Aimee B. Davis Law P.C.

Selling Your Company in Today's M&A Market

{4 minutes to read} 

{4 minutes to read} Given my 25 years of experience with mergers and acquisitions (M&A), I like to keep up with trends in the space. I recently attended a webinar presented by PKF O’Connor Davies Accountants and Advisors (PKF), entitled Selling Your Company in Today’s M&A Market. I learned that 2021 was a banner year for M&A activity in North America.

 

Close-up Of King Chess Pieces On Wooden Blocks With Mergers And Acquisitions

To what did PKF attribute that?

  1. The availability of private equity money and corporate cash for deals;
  2. Accessibility to low-interest rates in the credit market;
  3. Many deals started in 2020 didn’t close until 2021, and towards the end of the year, sellers became eager to close in order to avoid an anticipated capital gains rate increase; and
  4. A strong public stock market driving increased valuations.

 

As such, 2021 was a good year to sell a business. Will 2022 continue this trend?

 

Although Omicron and certain Covid-era restrictions may be waning, there are ongoing concerns about COVID-related impacts on business generally, together with increased interest rates, supply chain issues, and now, the war in Ukraine. As such, PKF posited that while 2022 will be an active market, sellers may want to brace themselves with respect to their expectations of valuation.

 

What pitfalls can sellers avoid when teeing up to sell their business?

 

According to PKF, the answer includes avoiding the following:

 

  • Deferring negotiations of specific terms until after a letter of intent is signed.
  • Using a lawyer without M&A experience.
  • Allowing Buyer to define the process and/or timeline for closing.
  • Telling Buyer the valuation Seller is looking for before having a CPA or other tax advisor model it to determine the value of the business on an after-tax basis.

 

I noticed that two out of four of the points raised by PKF pertain to establishing the “right” professional team.

 

Towards the end of 2021, I represented the potential buyer of assets relating to a subscriber-based business. Originally, the expectation of both parties was to close before the end of the year. This was the second time recently where closing was delayed because my counterparty, the Seller’s counsel was a tax attorney instead of a seasoned M&A attorney. As the PKF panel of experts correctly stated, M&A agreements contain nuances that a highly-skilled, experienced, and well-trained M&A attorney is uniquely suited to handle.

 

Anecdotally, this deal included a complicated post-closing Net Working Capital Adjustment. I’ve worked with these provisions throughout my career, but in my opinion, such an adjustment simply was not needed in this transaction. For several weeks, Seller’s counsel seemed to believe otherwise, which delayed finalizing the purchase agreement. During this time my client had ample opportunity to raise questions about how Seller was maintaining the business during the pre-closing period. Given where we were with the pandemic, my client expected to see a significant increase in subscribers toward the end of 2021 and into the beginning of 2022, but that didn’t happen. Buyer tried to negotiate a downward adjustment to the purchase price, but ultimately, the parties couldn’t agree. Although the post-closing adjustment was eliminated from the contract, this deal cratered due to concerns about valuation, and my client’s belief it would be overpaying for these assets.

 

As such, time is of the essence for sellers, and they would be wise to hire savvy counsel with the requisite experience.

Aimee B. Davis Law P.C. is committed to advising its clients and resolving issues relating to the legal and business matters that are important to them. If you have any questions, please feel free to contact us at (917) 617-2243 or email aimee@aimeebdavis.com.

Aimee B. Davis Law P.C.

917-617-2243
122 Ashland Place
Brooklyn, NY 11201

Leave a comment

Your email address will not be published.