Why You Need a Mergers and Acquisitions Attorney
Why you need an M&A attorney when buying any business…from the perspective of a business broker.
“Who you engage to handle your legal issues in a business sale is really significant and I often see business owners choose an attorney who doesn’t have the transactional experience required to handle the deal. ”
If you’re the owner of a small business that’s interested in merging, acquiring or being acquired by another business, you need the proper legal support to ensure that you are getting the best deal possible. These transactions are risky, but an experienced mergers and acquisitions attorney will earn their fees by minimizing risk at every stage of the transaction. That’s why your Mergers and Acquisitions Attorney, along with your Business Broker and Accountant (CPA), should be a key player on your team whenever your business changes its structure.
What Can a Mergers and Acquisitions Attorney Do for You?
Your mergers and acquisitions lawyer will thoroughly research the other business so that there are no last-minute surprises. They will conduct the negotiations over price and terms, drafting memorandums of understanding or letters of intent, so that you and the prospective buyer can see if there is a true meeting of the minds. The best mergers and acquisitions attorneys will get you to take off your rose-colored glasses as they explain the risks of the deals and ways to mitigate them. They will review the contracts, such as a purchase agreement, to ensure that they adhere to all federal and state laws. Some deals will require the preparation of confidentiality and non-compete agreements or memorandums of due diligence. They will prepare the company for the transition and advise you about your fiduciary duties and shareholder rights under the new business arrangement.
Mergers and Acquisitions Attorneys - From Start to Finish
Some business owners think that they don’t need to hire a Mergers and Acquisitions attorney until it’s time to close the deal. This would be a serious mistake. The best mergers and acquisitions lawyers come into the process early in order to help answer legal questions for a potential sale of a business. For example, they can explain the different options such as an asset sale vs. stock sale. In addition, tax or debt considerations or human resources issues (wage & overtime disputes) might mean it makes more sense to create a new business entity in a merger, winding down the existing companies. Throughout the process, Mergers and Acquisitions attorneys keep an eye on all of the legal ramifications enabling you to focus on running your business all the way to a successful closing.
To learn more about the benefits of an experienced M&A Attorney contact, Jim Peddle, at 312-525-9622 or by email at president@playbookadvisory.com.
If you are interested in discussing your business with one of our attorney referral partners feel free to reach out to any of the three listed below;
Attorney Recommendations for Buyers & Sellers:
Chicago Area Attorneys:
Outside Chicago:
Contact Jim Peddle for Attorney recommendations outside Chicago
Other Reading:
Uncovering the Top Sources for Finding a Business to Buy
Interested in buying a business? Here are some tips and recommended 3rd Party websites you can visit.
Online Resources To Assist Buyers in Search of a Business...
At our firm, we are contacted daily with Buyer inquiries for active listings that we have available for sale. By our estimates, over 65% of these prospects come from online ads, mainly from 3rd party websites. In this post, I' thought it would be helpful to summarize the different websites where buyers can identify opportunities;
Business Sales are Different than Residential Real Estate Sales:
First, Buyers should understand the market for selling a business is very different than when you purchase a home. Realtors have a Multiple Listing Service (MLS) that broadcasts the sale of their listing and also have an active company website that advertises pictures, listing details and financing options. Confidentiality is not required so Buyers see exactly what is for sale and for how much. This is not how business brokers sell companies below are platforms utilized by both business brokers and Sellers who are listing for sale by owner.
3rd Party Websites
Bizbuysell (Largest website online)
One of the largest 3rd party websites that is devoted to the listing and selling of businesses for sale in the United States. Business Brokers pay a monthly subscription to list and market their listings. Business owners can also sell by owner for a monthly rate. The issue for sell by owner is confidentiality is breached almost immediately as sellers respond to buyers inquiries. If confidentiality is important think twice about selling online. Best for businesses up to $5,000,000. Great majority of buyers utilize SBA financing on deals over $500,000. We love www.bizbuysell and Playbook Advisory is an active & elite member since 2016.
Bizquest.
Bizquest is a sister site of Bizbuysell.com and although they say they generate different buyers are experience is they are the same at least here in Chicago. Again, best for deals that are up to $5,000,000 and most buyers need SBA financing for acquisition financing. If you are choosing between the two sites pick bizbuysell. Our firm is also an elite member of the platform find our profile here.
Businessbroker.net
Another site similar to the above two but in our experience traffic is much lighter from businessbroker.net. We have generated successful buyers from the site so we continue to utilize the platform for our active business for sale listings.
Businessforsale.com
USA.businessforsale.com is a US & UK platform that our firm has not utilized in 2018.
Dealstream
Formerly knows as mergernetwork the site lists businesses a little differently and makes buyers register. Brokers can confidently use the site for generating buyers but in our experience they rank below the top 3 sites in this post. With that said the site has been working to make improvements but they need to clean up older listings that are no longer for sale.
Axial
Axial focuses on larger M&A transactions and works hard to generate listings of size ($5mm & higher). In our experience there are more tire kickers and the follow through is low from buyers on the site, however, our typical listing is not necessarily a match so our sample size is low. Very professional platform and Axial charges a premium to buyers searching for a business to buy.
Equire
Another site seeking to list companies with a minimum of $750,000 in cash flow (SDE or EBITDA). Our firm has not listed any companies on the site so I don’t have relevant feedback for the site.
As you can see, there are a number of 3rd party websites devoted to listing businesses for sale in the United States. We typically find buyers only concentrate on a few, however, it might make sense for buyers to monitor more than one or two in order to identify more opportunities.
Business Broker Websites:
Buyers can also receive listing information directly from local business brokers by signing up for the brokers listing alerts or newsletters.
