Corbett Keeling’s Post

Know your M&A Agreement (Post 3/5): Strong Covenants Covenants represent 𝗹𝗲𝗴𝗮𝗹𝗹𝘆 𝗯𝗶𝗻𝗱𝗶𝗻𝗴 𝗽𝗿𝗼𝗺𝗶𝘀𝗲𝘀 𝘁𝗵𝗲 𝗮𝗰𝗾𝘂𝗶𝘀𝗶𝘁𝗶𝗼𝗻 𝘁𝗮𝗿𝗴𝗲𝘁 𝗺𝗮𝗸𝗲𝘀 𝘁𝗼 𝘁𝗮𝗸𝗲 𝗼𝗿 𝗿𝗲𝗳𝗿𝗮𝗶𝗻 𝗳𝗿𝗼𝗺 𝗰𝗲𝗿𝘁𝗮𝗶𝗻 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗮𝗰𝘁𝗶𝗼𝗻𝘀 𝗯𝗲𝘁𝘄𝗲𝗲𝗻 𝘄𝗵𝗲𝗻 𝗮𝗻 𝗠&𝗔 𝗱𝗲𝗮𝗹 𝗶𝘀 𝘀𝗶𝗴𝗻𝗲𝗱 𝗮𝗻𝗱 𝘁𝗿𝗮𝗻𝘀𝗮𝗰𝘁𝗶𝗼𝗻 𝗰𝗹𝗼𝘀𝗲. They mitigate interim period risks that could otherwise detrimentally impact value. Typical covenants cover: 1. 𝗖𝗼𝗻𝗱𝘂𝗰𝘁 𝗼𝗳 𝗕𝘂𝘀𝗶𝗻𝗲𝘀𝘀: How the seller will operate until close – e.g. keeping up growth, not taking on excess debt. 2. 𝗔𝗰𝗰𝗲𝘀𝘀 𝘁𝗼 𝗜𝗻𝗳𝗼𝗿𝗺𝗮𝘁𝗶𝗼𝗻: Allowing continued due diligence access to the buyer. 3. 𝗡𝗼𝘁𝗶𝗳𝗶𝗰𝗮𝘁𝗶𝗼𝗻 𝗼𝗳 𝗖𝗵𝗮𝗻𝗴𝗲𝘀: Updating on material events like losing a big customer. 4. 𝗘𝘅𝗰𝗹𝘂𝘀𝗶𝘃𝗶𝘁𝘆: Promising not to solicit better offers from alternate buyers. 𝗪𝗲𝗹𝗹-𝗳𝗼𝗿𝗺𝘂𝗹𝗮𝘁𝗲𝗱 𝗰𝗼𝘃𝗲𝗻𝗮𝗻𝘁𝘀 𝗽𝗿𝗲𝘃𝗲𝗻𝘁 𝘀𝗶𝘁𝘂𝗮𝘁𝗶𝗼𝗻𝘀 𝗹𝗶𝗸𝗲 key executive departures, customer loss events, hidden legal issues emerging or sudden strategy changes in the ordinary course of business. They outline recourse options like deal re-pricing or walking away if sellers break promises. Drafters avoid common pitfalls like: - Loosely 𝗱𝗲𝗹𝗶𝗻𝗲𝗮𝘁𝗶𝗻𝗴 ordinary course operations. - Failing to 𝗱𝗲𝘁𝗮𝗶𝗹 𝗻𝗼𝘁𝗶𝗳𝗶𝗰𝗮𝘁𝗶𝗼𝗻 𝗽𝗿𝗼𝗰𝗲𝗱𝘂𝗿𝗲𝘀 and consequences for breaches. - Not securing 𝗮𝗶𝗿𝘁𝗶𝗴𝗵𝘁 𝗲𝘅𝗰𝗹𝘂𝘀𝗶𝘃𝗶𝘁𝘆 covenants and 𝗲𝗻𝗳𝗼𝗿𝗰𝗲𝗺𝗲𝗻𝘁 options. Also, underlying legal challenges include: - Stringently 𝗺𝗼𝗻𝗶𝘁𝗼𝗿𝗶𝗻𝗴 𝗶𝗻𝘁𝗲𝗿𝗶𝗺 𝗽𝗲𝗿𝗶𝗼𝗱 compliance given limited access. - Aligning conduct requirements to both parties’ interests. - 𝗥𝗲𝗻𝗲𝗴𝗼𝘁𝗶𝗮𝘁𝗶𝗼𝗻 𝗿𝗶𝘀𝗸𝘀 diluting covenants. Overall, well drafted covenants give buyers 𝗶𝗻𝘃𝗮𝗹𝘂𝗮𝗯𝗹𝗲 𝗽𝗿𝗼𝘁𝗲𝗰𝘁𝗶𝗼𝗻 𝗮𝗿𝗼𝘂𝗻𝗱 𝘃𝗮𝗹𝘂𝗲 𝗽𝗿𝗲𝘀𝗲𝗿𝘃𝗮𝘁𝗶𝗼𝗻 𝗶𝗻 𝘁𝗵𝗲 𝗽𝗿𝗲𝗰𝗮𝗿𝗶𝗼𝘂𝘀 𝗽𝗿𝗲-𝗰𝗹𝗼𝘀𝗲 𝗽𝗲𝗿𝗶𝗼𝗱, well worth the contracting rigor required. #mergersandacquisitions #contractnegotiation #contractdrafting

