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Choosing the right M&A attorney

pexels-photoThe Mergers and Acquisitions (M&A) attorney is a very important team member during your transaction. If you have an M&A advisor, then I would say the attorney and the M&A advisor are the most important external team members. You need also a good CPA, but the attorney and the M&A advisor are more involved in the negotiation stage.

Some of the most important questions you need to answer in order to help choose the right attorney for your situation are:

  • How’s the relationship between you and the attorney? If you have an M&A advisor be sure to involve them in selecting the right attorney.
  • Has your attorney done deals of similar complexity and size? Ask for references and do follow them up.
  • Does the law firm also have experienced in-house patent, tax, international law and labour relations professionals? This is important, because when it’s time to draft and review a sale agreement you don’t want to be introducing an additional law firm.

In my experience one additional question is very important: do you trust your attorney’s negotiating skills?

Typically start-ups have only a very small team involved in the negotiations. On the other hand, corporate buyers might assign larger teams to the deal. With more members on the table the buyer can appoint ‘bad guys’ and ‘good guys’ to the negotiating team: the ‘good guys’ explain, in a nice way, the reasons why the ‘bad guys’ cannot approve what you asked for. In this dance between your team and the buyer’s it’s very important that your attorney is able to defend your position in the best possible way across a broad range of topics. Your M&A advisor can be a great help in bringing the discussion to a fair and reasonable level too. Be aware, however, that as most discussions end up as clauses in the contract it’s always the lawyer who helps to nail down the final details.

There is one very important additional element in this dance: if you are not ready to walk away from the negotiations you may end up not signing the best possible deal. I’ll write a separate post about that topic in the future.

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Selling Tip: Can you organise a bidding war?

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Buyers and sellers try to determine the right valuation of the company based on revenue, free cash flow and profits. Most of these transactions are supported by Excel calculations.

However, from time to time there are deals that stand out. Companies where it seems that their market has no significant barriers to entry and who only have a few team members get very high valuations.

According to Corum’s president, Net Burgess, the reasons for such high valuations are typically:

  1. A robust IP portfolio protecting critical ground in an emerging market
  2. High-value software that gives the buyer a time-to-market advantage in a high-value market
  3. A rock star team

If you are already in the selling process and do not have (1) or (3), you should think about what you can you do to establish a situation where two or more buyers are so interested in your time-to-market advantage that they make increasingly higher offers above what they would normally be willing to pay:

  • Try to engage competitors to bid for your company.
  • Try to generate a climate that gives each potential buyer the feeling that they are not alone and that there are other buyers that could hurt them if they buy your company. (Note: Be careful about what you say as typically you will have to sign NDAs.)
  • Try to generate a sense of urgency, even if not all buyers are that active.
  • Seek support from a M&A advisor with a good reputation. This gives buyers the impression that there are most likely other potential buyers on the table as well.