A leading business law firm in Denver, Colorado
Contact Us

Category: All

Selling Your Business – The M&A Auction Process

Posted on by lindenlawpart1

As you explore the sale of your business, you’ll likely hear that you should consider an auction process. What exactly is an M&A auction, why run one, and when is an auction process not advisable for the situation?

What is an M&A Auction?

An M&A auction process is led by an investment banker with the goal of attracting multiple potential buyers for your business. It’s very structured – going far beyond a few casual conversations with a handful of potential buyers. A proper auction employs rigid deadlines and is intended to result in multiple letters of intent (or even purchase agreement proposals in some cases) – all based on the same set of information. An auction puts power into the seller’s court because competing buyers are forced to put forth their best offers and negotiate in good faith.

It usually works something like this: you and your deal professionals develop a list of potential buyers, typically including strategic buyers (competitors, customers, suppliers and others in your industry), as well as financial buyers (private equity, or for smaller deals, perhaps high-net worth individuals). Your investment banker sends them a “teaser”, or generic description of your business and desired transaction.

A buyer who wants to learn more is required to execute a non-disclosure agreement, after which they’ll receive a detailed confidential information memorandum (CIM) describing your business. Your investment banker also communicates deadlines for each step in the process, including initial indications of interest, preliminary access to your data room, management presentations, site visits and letters of intent.

This sounds like a lot of work – and it is. Why engage with multiple possible suitors, especially if you believe you already know who your buyer will be and when you may even have a preliminary proposal on the table? Because when the situation is right, an auction can result in numerous added benefits for the seller relative to non-auction situations.

Why Consider an M&A Auction?

Competition.

 Several things happen once a potential buyer realizes there will be other possible suitors bidding for your company. First, buyers will self-select in the process, and if they do, they’ll tend to be both motivated and qualified. A buyer’s interest may also be piqued, as an auction suggests that it may be worth fighting for your business (i.e., the process implies your business is valuable). And buyers know they must submit a competitive offer instead of trying to get your business “on the cheap”.

Condensed Timeline.

Deadlines keep the process moving efficiently. A single buyer without this time pressure has less motivation to promptly complete their due diligence and get serious about moving toward closing on the actual purchase of your company. Without these deadlines, time is on the buyer’s side – especially if a single buyer’s offer is the only one on the table for you to consider.

As a result, your deal may drag on far longer than necessary while the uncontested buyer waits and slowly plays things, all the while expecting you to eventually agree to “their” terms.

Superior offers.

When multiple potential buyers are competing for your company, there’s pressure to put their best offers on the table (both price and deal terms). It’s possible that a higher value will be placed on your business because with multiple suitors – each with their own reasons to do the deal – there will likely be a few highly motivated potential buyers who bid the price up.

You and your deal advisors can also then evaluate various deal structures side by side and, having spent time and resources to assemble a competitive offer, none of the bidders wants to lose!

Likelihood of Closing.

The more potential buyers, the more front-end due diligence, the more front-end questions that are resolved quickly, and the more front-end discussions that occur in a condensed time frame.

Once you get to the tail end of an auction process, few issues remain unexplored and there is less potential for a last-minute surprise that derails your deal from closing.

Is an M&A Auction Always the Right Move?

Despite its numerous benefits in certain cases, an auction process is not appropriate for every M&A sale transaction. Since the primary advantages derive from having multiple potential buyers interested in your company, it’s important for you and your deal team to take a critical look at your business to evaluate the realistic likelihood it will garner the level of interest that justifies conducting an auction process.

For example, is your company well known and of a sufficient size to attract a range of qualified buyers, such as a bona fide private equity or other strategic acquirers with deep pockets that will only buy companies of a certain size and standing? Do you compete in an attractive, growing industry? Do you have a proprietary niche or competitive edge that makes your business especially valuable?

Running a competitive auction is a complex process and you will need deal advisors who have been through it many times. The confidentiality risk is clearly far greater when multiple buyers are involved, and your deal professionals must be versed in handling the risk.

The time and expense required to communicate and negotiate with multiple potential buyers needs to make sense vis-à-vis the overall economics of the deal. And it’s worth considering that some qualified buyers could decline to participate in an auction, believing they can strike a more favorable deal in a less competitive transaction.

Conclusion.

If your company fits the profile where an auction is likely to yield benefits, it’s hard to argue against conducting the sale through an auction process. While real estate sales aren’t fully comparable to business sales, it’s generally a safe assumption to conclude that fielding offers from multiple qualified buyers in M&A deals will fetch most sellers higher prices for reasons similar to why real estate sellers and their agents work hard to get multiple competitive offers from qualified buyers (i.e., they want to bid up the price and the recent pre-recession real estate boom was a great example of this).

In addition, if an auction is indicated for the sale, you will be testing the market regarding the proper valuation for your business – and in the end, the true value of the company is what the market says it is. From that vantage point, you’ll have confidence you will be evaluating the best offers the market will bear for your business.

About Linden Law Partners

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.

New Attorney Announcement

Posted on by lindenlawpart1

Linden Law Partners is pleased to announce that attorney Holden Bank has joined our business and transactional practice group. Holden has spent most of his 35-year legal career managing and solving an expansive range of domestic and international corporate and business legal issues.

His experiences as Chief Legal Officer and General Counsel for both publicly traded and privately held companies, and as outside counsel in private practice, allow him to offer unique perspectives, guidance, and strategic direction to business clients. A former All-ACC swimmer for Duke University, Holden continues to swim competitively and has enjoyed being part of successful English Channel and Swim Around Manhattan relay teams.