At Playbook Advisory, we attempt to place buyers into the right bucket so that they only receive listings that are of interest, however, it’s fairly common for buyers to purchase a business they had no idea would be of interest so it helps to keep an open mind as you search.
If you contact us please let us know the following;
Location you would like the business to be
Amount of Cash Flow/SDE required
Amount your willing to invest
Are you interested in Financing a business purchase? We can refer you to qualified SBA lenders in the Chicago area.
Although I'm aware of other Chicago business brokers that might be good for buyers to monitor send me an email I will respond with some tips on who I think can help your search based on your area of interest.
The search for a business can be exceedingly difficult at times but the rewards are life changing. Contact Jim Peddle at 312-525-9622 to discuss your needs or email me at president@playbookadvisory.com.
Other Helpful Blog Posts for Buyers:
Your Business hasn't Sold...Now What?
Struggling to sell your business? Discover why some businesses don't find the right buyer and learn effective strategies to overcome these challenges. From addressing high customer concentration to improving outdated financials, our latest guide offers practical solutions tailored to enhance your business's marketability. Get expert advice from Jim Peddle, seasoned business broker, on navigating the complexities of the sales process and positioning your business for success.
We estimate that over 80-90% of businesses coming to market don’t sell.”
Jim Peddle, Business Broker, President
Understanding Why Your Business Hasn’t Sold & What You Can Do About It
Key Reasons Your Business Isn’t Selling - Tips for Business Owners Exiting their Business
Despite your efforts, not every business listed for sale finds a buyer quickly. This post explores common reasons your business might not be selling and offers strategic solutions to address these challenges effectively.
common issues preventing sales;
High Listing Price: Often, businesses are priced too high relative to their cash flow or Seller’s Discretionary Earnings (“SDE”) The Listing Price is too high relative to the cash flow or “SDE” (Learn about SDE here)
Customer concentration is significant - any customer greater than 20% can be problematic for buyers as well as lenders who prefer a broad customer base.
High Working Capital Needs: If your business requires significant capital to operate, it can be less attractive to potential buyers.
Low Cash Flow: Businesses generating less than $250,000 a year in SDE may struggle to attract serious interest.
Key Employee Dependencies: Lack of Key Employees or established processes for staff can turn off potential buyers. Too much dependency or perceived dependency on the seller is an issue as well.
Unorganized Facilities: Messy and Unorganized Facilities suggests management issues.
Addressing the Common Issues with actionable solutions;
Customer Concentration Challenges:
This specific issue is really common, banks don’t like it and buyers always want to knock down the price of business because the risk of losing one customer changes the value of the business tremendously. In my experience, the relationship is usually very strong with the Seller and there are good reasons for the buyer to retain this relationship. If you are the owner, ask the client for a contract that can be open-ended or is for 2-3 years in length. If this isn’t an option then look to structure contingent payments with the Buyer post-closing. Or negotiate an employment agreement that carves out this relationship and you the Seller help manage it for a time period after closing.
Possible Solutions:
A) Offer the Buyer heavy seller financing & an earn-out structure, or future royalty payments
B) Sell to a larger strategic competitor that dilutes the concentration risk
Declining Sales:
Another tough issue to deal with for a Seller and Business Broker. How significant is the decline? 1-5% is different than losing a top 5 customer and seeing declines of 15-20%. Banks don’t like to underwrite deals with negative year over year revenues, in addition, most Buyers aren’t able to always determine what is the added risk. Sellers should assess the reasons for the decline prior to going to market. Can the issue be remedied? If yes, read on, if no, go to the end of this article for final recommendations
Possible Solutions
(A) Offer heavy seller financing & earn-out, royalty payments
(B) Sell to a larger strategic competitor that is less concerned with declining sales
(C) Delay selling and make an investment in sales & marketing. **
Older Staff Members Near Retirement:
I recently had this issue as the Company’s employee census uncovered an experienced staff, but also the majority of employees close or beyond the age of normal retirement. One of the staff members was in their 80’s. Of all the issues for a business, this one can be properly managed with the help of a strong training and transition agreement with the Seller.
Possible Solution:
A) Offer Buyer extended training & transition to a buyer to alleviate concerns about staff,
B) Cross train existing staff, document the staffing responsibilities
Real Estate - Facility Issues:
When the property is worth more than the Current Business Can Afford to Pay**-This one is so common here in my hometown of Chicago, IL. Almost every week I come across a business that has a free and clear real estate with no mortgages and the financials show business with below-market facility costs. Due to the complexity, of this issue I strongly recommend Business Owners speak to an experienced real estate professional to best determine the plan of dealing with this prior to listing the company for sale.
Other Possible Solutions
A) Offer Buyer a rent structure that has below-market rent for a period of time
Note: Beware of SBA Requirements
B) Offer a Lease Option to Buy Structure
C) Offer a Credit to Buyer to move the business & equipment
Weak Company Financials:
No business owner should attempt to sell with messy or incomplete financials. You either never sell or end up financing a buyer who will only underpay to offset their risk.
Other Possible Solutions
A) Get professional help- ask your business broker for a CPA referral or bookkeeper to take over this job.
B) Switch accountants - Pay for an upgrade of the books and have a CPA complete monthly or quarterlies for you.
If you would like to discuss your individual situation directly with us feel free to email or call Jim Peddle at 312-525-9622 or president@playbookadvisory.com. Our experienced team of business brokers have significant experience that can overcome many of the above related issues when selling.
Other Reading:
Ten Issues Sellers Need to Review Prior to Listing a Business
Maximize your Profit: Hiring a business broker is Smart Business