristine spreadsheets and financial statements are only as good as the acquisition agreements that interpret and apply them.

B. Allowing the Deal to be Over-Lawyered: 

People often talk about over lawyering in M&A deals, but they don’t always do enough to prevent it. Lawyers for institutional and private equity buyers tend to overdo it, and financial professionals and lawyers don’t always work together closely enough. This can lead to lawyers sometimes making changes to the contracts that hurt the other side, for example, even if they weren’t agreed upon.

Sometimes, high-level financial executives just say they’re following the advice of their white shoe law firm without considering the actual business case. Many non-legal professionals aren’t comfortable with the technical details of contracts, so they may rely too much on what their lawyers tell them. This problem can be exacerbated when the financial and legal professionals are not collaborating as closely as they should.

4. Bridging the Gap: Solutions for Better Collaboration between Financial and Legal Professionals in M&A

Some strategies for M&A principals to consider in seeking solutions for better deal collaboration between financial and legal professionals include:

A. Engage Professionals with Cross-Functional Experience or Backgrounds: 

When vetting their prospective deal teams, M&A principals should understand and inquire about the cross functional training, if any, that their professionals possess. For example, does your M&A attorney have prior hands-on experience in entrepreneurship, business management, accounting, or finance, and so on for the various types of deal advisors involved in the transaction?

The more practical and hands-on experience a member of the deal team has had in one or more areas of other professional disciplines involved in the transaction, the better. Advisors with such cross-training experience will undoubtedly have a more holistic understanding of the deal elements than those who have no real experience or training outside of their individual professional domain.

B. Ensure Properly Coordinated Communication Throughout the Process: 

Insist on regular communication between financial and legal professionals throughout the M&A process. This should include scheduled meetings and the use of shared language and terminology to ensure both parties understand each other’s (and most importantly, the client’s) perspectives and goals.

C. Clarify Roles and Responsibilities:

Clarify each party’s roles and responsibilities at the beginning of the deal. This will help to ensure that everyone understands the scope of the work and can work more effectively. It may also shed light on incorrect assumptions each party is making about what the other is truly doing and identify gaps or oversights that might otherwise fall through the cracks.

D. Develop Mutual Understanding of Deal Components: 

Financial and legal professionals need to have a mutual understanding of the key deal components. This can be achieved by ensuring they both review the same financial and accounting information, as well as the same contractual terms, and by discussing any discrepancies.

This is not to suggest they should replicate the other’s work, or that financial advisors should be the lawyers, or the lawyers the financial advisors, etc.

The point is to ensure through reasonably coordinated collaboration and discussion that the attorneys properly describe and implement the intricacies of the accounting and other financial components in the acquisition agreements consistent with the overall deal intent, and conversely that the financial professionals spend the time necessary to reasonably understand and confirm the legal terms in fact truly reflect those intricacies.

This collaboration should involve more than just taking the other’s word for it.

E. Build Trust:

Trust is essential to any successful working relationship. Building trust between financial and legal professionals can be achieved by creating opportunities for both parties to get to know each other on a personal level, particularly at the outset of the deal, whether through a social event or even just an informal meeting. This can help develop rapport. By building trust, financial and legal advisors can work together more effectively, which can ultimately lead to more successful deal outcomes for clients.

CONCLUSION

In conclusion, bridging the gaps between financial and legal advisors is critical to ensuring the success of M&A deals. The specialized nature of these professions can lead to a lack of understanding and cohesion between them, but by implementing solutions such as proper vetting of interdisciplinary skills, coordinated communication, clarifying roles and responsibilities, developing a mutual understanding of deal components, and building trust, M&A professionals can work together more effectively.

By doing so, they can ensure that deals proceed more smoothly, benefiting clients and their businesses. Ultimately, it’s the responsibility of all parties involved in M&A transactions to prioritize collaboration and communication, striving towards common goals and a shared understanding of the complex and intricate elements of the deals they undertake.

At Linden Law Partners, we specialize in quarterbacking all aspects of M&A deals, and we’ve represented buyers and sellers in hundreds of M&A deals. While there are many common threads among the most successful transactions, we recognize the uniqueness and personal attention required for each deal. Contact us to discuss how we can help.

The Last 5% in M&A

Posted on by PLinden

Any serious athlete will tell you the very end is usually the hardest and most important part of the competition. For example, the last few miles of the marathon and the “championship” rounds in boxing are grueling – but they always matter the most. That’s easily where the race or fight is won or lost. Similarly, the “last 5%” of an M&A deal is virtually always the hardest and most important component to obtaining a successful outcome for what are often life-changing deals for M&A sellers.

Once key deal points such as overall price, terms, and conditions have been agreed upon and the finish line is in sight, there may be a false sense of relief for both parties. But even after these key points are negotiated, deals can and do fall apart. Deal fatigue sets in and, thinking it’s “just a matter of closing,” the unsuspecting principal may become complacent and fail to give appropriate attention to the final stages of the transaction. The same focus and energy that has been accorded the rest of the process needs to be applied to this final 5%.

