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Process with a Purpose

With Ray Horn, Attorney, Meltzer, Purtill & Stelle LLC

Selling or buying a business is often stressful and time-consuming process, much more of a marathon than a race. Human nature being what it is, clients understandably want to “just get it over with” and move on to something more immediately rewarding, such as enjoying a much-deserved retirement or operating that newly purchased business. As a result, clients often treat the process as a necessary evil, something to get through as quickly as possible.

But simply focusing on the “end” (the closing) sells the process short and can easily result in a buyer or seller taking on excess risk as they race past otherwise clear warning flags. The reason appears to be a misconception about the true purpose of a purchase agreement. Many clients, and even many advisors, simply see the agreement as a form to be completed. But properly utilized, the agreement helps uncover and resolve issues which sellers should want to disclose, and buyers should want to know, yet realized only if the parties truly engage in the process the document invites. By taking the time to disclose carefully and review what is disclosed, buyers and sellers gain important knowledge about the business in question, with that additional knowledge resulting in a lower risk of misunderstanding, which in turn leads to a lower risk of post-deal litigation – and who really wants to engage in litigation?

In short, the document is part of a larger process, not an end in itself.

Yet, clients consistently write off virtually all the transaction documentation as simply “boilerplate,” and a waste of time, energy, and money, seeing only “legal mumbo-jumbo” that only attorneys would care about. I recall a very enthusiastic buyer-client years ago, someone whose energy and drive were truly admirable – the definition of an entrepreneur trying to live the American dream by owning his own company. However, he focused so much on the end of owning the business that he did not take the time needed to truly evaluate the business he was buying.

Despite encountering red flag after red flag, including an evasive seller, an unprofessional attorney, a partner who walked away, among other issues, he pushed on, discounting or even ignoring every warn- ing sign, and seeing the entire legal process as a nuisance. Making everything worse was that the client “wanted” the deal so very badly that the seller and his counsel used this rush to judgment to resist our attempts to dig more deeply into the red flags – in other words to allow the process to breathe so the client could more fully assess risk and do so prior to closing.

The situation was analogous to the proverbial blood in the water infest- ed with sharks, with my client the unfortunate swimmer and the seller and his counsel the sharks. Yes, that deal did close and very unfortunately for my client. Those unanswered questions yielded the answers we feared, the business failed, and my client eventually declared bankruptcy – a result made even worse as it was avoidable with only some additional engagement from the client.

Yes, the process is tedious, time-consuming, and cumbersome and, yes, there are certainly more enjoyable options for busy clients. Yet, when dealing with a material life decision, it is absolutely worth the investment of time and effort to work closely with your attorney and other advisors, utilizing the process to shed light on those red flags and make more informed decisions.

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

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