Selling a company is a complex, time consuming process. It is therefore important to assemble the right team of advisors to manage the process for the owner(s) of the company being sold. The right team can be the difference between receiving full value for your company and selling at a discount. With the right advisors, you are likely to see a noticeable contrast in your results, including keeping much of the proceeds vs. giving large sums up in taxes, protecting shareholders post-transaction vs. dealing with potential liabilities for years after the transaction, meeting your personal financial goals vs. being disappointed in long-term prospects, and even whether or not the transaction takes place. While all members of your transaction team are vital to your success, a key member of your team is your attorney.
In most cases, the attorney selected to be part of the transaction is not the same attorney your company uses for general legal issues. Much as you would prefer to use a specialist over a general practitioner for open heart surgery, it is best to use an attorney that specializes in transactions (mergers, acquisitions, financing, and more) to manage the legal aspects of the sale of your company.
Transaction attorneys, or attorneys that specialize in transactions, typically have years of experience advising on structure and tax consequences, negotiating and drafting purchase agreements and related documents, and guiding the transaction to a closing. Most attorneys that have specialized in transactions for 15 or more years have seen just about every type of situation that can arise. This provides them with the knowledge and experience to understand what is important and worth fighting for in a particular deal and what is trivial and represents little to no risk to a seller.
Transaction attorneys also understand the current market terms for both buyers and sellers, thereby avoiding time-wasting negotiations on points out of market. This further helps to limit risks and mitigate exposure for you without insisting upon terms and conditions that will kill a deal. This breadth and depth of experience will keep deal momentum going and help get to a closing quicker. It also means you will likely pay less in attorney’s fees (vs. a non-specialist), as less time is wasted on addressing non-material issues or coming up to speed on unfamiliar deal terms and structures. The money spent on an experienced transaction attorney will nearly always be a good investment.
Considerations for Your Attorney
Besides transaction experience, there are a number of other factors to consider when selecting an attorney. Industry knowledge, type of transaction experience, business acumen, breadth of firm offerings, supporting personnel available, location, and personal preference can all come into play.
Knowledge of the industry of the selling company is an important factor when selecting an attorney. Some industries (like healthcare services, financial, franchisers, import/export, and others) may require special knowledge of issues unique to that industry. When interviewing attorneys to represent your company in a transaction, it is worth discussing their relevant experience and knowledge of the industry in question. That said, there are many industries that require little or no specialized knowledge. For example, nearly every transaction attorney will have experience in manufacturing and various types of professional services. The overarching factor in any transaction is to make sure to retain an experienced transaction attorney.
Not every type of transaction is the same—so it is important to determine how your attorney’s experience fits with the transaction at present. For example, a venture capital investment is different from securing a bank loan, which is substantially different from the full sale of a company. Your company’s investment banker can help identify the likely form of transaction and can aid in determining the experience set of the attorney, if needed.
It is often useful to have a transaction attorney that, at a high level, understands the operations of a business. This does not mean that the attorney needs to be an expert in the operations of the business he or she is representing, but rather that they have a good base understanding of business in general. While this is not a critical trait, an attorney with good business acumen can potentially provide value through practical legal advice.
Depending on the situation, consideration of the breadth of firm offerings and the supporting personnel available could be important. For example, if a firm has a large amount of intellectual property (IP), it may be good if the attorney hired is part of a firm that also has an IP practice. Further, if the transaction is complicated in some way (an example would be selling a company with multiple locations or subsidiaries), you might find it prudent to hire a firm with a fair amount of bench strength—attorneys and paralegals that will support the lead transaction attorney.
While not critical, some company owners like to hire locally. In today’s business environment, with access to various telecommunications tools, this is becoming less important. In fact, in many transactions, the parties may never even meet in person. However, many people find a benefit in being able to meet in person with their legal counsel. Such meetings can often reduce time and confusion compared with purely electronic communications.
Find the Right Attorney for You
Finally, it is important that you feel comfortable with the attorney you hire. Transactions can take a very long time, and it is likely that a seller will spend many hours working with their transaction attorney. An attorney does not need to be a client’s “best friend,” but a good, professional working relationship is critical.
The transaction attorney is one of the most important members of a transaction team. For this reason, it is critical that a seller selects wisely. As a business owner, you should evaluate the qualifications of various attorneys specializing in transactions and make an informed selection. Our Investment Banking team is here to help by introducing you to attorneys for consideration. Please contact us to learn more.
Read “Building an M&A Team: Selecting an Investment Banker” here.