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Becoming a Master M&A Dealmaker When Selling Your Business

Posted on by PLinden
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 PLinden

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 PLinden

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 PLinden

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 PLinden

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

3 Ways A Buyer Can Kill A Perfectly Good M&A Deal  

Posted on by PLinden

Part 1 of a 2 Part Series

You’re an experienced buyer with a handful or more of M&A deals under your belt. You’ve identified a willing target company, a performer in an industry you know well, one that ties into your acquisition strategy – no small feat! You have financing ready to go and know how to put in the work necessary to do a deal. What could possibly go wrong? Plenty, as it turns out.

How do motivated buyers and sellers, both with excellent intentions, frequently allow deals to lose momentum or, worse, become so contentious that one or both parties decide the only course of action is to walk away? In this first of a two-part article series, we’ll explore some reasons good deals go bad based on buyer behavior. In our next article, we’ll look at common ways a misguided seller can derail an M&A transaction.

We repeatedly see three buyer behaviors that, left unchecked, have killed deals.

1. The Heavy-Handed Buyers.

“Muscling” the deal. Buyers sometimes assume that they hold all the cards and any motivated seller they approach will be eager to strike a deal. This isn’t always the case. A buyer can’t force a deal through, can’t scream, kick or will a transaction into being without a shared philosophy, a shared reason for doing a deal, a cultural parallel, a meeting of the minds of buyer and seller.

A well thought out strategic rationale forms the solid foundation upon which deals get done despite lengthy negotiations, distractions, contention, and deal fatigue along the way. When both buyer and seller are crystal clear on their motivations for the deal and there exists sufficient overlap of a shared vision, both parties are likely to push through to a closing.

Buyers also frequently communicate poorly. M&A transactions are all-consuming – difficult, distracting, and sometimes emotional. A busy buyer can fail to communicate, unintentionally act forcefully or in a clumsy, insensitive manner in a fast-paced, complex deal with countless nuanced decisions to be made. Parties are pulled in many directions.

A buyer, having been through several transactions and doggedly pursuing a closing, might neglect regular communications with the seller; the seller, often with no M&A experience, may (will) require regular communication on deal specifics. A confused, neglected seller is not a happy seller, and a systematic, organized communication process will go a long way towards keeping all parties on track and moving towards their shared goal.

2. The Buyer That “Always Does It This Way.”

Overly rigid adherence to a one-sided plan. Going into a transaction with a plan to get it closed is critical; equally important is expecting that plan to fail. No two deals are alike, even with industry, size and geographic commonalities.

Every combination of ownership structure, culture, company history, strategic rationale, financials, market position, and vendor relationships is different. These and many other variables form the background for negotiations and the definitive agreement.

Often, large corporations and private equity buyers with countless acquisitions under their belts (and always on the lookout to score the best deal for themselves) tend to follow “their own” formal M&A process with a deal team of specialized members responsible for specific tasks.

The seller of a smaller business, on the other hand, is often seeking a relationship with the “right” buyer. In these cases, when process and often ‘unilateral’ Buyer desires trump the human side of the deal, there’s a real possibility the seller will pull out. A successful buyer doesn’t wear blinders and insist on a set, stilted transaction process.

Cookie cutter doesn’t cut it. A successful buyer develops confidence in their ability to be flexible, instead of putting their confidence in the perceived clarity of a rigid process. Buyers that are beholden to “their way” and that like to tout “we always do our deals this way” (which often translates to meaning they got one over on less attentive or savvy sellers and their advisors). This type of myopic buyer philosophy isn’t a productive way to get the deal done – it’s primarily just arrogance.

3. The Buyer That Over-Lawyers.

This defines almost all corporate and private equity buyers to the point that we joke here that they “simply can’t help themselves.”  The generic definitive agreement that’s 100 pages long and screams of overreaching with absolutely no thought or sensitivity to reasonable seller considerations.

Voluminous purchase agreements that inadequately address key points already negotiated are a big red flag. Yet with all their experience, corporate and private equity buyers (and their lawyers) engage in this behavior all the time.

The seller will wonder if the buyer has even been listening for the past few months! And a purchase agreement that includes irrelevant information “just to cover all the bases” is pointless, infuriating and a colossal time waste. A buyer who waves it off with, “oh, that’s just our legal department” only makes the situation worse.

Both parties need to bring the right talent to the deal, and a buyer needs the right attorney on the job – one who is heavily involved in the process, dedicated to its successful outcome and willing to tailor negotiations and the definitive agreement to the unique transaction in a manner that is fair to both parties, and who possesses a degree of emotional intelligence.

Parting Advice To M&A Buyers.

Keep your eyes on the prize (and make sure your advisors keep their eye on the prize) and don’t lose sight of the strategic rationale by getting bogged down in negotiations. Communicate, even over-communicate, key deal points.

Remain flexible, favoring a tailored approach over adherence to a process that worked in another situation in the past. Hire the right M&A professionals and trust their instincts. Deals are hard work – but getting out of your own way can often get you most of the way there.

