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Let’s TalkThe Role of M&A Lawyers When Selling Your Business
Do I Need an M&A Attorney to Sell My Business?
Having an Attorney Levels the Playing Field
For middle-market transactions, the buyer often brings a team of dozens of staff and advisors to conduct due diligence. As a result of the imbalance, you should aim to at least achieve negotiating parity by hiring the best advisors you can afford.
Have Your Attorney on Standby
While an attorney is not a requirement in all transactions, they can be tremendously helpful. While many small transactions successfully conclude without an attorney, all sellers should hire an attorney and have them prepared to become involved in the transaction at a moment’s notice. If the buyer of your business is a corporate or financial buyer, your attorney will need to be intricately involved in the transaction.
The Attorney’s Role in the M&A Process
Your attorney reviews all transaction documents to ensure your legal rights are protected, and they will occasionally become involved in negotiations.
For example, your attorney will check whether the transfer would be effective under your state’s bulk sales laws, if any; whether any creditors should be notified; whether you have strong remedies against the buyer in a seller financing agreement, and whether a security agreement over the assets sufficiently protects you.
Here are the common roles most attorneys play in the sale of a business:
NDA
While our standard NDA works in most cases, we recommend your attorney draft a custom non-disclosure agreement (NDA) if the sale is particularly sensitive and we are approaching or negotiating with your direct competitors.
Letter of Intent
We often prepare the letter of intent (LOI) if the buyer is an individual. However, the buyer’s legal team prepares the LOI if the buyer is a corporate buyer, a private equity firm, or a competitor. You will often need to involve your attorney if the buyer prepares the offer. In such cases, your attorney should be on standby and available to respond quickly when we receive an offer or LOI.
Due Diligence
The extent to which your attorney is involved in due diligence depends on how thoroughly the buyer conducts their due diligence. We can often anticipate how thoroughly the buyer will perform their due diligence based on our preliminary conversations with them. Often, we can let you know in advance if we feel your attorney will need to play a more involved role.
Purchase Agreement
- Small Businesses: As noted above, we often prepare the purchase agreement and closing documents if the buyer is an individual or smaller competitor (less than $5 million to $10 million in revenue), which tends to be more common for smaller businesses. If we prepare the closing documents, you may optionally have your attorney review them.
- Mid-Sized Businesses: The buyer’s legal team customarily prepares the purchase agreement if the buyer is a corporate buyer, private equity firm, or a competitor — this tends to be more common for mid-sized companies. The purchase agreement is often prepared simultaneously while due diligence is being conducted, which gives the parties plenty of time to negotiate the agreement. On the other hand, the negotiations surrounding the LOI tend to be more time-sensitive.
Negotiations
We also recommend involving your attorney if negotiations become involved or contentious or if the buyer proposes restrictive reps and warranties. In many cases, the buyer may reserve the right to claw back all or a significant portion of the purchase price if there are any material errors or omissions. Your attorney can also be instrumental in negotiating these agreements.
Closing Process
Your attorney can also facilitate the closing process and wiring of funds if the buyer’s attorney or escrow is unavailable to do so.
Other Roles
Your lawyer can also prepare or review the necessary transfer documents if you’re selling a building or land.
Tips for Hiring an M&A Attorney
When hiring an attorney, you should look for the following:
Experience
Your attorney should have acted in at least five to ten transactions — dozens would be even better. Obtain references and consider if their previous transactions successfully closed.
Negotiating Skills
Your legal advisor should also be an excellent negotiator. Often the negotiation on representations and warranties is tougher and more challenging than negotiating the price.
Other Soft Skills
Find a lawyer who does not feel compelled to participate in or influence the commercial aspects of the deal unless you specifically request otherwise. Your advisor should also be capable of offering solutions in risk management, such as creative deal structuring.