With Ray Horn, Attorney, Meltzer, Purtill & Stelle LLC
As an attorney in a mid-size law office, my practice is focused on business mergers and acquisitions, business partnership agreements and “business divorce.” I have had the opportunity and good fortune to assist on hundreds of transactions over 20+ years of practice, encountering a wide variety of clients, transaction structures, and professional advisors. The experience has been a fascinating one on many levels, and particularly in encountering entrepreneurs with their amazing energy and capacity to take on risk. However, these remarkable strengths can also manifest into some marked weaknesses. Over the years, I have tried to use the client experiences arising from those weaknesses to help others avoid similar issues, missteps, and pitfalls.
Picking the Right Attorney or No Attorney at All!
The best starting point for any business seller or buyer is to identify an attorney, and ensure to select the right attorney, while doing so as early as possible. Using an attorney is essential, and particularly given that in most cases, the parties in an M&A transaction (and particularly the sellers) have never entered such a transaction and are bringing that inexperience to bear in one of the most important financial events they will encounter in their lifetimes.
However, I have found even the choice to use counsel is not a forgone conclusion. I recall meeting with a client some years back who had previously engaged my firm for a matter with a successful outcome. Unfortunately, human nature being what it is, that success led to over-confidence and, when faced with a new opportunity, he decided to forgo counsel. The result was he agreed to egregious provisions in the new deal, including onerous restrictive covenants, putting him into a very difficult position financially. I still recall seeing his palpable angst at the realization that undoing the damage done would not be possible, and his stating that his marriage was being adversely affected by what had happened. The decision to act without advice may have saved some dollars on the front end but cost him dearly on the back end.
Picking the Wrong Attorney
Of course, it is about more than simply choosing an attorney – choosing the wrong attorney carries just as much risk. During my career, the world has become ever more complicated, not less complicated. Just looking at sellers, sophisticated buyers tend to engage sophisticated counsel who live and breathe M&A 24/7 and possess a strong knowledge base – as a result, a seller should plan accordingly. Of course, missteps often result from the best of intentions, whether from a client seeking legal assistance from a long-time friend or an attorney simply unable to say “no” to a long-time client. These good intentions often lead to disastrous results. Though attorneys focusing on divorce, personal injury, estate planning, bankruptcy, intellectual property, and litigation (among other skillsets – and I have encountered all of them over the years) are certainly well-versed in their area of focus, they invariably do more to harm than benefit when testing the waters in M&A transactions. Recently, we were engaged for a transaction that had languished for months because seller’s counsel simply did not know “what was next” and how to move the deal forward. The client realized the issue and engaged us to try to change course and push ahead, but by then it was too late, and the buyer had effectively moved on, including to close purchases of other companies during the constant stops and starts. The seller not only lost a transaction with an otherwise willing buyer, but also faced a changed and more challenging marketplace, as the buyer had purchased many of the client’s competitors in those lost months.
There are also more subtle elements at play, including right-sizing the attorney to the deal involved. A few years back, my client was attempting to purchase a trucking company. Through misguided advice of an advisor, the seller decided not to utilize a respected law firm which had represented the seller diligently for years and instead hired a much larger international firm with offices throughout the U.S. and in other countries – a firm that arguably had much more “firepower” than was needed given the seller’s business. The attorneys assisting seller (and I am being generous here) soon lost interest in the deal and moved to a $1B+ deal in another country, with the seller being passed to firm offices in other states. Finally, the seller (likely after sticker shock at the legal bill) gave up on the firm and reverted to the law firm initially passed over, with the deal closing soon after. Without question, a good result, but the cost was considerable, and my client could easily have lost patience with all the nonsense and simply decided to walk away, which would have harmed both parties.
Raymond J. Horn III is an attorney with Melzer, Purtill & Stelle LLC focused on providing responsive, well-balanced corporate transactional advice with respect to acquisitions and divestitures of closely held companies, “business divorce” matters, and corporate planning involving contracts such as buy-sell agreements.
Contact Ray at email@example.com