These experiences energize both his personal and professional lives, which he happily keeps separate with ease. He grew up in the Maryland suburbs of D.C. but has loved living in Colorado for over 40 years.

Holden and Pat Linden have known and collaborated with one another for many years, ‘threatening’ to formalize their professional relationship for the last several.

Mr. Bank stated, “I’m thrilled to finally be able to work more closely with Pat, whom I know as talented, responsive, and business-minded counsel. As with swimming, which remains a passion of mine, strategic goal setting, planning, individual accountability, teamwork, and execution are all part of what I do with my clients, and what I’m looking forward to continuing with Pat and the rest of the team at Linden Law Partners.”

Pat Linden commented, “with Holden, what you see is what you get. He does what he says he’ll do. I also know first-hand that he thinks outside the box and brings a practical approach to solving complex problems and getting deals done. That’s what clients need, and that’s what we want in attorneys we work transactions with.

His experience in GC roles at major companies combined with the success he’s developed in his own private business practice further provide an intriguing value proposition for us. He also has deep rooted connections in the Boulder startup community, which is a demographic our firm is very capable of serving. It’s an all-around great fit.”

Linden Law Partners is a boutique law firm that helps clients effectively navigate every stage of the business life cycle, from formation to exit. We are business and transactional law specialists with extensive experience in all aspects of corporate law and governance, complex partnerships, joint ventures, emerging companies, mergers and acquisitions, venture capital, and private equity. We view our representations as relationships, not just transactions. To learn more about us, visit e59ubbo54u-staging.onrocket.site.

Going Beyond Price: 5 Elements Often Overlooked by M&A Sellers

Posted on by lindenlawpart1

It’s easy for M&A sellers to become overly focused on the initial proposed price they see and to become star struck with that figure. However, there are numerous other elements to consider beyond just the price number on the page, some of which can materially impact what sellers actually “net” from the deal. This article examines some of the key elements Sellers should understand and scrutinize up front. By doing so, Sellers will go a long way toward “realizing” their price goals from a sale transaction. After all, a stated number on a page isn’t the same thing as “money in the bank.”

It’s a bit of a myth that private company owners sell their companies, pocket all the cash at closing, and ride off into the sunset to never worry about their business again. There’s typically much more to it than that, and most sellers are likely to be involved with the business after the sale. Selling owners and key employees of acquired private companies almost always play crucial post-closing roles, particularly when selling to private equity buyers. Given this, there are often one or more contingent aspects associated with receiving a portion of the price (and often this contingent portion can be substantial).

With this in mind, let’s look at some key points of consideration that go beyond a generic stated price.

1. What’s the amount of up-front purchase price payable at closing?

One important question that sellers should have in assessing the amount of the cash proceeds they will receive should always be “how much of this does the buyer expect to hold back or ‘escrow’ for some post-closing period”?

Escrows/holdbacks exist for most private company sales. There are typically two forms of escrows/holdbacks: (1) indemnity escrows to secure recovery of losses sustained by the buyer for the seller’s breach of representations and warranties (or other seller obligations or commitments contained in the definitive agreements); and (2) working capital escrows (the price adjusts post-closing, up or down, based on the actual working capital [current assets minus current liabilities] of the seller’s business on the closing date – which is determined and adjusted after the closing).

Sellers should advocate for smaller indemnity escrows for shorter periods. The more money a buyer holds back, or which is escrowed, and the longer the period, the more likely buyers will make claims, whether legitimate or simply given a longer lookback period to assess how the return on investment of their purchase is turning out post-closing. We’ve provided some particulars around what’s market on escrow/holdback periods and amounts in our free 10-point guide for M&A sellers.

In some cases, a seller may be better off with more cash payable at closing (and a smaller escrow) versus a higher overall price where the buyer is insistent on holding/escrowing a material portion of the cash portion of the price. There’s an old expression we’ve come to appreciate over many years of working on M&A deals, which is that “possession is 9/10ths of the law.” Sellers should take heed when it comes to negotiating and agreeing on the amounts and time periods of escrows and holdbacks.

2. Will there be an earnout?

Earnouts in M&A deals provide for a portion of the purchase price to be paid to the seller contingent upon the target company reaching certain financial goals or performance milestones after closing.

Earnouts are typically among the most heavily negotiated provisions in a private company acquisition and are highly susceptible to disputes following the closing. Note that earnout provisions can vary significantly from transaction to transaction. Even so, there are several key issues that should be considered with any earnout, including:

  • The financial and/or non-financial targets to be achieved in the earnout. These should be objective, measurable, and clearly defined in the purchase agreement. Examples of financial targets include total revenue, net income, EBITDA, or some other financial measurement that is relevant to the target company’s operations. Non-financial targets may be appropriate when financial targets don’t provide for a relevant measure of a target company’s performance. This may be the case with an emerging technology company that has limited revenue on which to base a financial target; the parties may instead agree on non-financial targets, such as achievement of certain operational or product development milestones.
  • The length of the earnout period, the timing of the earnout payments, and the formula for determining earnout payments. These terms are largely based on the financial or non-financial targets agreed upon by the parties as well as, with respect to the earnout period, potential tax considerations for each party.
  • The form of earnout payment. The parties must determine if the earnout payment will be made in cash, which is typical, or in some other form of payment, such as the issuance of equity in the buyer.
  • Procedures and dispute resolution. Parties should carefully consider the procedures for calculating and verifying any relevant financial target for each earnout payment. In most instances, the parties will agree to involve an independent third party, such as a mutually agreed upon accounting firm, to determine the calculations in the event of any objection to the earnout calculation.