The last mile involves countless crucial details that may not seem especially important at a 30,000-foot level but must be completed to actually “close” the deal. The last 5% inevitably always take longer and involves more parties than anticipated. Consider these examples: 

The ancillary agreements matter – a lot – as each adds or subtracts value from the deal. A savvy seller budgets time to review these complex agreements with their M&A attorney and investment banker to develop a thorough understanding of the following: 

Small changes can create big ripple effects.

Seemingly small changes can permeate what are hugely long and interconnected agreements and spreadsheets. One change or renegotiation late in the process can permeate hundreds of pages or spreadsheets, and it happens at the end of every deal. A savvy seller stays on top of small changes and thinks through the various ripples and ramifications.

A working capital adjustment

was likely agreed upon as part of the overall price calculation, but how, exactly, will working capital be calculated? In some cases working capital has the potential to move the effective price by millions of dollars! Lots of times parties make assumptions about this essential element and it causes hiccups and negotiations late in the deal on one of the main deal points. A savvy seller insists early on that the calculation methodology be explored and negotiated.

Purchase price allocation

is rarely discussed in depth when agreeing on the overall price, but the way price is allocated for tax purposes (to goodwill, inventory or other asset classes) must be agreed upon. It creates potentially large differences in (1) ordinary income vs. capital gains treatment for sellers, and (2) step-up in basis and deductibility for buyers – cash out of one pocket and into another. The purchase price allocation is rarely negotiated until the end and is always harder than anticipated with accountants, tax advisors, and lawyers scratching and clawing. Once again, the savvy seller brings up this topic early and often.

Third-party consents

often involve multi-million-dollar customer contracts that cannot be assigned without the customer’s approval. That multi-million-dollar customer will have some questions about their new business partner before simply signing the consent, and the parties should expect some bureaucracy and process around that. To add another layer of complexity, the government may also need to approve the deal. Obviously, this work cannot commence until the parties to the transaction are ready to divulge the deal to customers, but a prepared seller assembles all customer contracts so the consent can be circulated rapidly when the time comes.

Execution risk

is frequently ignored or minimized by principals who don’t understand that high-level agreements between principals can’t and don’t address all the execution elements of the deal and the different ways value can be eradicated. The price may be good, but what about the clawbacks the buyer created for themselves?

Or the fact they want to sit on 25% of your money for two years to make sure it “works out”? Would that change things for you? Of course, it would. The savvy seller remains alert to such aspects of the deal structure and insists on negotiating them throughout the process.

Most of these factors come into play in every M&A transaction, so what else can a savvy seller do to prepare for optimal handling of these potential deal-breakers?

  • Coordinate your M&A deal team – internal personnel, M&A attorney, investment banker, and tax advisors – and ensure that key points and messaging are consistent.
  • Structure and then adhere to rigid communication protocols with both parties to the transaction, expecting and providing regular status updates and addressing issues early.
  • Build a trusting relationship with the buyer in the early stages of the process to help move through late-arising roadblocks.
  • Work through details as much as possible early in the negotiations, and include them in the letter of intent.
  • Understand key must-haves in the deal – both your own and those of the other party – and be prepared to negotiate your points clearly and compromise when necessary.
  • Anticipate and work through deal fatigue by creating a sense of urgency, setting deadlines, and maintaining momentum.

Like that tired marathoner closing in on the finish line, buyers and sellers experience deal fatigue. You can still easily lose when you’re exhausted at the end of the race. That’s when you must be MOST focused and block out the noise because, if you give in, all the hard work and negotiating you’ve done can easily come undone in the final mile. Happens all the time.

The Last 5% in M&A

At Linden Law Partners, we specialize in quarterbacking all aspects of M&A deals, and we’ve represented buyers and sellers in hundreds of M&A deals. While there are many common threads among the most successful transactions, we recognize the uniqueness and personal attention required for each deal. Contact us to discuss how we can help.

2023 Super Lawyers Colorado Recognizes Pat Linden For Mergers & Acquisitions

Posted on by PLinden

Super Lawyers has recognized Pat Linden in its 2023 edition for Colorado attorneys for his work in mergers and acquisitions (M&A). Only 11 Colorado attorneys made the 2023 list for M&A. Pat was also named to the M&A list for each of 2020, 2021 and 2022.

Super Lawyers® is a rating service for outstanding lawyers who have attained a high degree of peer recognition and professional achievement in their field of practice. The annual selections are made using a rigorous process, including a statewide survey of lawyers, an independent research evaluation of candidates, and peer reviews by practice area. Only 5% of all practice lawyers in each state or region are named on its list.

Learn more about Pat’s practice and background. In addition to the Colorado Super Lawyers® designation, Pat was recognized as Colorado’s best M&A attorney in 2018 and 2020 by Law Week Colorado in its annual Barrister’s Best publication and was named Colorado’s best private equity attorney in its 2019 and 2021 editions.

Super Lawyers Colorado Recognizes Pat Linden