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 transactions. 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 SolarLeadFactory in Acquisition by Enphase Energy

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Linden Law Partners is pleased to announce that our client SolarLead Factory was acquired by Enphase Energy, a public global energy tech company that utilizes a smart mobile app to enable people to harness the sun to make, use, save, and sell their own power.

Founded in 2012, Solar Lead Factory provides high-quality leads to solar installers. Solar Lead Factory combined with En phase Energy with the objective of substantially increasing lead volumes and conversion rates to help drive down the customer acquisition costs for solar installers.

With this strategic merger, Solar Lead Factory and En phase Energy are poised to revolutionize the solar industry by providing a comprehensive solution that optimizes lead generation, improves conversion rates, and ultimately accelerates the adoption of clean, renewable energy.

Linden Law Partners was lead deal counsel for Solar Lead Factory and its founders for the transaction.

You can read the full press release in Yahoo Finance here

Linden Law Partners Represents GreenPoint Ag in Merger with Tri-County Farmers Association

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Linden Law Partners is pleased to announce that our client GreenPoint Ag merged with Tri-County Farmers Association.  

Linden Law Partners Represents GreenPoint Ag

GreenPoint Ag is a joint venture between Tennessee Farmers Cooperative, Alabama Farmers Cooperative, WinField United, Tipton Farmers Cooperative, Farmers, Inc., and now Tri-County Farmers Association. GreenPoint Ag was formed in 2020 and employs over 1,000.

Its services member cooperatives, farms and rural business owners with crop nutrients, crop protection products, seed and seed treatment, pro products, field scouting, custom application, and a full array of agronomy and ag technology services.

It operates 114 agronomy wholesale and retail locations, generating over $1 billion in sales, across Alabama, Arkansas, Florida, Georgia, Mississippi, Kentucky, Louisiana, Missouri, Tennessee and Texas with headquarters in Decatur, Alabama.  

Tri-County Farmers Association is a farmer-owned cooperative with seven retail locations in east-central Arkansas, servicing its growers with seed, crop protection, crop nutrition, custom application and crop consulting. They also provide petroleum distribution which includes propane. 

Linden Law Partners  was lead counsel for Green Point Ag on the deal. 

You can read the full press release here: https://www.greenpointag.com/news-and-insights/greenpoint-ag-news/tri-county-farmers-association,-greenpoint-ag-comb 

Linden Law Partners Represents Optera for Series Seed-2 Preferred Stock Financing

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Linden Law Partners is pleased to announce that Optera, a Boulder-based software company, completed $4.2M Series Seed-2 Preferred Stock investment led by Next Frontier Capital, with participation by Blackhorn Ventures, Mucker Capital, Valo Ventures, SaaS VC, and Stout Street Capital. 

This funding allows it to respond to the surging demand for its products in the rapidly growing market for Environmental-Social-Governance (ESG) software for sustainability leaders in addressing problems they face with climate change. 

Its mission is to enable corporate sustainability teams to stop climate change. Major corporations are the largest drivers of carbon emissions and corporate sustainability teams are on the front lines of the effort to achieve net-zero emissions. 

It delivers solutions that empower sustainability teams to reduce the impacts of companies’ operations, supply chains, and products. Its experienced sustainability data professionals lead the industry in supporting corporate sustainability programs across all levels of sophistication, from companies making their first steps to established ESG leaders.  

By leveraging cutting-edge technology and a deep understanding of sustainability metrics, it enables businesses to navigate the complex landscape of environmental, social, and governance (ESG) considerations, driving meaningful change and fostering a more sustainable future for organizations of all sizes.

Linden Law Partners represented Optera for the deal.  

You can read the full press release here:  https://opteraclimate.com/optera-secures-seed-2-funding-to-meet-unprecedented-demand-for-its-esg-management-software/ 

4 Lessons From Shark Tank: Be a Founder, Not a Flounder

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The massively popular ABC reality show Shark Tank puts entrepreneurs in one of the most high-pressure situations you can imagine – pitching their business ideas to venerable titans of industry on national television. I enjoy watching the show, and through my work with countless founders and investors, I’ve also found that the common mistakes made by hopeful contestants on the show provide good reminders for founders to keep in mind while plotting a course of growth for their business.

These seemingly minor mistakes often demonstrate flawed thinking or incomplete planning that will raise red flags with investors, and can ultimately torpedo potential capital-raising opportunities for any early-stage business. Below, I highlight some key takeaways based on mistakes repeatedly made by entrepreneurs on Shark Tank.

1.   Prove the Market Need for Your Business Idea Before Seeking Investors

This is the practice of “customer development” advocated as part of the “Lean Startup” methodology developed by Eric Ries,1 and contributed to by Steve Blank2 and other thought leaders. On Shark Tank, shark Robert Herjavec3 has often criticized an entrepreneur’s failure to undertake this important step in their business development.

The idea is straightforward. Before focusing on seeking money from investors, you should first have demonstrated the need for your product or service in the market based on actual customer input and data. Talk with potential customers early in your company’s lifecycle to determine whether there is interest in your concept and then rework and refine it as needed.

