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M&A lawyers to sellers: Start planning three years early

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During a panel discussion on mergers and acquisitions, lawyers at Maslon LLP encouraged business owners who are looking to sell their company to give them a three-year heads-up if they want to get the best deal possible for themselves and their company.

The reason for this, the lawyers said, is because that way they can clean up legal records and finances and get everything on the table, which in turn will enable them to find the best buyer while still maximizing value.

“It gives us the chance to think about, ‘Are there any key agreements that need to be documented that aren’t documented? Are there any skeletons in the closet that we need to remediate and that are behind you enough?’” said Susan Markey, a partner at Maslon. “That said, we’ve done so many successful transactions without that preparation, but ultimately I think that if you truly want to maximalize value, the preparation is extremely important.”

Another panelist, Cory Markling, a partner at EisnerAmper, said many potential sellers underestimate the amount of work to put into selling a company and how much needs to be done in the ideal three-year period.

Panelists also recommended finding a generalist mergers and acquisitions lawyer. If an M&A lawyer is specializing in an industry, it creates conflicts of interest, Peter Slocum of Bayview Capital Group said.

“If you’re deal No. 5 in their shop, and they’re all the same [lawyers] as your competitors, which one are they going to sell first?” Slocum said. “The buyer walks in the door, and which one do they show first?”

During an interview following the panel, Markey said that construction companies often rely on handshake deals and are missing key documents.

“It’s really important that [construction companies] make sure they’re documenting all their relationships, that their documents are up to date, that they are accurate particularly on the contract side,” she said. “What you tend to see in that industry is a lot of trust and handshake kind of deals, but unfortunately that doesn’t drive the value of your business.”

For companies that own the building or warehouse that their company operates out of, Markey said there are two paths a seller can take with real estate: selling them separately or as a package. Either way, she said, the best choice is to make sure your real estate is in a separate LLC so that you have the choice to make.

“Perhaps you can lease it to the purchaser and create a legacy income stream for yourself,” Markey said. “It also depends on the purchaser – if they’re just moving into town, they might want your real estate, but if they’re not, they may not want that kind of thing. A really important strategy is just isolating your real estate from the business so [when] it gets to be time to sell the business, you can get the maximum value for the real estate and maximum value for the business.”