Prior to this transaction, the fastest I had ever closed a deal was 45 days from the time the seller contacted me, and the deal was finalized and funded. I thought THAT was a wild ride, but here’s a crazier one.
How about a close in 23 days!
Ok, a little confession: the transaction had already started BUT was on the path to failure when I was contacted by the seller to help put the train back on the tracks. The majority of the due diligence was completed, but the deal was basically dead.
Why? Counsel for the seller was the hang-up. Not one redline to the agreements had been made, but, instead, a laundry list of what counsel didn’t like about the agreements were provided to the buyer. Let’s just say it wasn’t a good fit.
So, in this case, not only was I thrown into an almost-dead transaction to revive it, but I also needed to bring counsel to the table that could understand the deal and jump in quickly. I would like to give a big shout-out to Virtus Law – especially Nathan Nelson – for taking my call the day after Thanksgiving basically begging him to jump in and rescue the deal from a legal perspective.
Normally, I would say this could have been a lesson on how to kill a deal, but it had some life left.
Fortunately, this transaction had a lot of positive things going for it: the buyer and seller liked each other a lot and a good amount of trust had been built over time via peer groups. In fact, the buyer wanted the transaction to happen so much, they actually recommended to the seller that they get an M&A advisor involved (which is almost unheard of), even at such a late hour. Secondly, it was a great offer and a good cultural fit.
Even though the seller now had a strong team of advisors, we weren’t over the finish line yet. I think because of all the missteps along the way, somehow it was missed that the seller’s building was being collateralized by the company he was selling. Oops, that’s a showstopper as well.
Regardless of whether you are contemplating a stock or asset sale, if there are no assets left in the company, you have no collateral for the loan and risk the loan being called; so be sure to plan that out in advance (funny, I have now seen this twice since this deal was closed, so it appears to be a pretty common issue).
But at the twelfth hour, we did get that resolved, and all UCC filings had been removed on a timely basis. You might want to read my article on cleaning up your balance sheet to learn more about this issue.
And more importantly, the deal was closed before everyone headed out for the holidays!!!
Like every transaction, there is always some takeaways for you as a prospective buyer or seller.
Here is a quick summary of what you should look out for, and some lessons learned:
- Even though you know the buyer, you still probably want to select a good M&A advisor to help get the transaction over the finish line and, at a minimum, negotiate better terms (I did tweak a few things, even though the letter of intent was already signed).
- Always test out a new M&A attorney with a lengthy NDA or seller agreement to redline in advance. This will tell you if they are “redline happy” or actually have constructive comments to give. But, ideally, ask for some references from other sellers or M&A advisors.
- If you own the building and will stay in place, make sure you have an arm’s length lease agreement between yourself and the entity that owns the building, if separate. While you may have a lease in place between you and yourself, it may be too one-sided.
- Again, if you own the building, always, always make sure that the collateral for the loan is NOT YOUR BUSINESS that you are selling.
- And finally, whenever you get ready to sell, make sure YOUR attorney checks for any UCC filings on your business that may be outdated or that need to be removed to finalize the transaction.
Want to learn more about how to select an advisor and what questions to ask? Head over to this article.
Or become an expert on how to sell your own business by taking my soon-to-be-released course: Ready..Set..Sell (Your Company).
Finally, hear directly from Rick Thomas, CEO of ProTechnical, on his thoughts about using RoseBiz as his M&A advisor. And congrats to you, Rick, for hanging in there and getting it done. It was definitely a wild ride.
You Know It’s Time to Sell Your Company, But…