3. Will there be rollover equity?

Rollover equity is the amount of money that a seller is expected to invest (e.g., “rollover”) into the equity of the acquired company. Again, this question involves certain key issues often negotiated by the parties as part of agreements:

  • The rollover amount. While 20% is a commonly targeted number, the specific amount is based on various factors, such as the type and amount of other management equity-based incentives being offered to the sellers, the existing equity structure of the target company, the amount of risk the buyer investor believes management of the seller should retain in the post-closing company, the buyer investor’s financing needs in the acquisition, and tax considerations.
  • Repurchase rights. Buyers will often seek the right to repurchase a seller’s rollover equity upon his or her termination of employment or services to the post-closing company for any reason. However, because a seller purchases (versus being granted) the equity in the post-closing company through the rollover structure, sellers will typically seek (and should be successful) in eliminating these restrictions.
  • Vesting. Some aggressive buyers, particularly private equity acquirers, may want the rollover equity to vest over time, depending on the type and amount of equity rolled over by the seller. But a seller will typically (and should) object to these requirements with rollover structures because the seller has in effect made a capital contribution equal to the value of his or her rollover equity at the closing of the transaction.
  • Management rights. The parties may need to determine if the rolled seller equity will have equal voting rights as that of the buyer, and whether the seller will have a right to appoint directors or LLC managers. Typically, the buyer r will maintain control of the board / management, but agreements vary by deal.

4. Will there be employment compensation?

Many selling owners are asked to continue in management after closing to help with continuity. As a result, employment terms (and often detailed employment agreements) will be expected and important for both parties.

The stakes in employment agreements can be especially high if a separation from employment can affect the rollover equity of the seller, or if an employment separation can impact the obligations of the parties related to earnout payments if part of the deal. Sellers should negotiate for severance on terminations “without cause” or for “good reason” and look to avoid the ability of the buyer to repurchase their rollover equity. Buyers, and particularly private equity buyers, will try to negotiate equity repurchase rights based on prices “determined in their subjective discretion” often payable over years with little or no collateral.

Sellers are expected to object to these positions to make certain they will receive the full benefit of the value of their rollover equity—no matter if they’re employed at the time of the second bite at the apple sale. Because the equity rights of sellers will be memorialized in an operating or shareholders agreement, there’s a substantial interrelationship with the employment agreement that should be identified and properly drafted.

5. Who do you look to if you’re not paid?

Of all of the overlooked elements, this is the one most neglected by sellers.

Most buyers set up a special purpose acquisition vehicle when they acquire a business. Often, the true financial wherewithal resides with a parent or holding company. A seller likely has limited control over post-closing management of the finances of the technical legal acquiring entity. Sellers should request a guaranty by the parent or holding entity to make certain that the seller will in fact be paid any contingent consideration earned. This avoids being stuck in a position of attempting to collect from an undercapitalized special purpose acquisition entity.

In addition, many buyers will try to subordinate the seller’s rights to continent compensation to their lenders or other financing sources. Sellers should resist this, and, if forced to be subordinate, understand the exact subordination terms. Sellers who fail to read and negotiate the fine print may find themselves in a provision effectively making their right to contingent consideration (even if earned) subject to the complete discretion of the bank or some other third party creditor.

Remember, the price is only as good as the money that hits your bank account.

Takeaway

It’s easy for M&A sellers to concentrate just on the stated price of a transaction, rather than these important and often overlooked issues that are critical to what sellers will net from the sale.

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.

M&A Sellers: Developing an Exit Frame of Mind

Posted on by lindenlawpart1

Planning to sell your company someday? Even if it’s two, three, five years down the road, developing the right exit frame of mind now will pay off handsomely in the future. We’ve already shared several ideas on the topic of preparing to sell your company, but we’ve got more to say about it because here’s the thing: it’s a myth that selling your business will be easy – very few successful sellers just got lucky.

The mergers and acquisitions landscape is littered with killed or failed deals for business owners who believed they were well-positioned to sell their business because they were masters at running it. Not so. Successful sellers lay the groundwork for their exit years in advance, developing processes, tweaking operations, and building out a complete management team, constantly putting themselves in the mindset of a potential buyer.

Optimize your business for sale today, tomorrow, and every day – there are several critical but simple actions you can take now that will pay dividends when you’re ready to sell. Let’s dig into a few key ideas.

Get Your Accounting in Order

Countless deals die because the seller’s books are sloppy and the seller doesn’t truly, deeply grasp their financials, and needs months of clean-up to present them to a potential buyer. Even if the deal moves ahead, a lack of in-depth understanding of your financials means you risk leaving money on the table.

The right exit frame of mind means a regular focus on your financials. Review your P&L, cash flow statement, and balance sheet monthly, even weekly. A few times a year is inadequate to fine-tune your expertise and the insights you need to recognize and act on subtle areas for improvement.

Businesses are typically sold on a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization). There is any number of fairly painless ways you can boost your EBITDA, and thus your sales price, by focusing on profitability, i.e. enhancing revenue and streamlining expenses.

Another common area for improvement is minimizing addbacks. Many sellers run many quasi-personal expenses through their business. Those season tickets you purchase each year “to entertain clients”? Your company vehicle that is a tad too luxurious to be considered basic transportation? Such expenses are incurred for you, and not for the benefit of a future buyer.

Guess what happens when a buyer sees your financials overpopulated with addbacks? If you’re lucky, the price they’re willing to pay for your business goes down, but that once-eager buyer could lose interest and kill the deal. They can’t clearly see what they’re really buying.