It’s easy to see how, after sinking countless hours and resources into a new business idea, entrepreneurs can adopt tunnel vision and forget about the larger picture of ensuring their idea solves a legitimate problem for real customers in a cost-efficient way.

But without demonstrating that you have customers or the ability to get them, it’s probably too early to start soliciting money from outside sources, and as seen in Shark Tank, successful founders will have completed this research upfront while the failure to do so will deter investors from investing in your company.

2.   Avoid Overemphasizing Market Size

According to Mark Cuban: “. . . one of the things we repeat over and over again is that one of the worst ways to sell in Shark Tank is to come in and talk about how big the market is.”4 Market size is often emphasized as a critical statistic for any entrepreneur, and it’s true that learning your market and understanding the opportunities within it are important for analyzing the feasibility of your business concept.

However, overselling or hyping market size as proof of the potential future performance of your business isn’t helpful to investors. Why? Because market size is just a number. Savvy investors will instead want to see each individual business owner’s concrete plans for penetrating that market, regardless of its size.

1  Ries, Eric. The Lean Startup. Crown Business,2011.
2  Blank, Steve. “Why the Lean Start-Up Changes Everything”. Harvard Business Review, May 2013,  (June 16, 2020).
3  Wise, Sean. “’Shark Tank’ Investor Robert Herjavec’s Best Advice for First-Time Founders”. Inc., Aug. 24, 2019, https://www.inc.com/sean-wise/shark-tank-investor-robert-herjavecs-best-advice-for-first-time-founders.html.
4  Canal, Emily. “Mark Cuban Called This Entrepreneur a Liar on ‘Shark Tank’ Here’s Why she Still Left With a Deal.” Inc., Mar. 25, 2019, https://www.inc.com/emily-canal/shark-tank-season-10-episode-17-dare-you-go.html.

3.   Don’t Overly Focus on Maintaining Vast Amounts of Equity for Yourself

A common refrain among founders on Shark Tank and many of the founders I work with is to balk at deals they fear will give up too much control of the company. For instance, a founder may seek $500,000 from investors based on the working capital needed to get the business to the next stage, but want to only give up 5% of the equity in their company for that investment.

This can result in a vastly over-inflated valuation of their company ($10,000,000 in my example), at a time when the business is perhaps only at the proof-of-concept stage with no operations or profitability. In reality, the amount of equity you give an investor is just one piece of a much larger puzzle.

I’ve seen eager founders give investors overly generous board rights, or even board control, for a relatively small investment amount at an early round, because they think it’s a less material term or even justified since they got the “right” valuation. And, if you set such a high valuation at the outset in order to keep your equity, how feasibly can you increase the valuation of your business in later rounds?

An accurate valuation of your company is critical when bringing on investors, but it can often be too easy to become so consumed by the valuation and the amount of equity on the table that founders will overlook bad deal terms, such as potentially severe conditions attached to the investor’s money, and the impediments that those terms can later present for the founder and the business.

4.   Do Your Due Diligence When Deciding on an Investor

For the majority of entrepreneurs on Shark Tank that draw interest from more than one shark, they’ll accept the offer from the shark willing to invest at the highest valuation. However, you’ll notice every so often that an entrepreneur on the show clearly favors a specific shark based on the individual expertise or experience of that shark given his or her background/experience as an entrepreneur or investor.

These select entrepreneurs recognize and appreciate the value that shark can bring beyond just money. This is smart! You want investors that can add more to your business than just money – such as contacts, advice, experience in your industry, and strategic direction. Plus, once an investor is an owner in your company, the relationship is essentially permanent until there is an exit event.

That’s why it’s critical for founders to do their due diligence on potential investors before pitching them, and before that, to have seriously considered whether investor capital is even needed at the particular stage of the business. Always check several references for each investor, no matter their reputation or track record. Talk with other founders to find out how it has been to work with the investor and whether they held up their end of the bargain.

Ask the investor the right questions that will help you determine whether your interests and those of the investor are aligned, in both the near-term and the long-term. Taking the time to do this work upfront will save you many headaches down the road. And don’t be like the majority of Shark Tank entrepreneurs that focus more on a shark’s valuation only rather than applying a holistic approach that balances valuation against investor fit and background.

Conclusion

Unlike so many other reality shows on TV, Shark Tank actually provides some practical, actionable lessons that both new and experienced business owners can use in the real world. As seen time and again both on and off the show, a founder’s upfront preparation will demonstrate, in concrete terms, how their business idea (and even more critically, the founder) is worth the risk to an investor, while a lack of preparation will result in just the opposite.

About Linden Law Partners

Linden Law Partners is a boutique transactional law firm founded by professionals with decades of experience. We’ve advised companies, entrepreneurs, and investors in hundreds of early-stage and venture capital financings, and have been lead counsel for M&A transactions ranging from hundreds of thousands of dollars to $700 million. Contact us to discuss how we can help.