Changes should be introduced long before you plan to sell your company. Sellers who promptly present clean, consistent financials have infinitely more credibility with a buyer than the seller who must try to convince their buyer that numerous improvements could be made to EBITDA … It’s a weak negotiating position and detracts attention from the deal, often derailing it completely.

Tie Up Your Management Team

When you’re ready to sell your business and walk away from it, a buyer needs to feel confident that it will continue to thrive without you. Once again, this is not a quick fix you can make when you’re ready to sell.

The right exit frame of mind means planning well in advance, always thinking of how you can round out an effective, self-sufficient management team with the skills and relationships to take your place.

Consider compensating key team members with equity in the business, which not only builds employee loyalty and aligns interests but also improves EBITDA (see above). Share your exit plans with your team before you are knee-deep in the selling process and discuss potential future scenarios regarding their roles going forward.

Prepare for a Competitive Auction Process

A competitive auction is key to garnering the most attractive offer and becoming a successful seller. Think of it along the lines of selling your home: it’s unlikely you would blindly accept an offer from somebody who calls you out of the blue.

More likely, you will work with a real estate agent to list your house and solicit viewings and offers. You and your agent will compare your multiple offers and select the offer with the terms and price that best suit your needs.

Likewise, if you receive a single offer to buy your business, that buyer is calling the shots and you may not know what you don’t know. Is their offer even in line with the market? When multiple buyers compete to acquire your business, you call the shots and buyers are put on notice that they need to submit their best offer with attractive deal structure and pricing – market dynamics at their best.

A good investment banker will maintain a level playing field for all potential buyers by releasing prepared information in stages, and will set a deadline for offers. Your M&A attorney, investment banker and other deal professionals will help you evaluate and compare the offers, and you will negotiate a letter of intent with your preferred buyer.

The right exit frame of mind means you’ve thoughtfully prepared for the process – once again, not an overnight task. It means you’ve considered a list of potential buyers for your business (particularly the strategic buyers already involved with your industry), the information that your investment banker will use to describe your business to buyers,

the materials and effort needed to populate your data room, and your must-haves for a successful deal. It means you’ve developed relationships with a skilled M&A attorney, investment banker and other deal professionals to ensure that you are ready to respond to buyers’ requests and offers quickly and thoughtfully.

Conclusion

Successful M&A sales don’t happen by luck or accident. Develop the right exit frame of mind and groom your business to make it as attractive as possible to buyers. The business owner with the right exit frame of mind can make subtle changes in the operation of their business over the years that will pay huge dividends.

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.

Linden Law Partners Represents Allied Pipeline Technologies for Acquisition of United Pipeline Systems

Posted on by lindenlawpart1

Linden Law Partners is pleased to announce that our client Allied Pipeline-Technologies (APTec) acquired United Pipeline Technologies (UPS). The transaction resulted in APTec’s acquisition of all UPS businesses and properties conducted in the United States, Canada, Chile, and Argentina.

Linden Law Partners Represents Allied Pipeline Technologies

APTec is a multinational company specializing in pipeline services. APTec’s focus is on developing and implementing solutions for corrosion/abrasion protection of new pipelines, and rehabilitation of existing pipes with no-dig methods. APTec’s client base includes mining companies, oil and gas industry leaders, and a variety of municipal and industrial operators.

Since 1985 UPS has been a global leader in high-performance thermoplastic internal pipeline lining systems for pipeline integrity. UPS has installed over 20,000 miles of the Tite Liner® system from 2 inches to 52 inches in diameter – with operating pressures up to 7,500 psi – in more than 30 countries worldwide. Their extensive experience and proven track record make UPS the trusted choice for high-performance thermoplastic internal pipeline lining solutions.

Linden Law Partners was the lead counsel for APTec in the deal.

Becoming a Master M&A Dealmaker When Selling Your Business

Posted on by lindenlawpart1
As the seller of a thriving business, you’re accustomed to making the tough decisions, negotiating deals and, far too often, prioritizing the demands of the business ahead of nearly everything else in your life. Your well-honed skillset has made your company a success, brought you to the mergers and acquisitions party, and will be beneficial as you work towards a successful sale of your company.

Becoming a Master M&A Dealmaker

By focusing on incorporating a few additional skills you have tucked away in your toolbox, you’ll progress on your journey toward becoming a master M&A dealmaker.The reality is most M&A sellers have little to no experience with selling a company. An M&A sale will probably be the single largest transaction of your life, and you’ll be in new territory playing by rules you don’t fully understand at the beginning.In short, it can be an uncomfortable place for many business owners to be. Therefore, it’s critical to engage seasoned deal professionals to guide you through a transactional process they’ve been through many times. Your deal team will be able to educate and guide you through the M&A process, advise you on market values, and negotiate complex legal agreements that matter a lot to the outcome you end up with.Although they’ll be more knowledgeable about the process and less emotionally involved than you are, no one will know the intricacies of your business better than you. There will be many subtleties in the transaction that only you recognize.Simply put, it’s your deal, and the more familiar you are with all its nuances, the more successful the deal process and outcome will be for you. Over the course of hundreds of transactions, we’ve found the best deals result when our clients embrace the following four principles.

1. Be Willing to Learn

When selling your business, there will be wave upon wave of new information that threatens to pull you under – new terminology, processes, and documents. Expect and insist that your deal team professionals spend time educating and preparing you. It’s important they work closely with you in refining and prioritizing your objectives.This will enable them to effectively advocate for your interests and ensure that you get your must-haves. By walking you through the M&A process and key points in the contracts, it will help in level setting your expectations and deepen your understanding of the complex give-and-take that is part of successful M&A deals.Consider this insight from billionaire entrepreneur and Shark Tank investor Mark Cuban. “I learned that learning truly is a skill … and that by continuing to learn to this day, I can compete and get ahead of most people, because the reality is most people don’t put in the time to learn … and that’s always given me a competitive advantage.” (Inc., Growth Mindset is Crucial for Success).

2. Be Prepared

A successful M&A deal is not a one-sided process, but rather a win for both sides. Successful sellers spend significant time crystallizing their own must-haves for the deal and take it a step further, digging deep to understand the needs and motivations of their counterparts.Putting themselves in the buyer’s shoes, they think through outcomes; then they take an objective approach to discussions and expect other side to also have an objective approach. Successful sellers study the contracts and work closely with their deal professionals to develop a hands-on understanding of the transaction.A highly successful client of ours said it best recently when we complimented them on their deal acumen and their persistent desire to understand key elements of the merger agreement: “I’ve learned through my career that you just have to do the work.” The bottom line is successful sellers pay attention to detail and are normally the hardest worker in the room.

3. Be Responsive

A typical M&A transaction takes nine months or more – a marathon undertaking that can be a drain on energy and resources. Still, successful sellers will maintain a sense of urgency throughout, always keeping their eyes on the prize.They remain accessible, persistent, and organized in responding to the never-ending inquiries of the buyer and their deal professionals. They place a high priority on getting the deal across the finish line – yes, all the while continuing to run their business.

4. Be Willing to Walk Away

We previously dedicated an entire article to the importance of this principle. In many deals, there comes a time when buyer and seller reach an impasse. One of the parties has a hard and fast requirement and the other simply can’t agree to it. Stalemate. Very often, this occurs after many hours, weeks and months have been invested in moving the transaction forward.Deal fatigue sets in and a seller may be tempted to surrender and accept the unacceptable just to close the deal. However, the most successful sellers never compromise their values. They work relentlessly with their deal professionals to get to a fair deal but when one isn’t on the table they’re prepared to say, “no deal”. They’re resilient and they know other buyers are out there.

Conclusion

Becoming a master M&A dealmaker is a journey. Successful sellers educate themselves on the M&A deal process. They work to understand their buyer’s motivations and must-haves, and build mutual respect by honoring those items. They study and understand the key points in their contracts.They focus on closing a transaction but are prepared to walk away if a deal is not meeting their needs. The most optimal transactions come about through collaboration when the seller – the acknowledged expert on the business – is an active, deeply committed participant, working with their deal professionals and the buyer towards a shared goal.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.

Becoming a Master M&A Dealmaker

By focusing on incorporating a few additional skills you have tucked away in your toolbox, you’ll progress on your journey toward becoming a master M&A dealmaker. The reality is most M&A sellers have little to no experience with selling a company. An M&A sale will probably be the single largest transaction of your life, and you’ll be in new territory playing by rules you don’t fully understand at the beginning. In short, it can be an uncomfortable place for many business owners to be. Therefore, it’s critical to engage seasoned deal professionals to guide you through a transactional process they’ve been through many times. Your deal team will be able to educate and guide you through the M&A process, advise you on market values, and negotiate complex legal agreements that matter a lot to the outcome you end up with. Although they’ll be more knowledgeable about the process and less emotionally involved than you are, no one will know the intricacies of your business better than you. There will be many subtleties in the transaction that only you recognize. Simply put, it’s your deal, and the more familiar you are with all its nuances, the more successful the deal process and outcome will be for you. Over the course of hundreds of transactions, we’ve found the best deals result when our clients embrace the following four principles.

1. Be Willing to Learn

When selling your business, there will be wave upon wave of new information that threatens to pull you under – new terminology, processes, and documents. Expect and insist that your deal team professionals spend time educating and preparing you. It’s important they work closely with you in refining and prioritizing your objectives. This will enable them to effectively advocate for your interests and ensure that you get your must-haves. By walking you through the M&A process and key points in the contracts, it will help in level setting your expectations and deepen your understanding of the complex give-and-take that is part of successful M&A deals. Consider this insight from billionaire entrepreneur and Shark Tank investor Mark Cuban. “I learned that learning truly is a skill … and that by continuing to learn to this day, I can compete and get ahead of most people, because the reality is most people don’t put in the time to learn … and that’s always given me a competitive advantage.” (Inc., Growth Mindset is Crucial for Success).

2. Be Prepared

A successful M&A deal is not a one-sided process, but rather a win for both sides. Successful sellers spend significant time crystallizing their own must-haves for the deal and take it a step further, digging deep to understand the needs and motivations of their counterparts. Putting themselves in the buyer’s shoes, they think through outcomes; then they take an objective approach to discussions and expect other side to also have an objective approach. Successful sellers study the contracts and work closely with their deal professionals to develop a hands-on understanding of the transaction. A highly successful client of ours said it best recently when we complimented them on their deal acumen and their persistent desire to understand key elements of the merger agreement: “I’ve learned through my career that you just have to do the work.” The bottom line is successful sellers pay attention to detail and are normally the hardest worker in the room.

3. Be Responsive

A typical M&A transaction takes nine months or more – a marathon undertaking that can be a drain on energy and resources. Still, successful sellers will maintain a sense of urgency throughout, always keeping their eyes on the prize. They remain accessible, persistent, and organized in responding to the never-ending inquiries of the buyer and their deal professionals. They place a high priority on getting the deal across the finish line – yes, all the while continuing to run their business.

4. Be Willing to Walk Away

We previously dedicated an entire article to the importance of this principle. In many deals, there comes a time when buyer and seller reach an impasse. One of the parties has a hard and fast requirement and the other simply can’t agree to it. Stalemate. Very often, this occurs after many hours, weeks and months have been invested in moving the transaction forward. Deal fatigue sets in and a seller may be tempted to surrender and accept the unacceptable just to close the deal. However, the most successful sellers never compromise their values. They work relentlessly with their deal professionals to get to a fair deal but when one isn’t on the table they’re prepared to say, “no deal”. They’re resilient and they know other buyers are out there.

Conclusion

Becoming a master M&A dealmaker is a journey. Successful sellers educate themselves on the M&A deal process. They work to understand their buyer’s motivations and must-haves, and build mutual respect by honoring those items. They study and understand the key points in their contracts. They focus on closing a transaction but are prepared to walk away if a deal is not meeting their needs. The most optimal transactions come about through collaboration when the seller – the acknowledged expert on the business – is an active, deeply committed participant, working with their deal professionals and the buyer towards a shared goal. 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 Business: The Data Room

Posted on by lindenlawpart1

Potential M&A acquirers request a massive amount of information pertaining to every aspect of a target business. They present the seller with a due diligence request list, which typically runs over multiple pages, detailing the information they want to review to get comfortable with negotiating the definitive agreements and closing the deal.

Typical requests include financial and employee records, incentive and benefits plans, contracts, patent and other intellectual property materials, real property information, stockholder and board meeting minutes, operating, marketing, and strategic plans, and on and on.

In short, information and details about the intricate inner workings of the target business. Once your potential buyer has signed what should be a carefully crafted NDA, this sensitive and confidential information is typically provided via an online data room.

What is a Data Room?

In the past, a data room was just that – a monitored, secured room on company premises or at the offices of the seller’s M&A legal counsel or investment bank, populated with physical copies of requested documents. While an effective method for disseminating information, the setup and policing of a physical data room is time-consuming and costly.

Buyers would set up appointments to view the information, as only one buyer team at a time could be granted access. A large buyer team often incurred hefty travel expenses to visit the “physical” data room. I can remember working on the buy and sell-side M&A deals in the early 2000s and flying across the country only to engage in endless hours of physically sifting through documents at the client’s (or the target’s) headquarters.

More recently, data rooms have moved to the virtual world where electronic copies of documents are securely stored on a specialized platform. Virtual data rooms offer various levels of access so the seller can choose who sees which documents and when.

Multiple buyer teams can look at and often print information simultaneously, and due diligence travel expenses have decreased dramatically. For the seller, the cost of monitoring drops significantly and, as most of the information already exists in electronic formats, populating the data room is largely a simple uploading process.

What Is In The Data Room?

While buyers will request company and industry-specific information, there are many common elements that all sellers will be expected to produce. For example, at a minimum, virtually every deal will require a population of the following:

  • Confidential information memorandum
  • Target company organization documents: articles of incorporation, corporate bylaws, shareholders and operating agreements, board minutes and resolutions, etc.
  • Financial information: current and historical financial statements, projections, schedules of property and equipment
  • Tax information: sales, income, and other tax return filings made at the state and federal levels over a period of years
  • Prior equity financing agreements and loan documents
  • Listing of assets: real estate, capital expenditures, inventory, furniture, fixtures, and equipment
  • Environmental studies, including Phase 1’s and 2’s, etc.
  • Employee documents: organizational charts, employee compensation, employment agreements, and benefit plans
  • Market information: industry overview, competitive analysis, regulatory landscape
  • Sales and marketing: sales reports by customer and product line, sales incentive plans, marketing plan
  • Customer and vendor contracts
  • Regulatory information
  • Litigation documentation: historical and pending
  • Intellectual property: IP filings, descriptions of underlying IP, descriptions of IP processes, and company know-how
  • Insurance: declaration information and copies of underlying policies
  • Privacy and data security policies and related information
  • IT systems and network information

Why Is The Data Room Important?

A well-prepared data room, ready when needed by potential acquirers, showcases not only your well-run operation but also demonstrates your motivation to do a deal and streamlines the transaction process.

It’s far more efficient to focus on producing the needed documentation on your own schedule, rather than repeatedly dropping everything to react to buyer requests. Early in the process, you may have several competing potential buyers.

Certain information is made available to all of them and creates a level playing field so each buyer can formulate an offer based on the same facts. Once you receive proposals and negotiate a letter of intent with your chosen buyer, you will enter the due diligence phase of your sale.

Your buyer will have an exclusivity period, during which your company is off the market to competing buyers and your buyer will conduct extensive due diligence on every aspect of your business. Finally, should the deal with your initial buyer fall through, the data is already prepared for the next possible buyer.

Who Runs The Data Room?

You’re probably thinking that setting up the data room will take time and preparation. You’re right! And that’s why preparation should begin prior to or very early in the transaction process.

  • Your M&A attorneys and investment bankers, who have seen a great many due diligence request lists, will guide you as to what should be prepared and help you avoid mistakes such as the use of draft versions of documents or missing materials.
  • You should consider how you will assign the tasks involved in populating the data room. In our previous article, we spoke about developing your management team in preparation for the sale of your company. Ideally, members of your management team will take on the responsibility for gathering the documents and information that fall under their purview.
  • Your M&A attorneys play a critical role in reviewing much of the material that makes its way into the data room. For example, they will monitor the information for contracts that call for change in control requirements and numerous other agreements and information that you will be required to disclose, or not, depending on the various representations and warranties you’re being required to make in the definitive acquisition agreement. The review will alert them to situations that need to be addressed later during the negotiations, as well as give them a handle on what of your information is relevant or not for the legal part of the transaction.
  • Your deal professionals will generally handle the responsibility of administering the data room and monitoring usage by potential buyers and their deal teams.

A thorough and well-prepared data room is essential to the due diligence process. M&A transactions are affected by momentum. Getting your data room prepared in advance so a potential buyer doesn’t sit idle waiting for information is an important demonstration of seller organization, cooperation, and overall preparedness. Potential buyers left sitting on the sidelines for too long may begin to turn their attention elsewhere.

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.

Preparing Your Company For Sale

Posted on by lindenlawpart1

Tied closely to our most recent previous article outlining 6 deal-killing mistakes M&A sellers make is the criticality of adequately preparing your company for sale. While almost all business owners can appreciate the guts, hard work, and prolonged dedication required for them to build their business over a period of years or even decades, the reality is that most founders have little or no experience with the process of selling a company.

However, if open to advice and guidance from the right professionals – selling owners need not fear! Some advance planning can speed up negotiations, land you a better deal, and make the transition of your business to a buyer a smoother process. Following are important sale preparation considerations for business owners.

Emotional Readiness

Are you ready – really, truly ready – to sell? Most business owners have put in years of sweat equity, missing vacations, social outings, and family events to keep advancing and growing their company. Exhausting and stressful? Yes.

But on the flip side it’s important to consider the impact that handing over the keys to your business will have on you. Many owners believe they’re ready to sell but once a real deal is on the table find themselves in a cold sweat wondering what they’ll do after spending a few weeks post-sale enjoying some hard-earned R&R. After all, your company probably defines your social circle and identity to some degree.

And your business legacy could be at stake. Is the buyer the right one? Who will take care of your trusted employees and the reputation you’ve cultivated so carefully over the years? Have you spoken to your tax accountant and financial planner to make sure you understand how much of the sale proceeds will end up in your pocket? And will those proceeds be enough to support your future?

Sellers who haven’t spent enough time analyzing this life-changing event often find themselves nit-picking, bringing up endless objections to a buyer’s proposals, delaying, and running hot and cold on the deal. You can streamline the transaction process considerably by first coming to terms with your motivations for a sale, your must-haves for the deal, and your future.

A buyer can’t define these drivers for you. Once you’re ready to speak to your buyer in earnest from a position of strength and self-awareness, you can then move confidently through the sale process.

Understanding Valuation and the Market

The purchase price a buyer offers for your company will likely be based on a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).

Among the many factors that will influence their offer are the articulable competitive edge of your company, meaningful market share, your proprietary technologies and processes, efficiently running operations, and a talented management team.

That said, there’s a typical range of multiples for companies sold in each industry and your offers are unlikely to fall outside that range. For instance, a business in a basic industry with low barriers to entry will sell for a lower multiple, while a technology-based business with proprietary offerings may sell for a double digit multiple.

If you were to sell your home, for example, you know the value is based on comparisons to similar homes in your neighborhood. The same concept applies when selling a business, so set your own expectations accordingly by familiarizing yourself with “comps” well before you take your company to market.

You’ll avoid jumping at a weak offer or, conversely, holding out for a fantasy. A good understanding of multiples in your industry and the levers that increase or decrease them will arm you with the ability to address gaps in your business and push your multiple a little higher.

Develop Your Management Team

Buyers will be looking for a balanced, developed management team with an exceptional understanding of your business and its industry. The founders, who are frequently the key executives for the company, will typically leave the business within some agreed-upon period after the sale, so a buyer generally wants experienced talent to remain on board.

Buyers will hesitate if the founders cashing out are overly involved in daily operations, instead preferring a well-rounded team with experience managing sales and marketing, operations, accounting, and strategic planning.

There was probably a time when you did most of those things yourself but, when you’re looking to sell, you should position the business in a way that allows the reins to be safely and efficiently handed over as part of the sale. Consider making hires to fill known gaps well in advance of a sale process to afford new personnel the necessary time to get up to speed in their roles.

Furthermore, the deal process itself will be extremely demanding. So ideally, you’ll have already shared your plan to sell the business with key members of your team. Prepare them to meet with potential buyers and your deal team, and task them with rounding up due diligence materials related to their department or function.

You may want to explore employment agreements or incentives designed to retain top talent. These steps will give both you and the buyer confidence that your management team is motivated and ready for the changes coming their way.

Financial Reporting

Buyers normally require GAAP (Generally Accepted Accounting Principles) financial reporting. Audited financials may not be essential, but adherence to accepted accounting principles always is. Buyers will spend countless hours scouring your company’s financials and they will question anything that appears irregular.

Expect a buyer to engage its own highly qualified and experienced financial expert to conduct a quality of earnings (Q of E) analysis that will dig deep into your accounting and financial records. Since offers to buy your business will most likely be priced on a multiple of EBITDA, pinning down that EBITDA figure will be a crucial component in the process.

If you’ve been getting by with just a bookkeeper up until now, plan to hire a CPA (preferably one with experience in M&A transactions) to regularly review your financials long before your sale process begins.

Hire a Team of M&A Deal Specialists

We’d be remiss if we failed to reiterate that a seasoned team of M&A specialists is key to a successful sale. You should identify and select an M&A attorney, accountant, and investment banker with proven M&A experience long before you go to market. Developing relationships and a level of trust with them will be invaluable, both before and during the process.

These specialists can provide guidance and information regarding the above factors based on their expertise regarding how deals get done, afford you access to other deal professionals for inevitable nuances that come up, educate you on the state of the market and valuations in your industry, guide you on GAAP accounting, and so much more.

You can be sure the buyer will bring this type of professional arsenal to the table for itself, and you’ll be at a major disadvantage if you don’t reciprocate for yourself. Your own experienced professionals can provide value to you throughout the process that greatly exceeds their cost.

About Linden Law Partners

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.

6 Ways Sellers Unwittingly Kill Mergers & Acquisitions Deals

Posted on by lindenlawpart1

For many business owners, the sale of their company is a once-in-a-lifetime undertaking. A common scenario involves negotiation between a first-time seller who has spent years devoted to building a company and a seasoned buyer with many acquisitions under their belt (especially private equity and public company buyers).

The merger and acquisition (M&A) process has a steep learning curve and, as with any complex undertaking, prior experience and a strong understanding of the process are invaluable. We’ve written in the past about potential land mines awaiting unsuspecting sellers, and the following are some additional common mistakes we routinely see from first-time sellers.

This article is the second of a 2-part series. Read part 1 of the series: “3 Ways Buyers Can Kill A Perfectly Good M&A Deal.”

1. Sellers Who Preclude A Competitive Process

All too often, sellers believe they already know their buyer and push to close a transaction with that buyer. In fact, frequently the sale process has been instigated by an inquiry or even a tentative offer from that very buyer. However, it can’t be overemphasized: a key to closing a successful transaction – one including optimal price structure, terms, and time to close – is to foster competition among multiple potential buyers. A little professional rivalry keeps buyers motivated, focused, and on track. It encourages buyers to put forward their strongest offer with a winning combination of price and deal terms. It swings the negotiating pendulum the seller’s way since buyers believe the seller may be selected from multiple offers and only one can win. And ultimately, should the process with one buyer stall, the seller will have one or more viable backups.

2. Sellers Who Aren’t Prepared For Due Diligence

Once buyer and seller have signed a letter of intent, due diligence will begin in earnest. The seller will be asked to populate a data room with current financial statements, financial projections and underlying assumptions, strategic plans, market analyses, operating documents, customer and vendor contracts, employee details, employee manuals, management incentive programs, real estate contracts, regulatory and compliance reports, and on and on. A potential buyer will turn the business inside out during the due diligence phase, meaning that a seller needs to be prepared to help the buyer come to terms with the skeletons in the closet. Every business has weaknesses or flaws, major or minor, which the seller should discuss early on with its deal professionals. These potential issues need to be presented to the buyer and should never be late-game surprises that damage the relationship built between buyer and seller.

3. Sellers Who Can’t Articulate An Industry Overview

Potential buyers will be extremely interested in the seller’s competitive differentiation, the structure of the competitive landscape, and industry trends, as well as critical technological and regulatory impacts. Sellers who can’t hold their own during intense questioning and lengthy discussions in this area risk losing the confidence of buyers. Buyers will be planning to take the business to the next level by bringing new capital, talent, and other resources to bear, and will rely on a seller’s insights into the industry as the buyer begins to formulate its road map. To set their own expectations, sellers need to educate themselves on comparable transactions and valuations in their industries. Sellers should expect any offers for their business to be in line with those comps, barring any persuasive reasons that their valuation should be an outlier.

4. Sellers Who Neglect Their Business During The Deal Process

Buyers are interested in acquiring a company that is a healthy performer – very likely factors that originally brought them to the negotiating table. An M&A transaction typically takes several months to a year to close, and is an exhilarating, exhausting and extremely challenging time for most selling business owners. Sellers who get overly caught up in trying to oversee the transaction process, or do not have a solid management team in place to keep the business firing on all cylinders during the deal process, may cause the business to lose some of its sheen in the buyer’s eyes. If the company under performs for a quarter or two, the purchase price may be reduced, and the seller’s negotiating position will be weakened. Sellers must allow their real professionals to keep the transaction process moving ahead while walking a tightrope between running the business and responding timely to proposals, due diligence requests, and other deal negotiation matters.

5. Sellers Who Lack A Sense Of Urgency

Conversely, the common refrain among deal professionals, “time kills all deals,” reflects the damage incurred when closing the transaction does not take center stage for the seller, buyer, and their deal teams. Transactions have momentum and allowing them to ebb can be damaging and even fatal to closing. A buyer may assume that a seller who misses deadlines is unmotivated, incapable, or disorganized. Do those qualities reflect the business behind the scenes, they wonder? If delays become so extreme that the buyer focuses their attention elsewhere, all may be lost. Sellers should make every effort to avoid revising deal timelines.

Contact Us

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.

Linden Law Partners Represents Pet Exec in Acquisition by Kinship, a Division of Mars Petcare

Posted on by lindenlawpart1

Linden Law Partners is pleased to announce that Pet Exec Inc. was acquired by Kinship Partners, Inc., the data and technology division of Mars Pet care. The mission of Kinship and Pet Exec are aligned by using data, products, and services to help both pet professionals and pet parents be the best caretakers possible.

Linden Law Partners Represents Pet Exec

Kinship is part of Mars Pet care, a leading global pet care business dedicated to creating a better world for pets through comprehensive veterinary care, nutrition, breakthrough programs in diagnostics, wearable health monitoring, DNA testing, and pet welfare.

Mars Pet care is part of Mars, Incorporated, a global American multinational manufacturer of confectionery, pet food, and other food products, and a provider of animal care services. According to Forbes, Mars was ranked as the fourth-largest privately held company in the United States in 2021.

Linden Law Partners represented Pet Exec and its two co-founders in the deal.

You can read the full press release here

Linkedin Facebook Instagram

Copyright ©2025 Linden Law Partners, LLC. All rights reserved.