Contracts are a mess, but it's something we take pride in sorting out. The risk is high, so is the impact on the transaction. In daylight's glow they seem clear, But shadows loom is when the doubts appear. Sometimes they are led by ignorance, But fenced with risk. They are not an easy nut to crack, If they were, there was no reason to work on it day and night. They require attention, curiosity, knowledge of law Don't have time to make your contracts sturdy? Hire me to be risk free! ________________________________________________ Hi, I'm a Contract expert for Business Owners. Follow Sana Virani for more such interesting snippets. ________________________________________________ #LegalBusinessWisom #contractmanagement #legalinsights

🚨 When considering the purchase of a business, it's essential to stay vigilant and identify potential red flags that could impact your investment. Here are key warning signs to watch out for: 1️⃣ Inconsistent Financials: If the business's financial statements are unclear or don't add up, it could indicate underlying issues. Always request detailed and transparent financial records. 2️⃣ Declining Sales: A downward trend in sales could be a sign of problems within the business or the industry. Analyze sales history to understand the cause of any declines. 3️⃣ High Employee Turnover: If the business has difficulty retaining staff, it could point to management issues or a negative work environment. 4️⃣ Pending Legal Issues: Unresolved legal matters can be costly and time-consuming. Always investigate any pending lawsuits or legal disputes. 5️⃣ Owner Dependency: If the business is overly dependent on the current owner for success, it may be challenging to maintain profitability after the transition. At Bateson Business Brokerage, we help you navigate the evaluation process with expertise, ensuring you make informed decisions and avoid potential pitfalls. Ready to explore opportunities? Let's connect! 🤝 . 📞 (407) 375-6865 / (407) 772-2340 ✉️ Bateson@batesonbrokerage.com 🌐 www.batesonbrokerage.com . #BatesonBusinessBrokerage #BatesonBrokerage #BusinessEvaluation #BuyerBeware #BusinessBroker #BatesonBrokerage #InformedDecisions #BusinessBuying #RedFlags #SmartInvesting

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Securing a signed letter of intent from both buyer and seller brings undeniable satisfaction. However, it's essential to remember that due diligence is still pending. No deal is final until this process is complete and the seller commits to moving forward. Let's explore this a little more. #BusinessTransactions #DueDiligence #MergersAndAcquisitions https://lnkd.in/g9PCe6ay

Know your M&A Agreement (Post 2/5): Purchase Price & Payment Provisions The purchase price terms section establishes the 𝗲𝗰𝗼𝗻𝗼𝗺𝗶𝗰 𝗳𝗼𝘂𝗻𝗱𝗮𝘁𝗶𝗼𝗻 𝗼𝗳 𝗮𝗻 𝗠&𝗔 𝗱𝗲𝗮𝗹 by valuing the target company and detailing how and when the buyer will pay. This carries implications for risk, deal negotiations, and setting expectations. 𝗞𝗲𝘆 𝗲𝗹𝗲𝗺𝗲𝗻𝘁𝘀 here include: 1. 𝗩𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻 𝗠𝗲𝘁𝗵𝗼𝗱𝗼𝗹𝗼𝗴𝘆: This anchors overall deal pricing through methodologies like comparable company analysis, discounted cash flows, precedented revenue multiples, etc. 𝗔𝗰𝗵𝗶𝗲𝘃𝗶𝗻𝗴 𝗮𝗹𝗶𝗴𝗻𝗺𝗲𝗻𝘁 is crucial. 2. 𝗣𝗮𝘆𝗺𝗲𝗻𝘁 𝗧𝘆𝗽𝗲 & 𝗦𝗰𝗵𝗲𝗱𝘂𝗹𝗲: Outlines timing of upfront/deferred or contingent payments plus mechanisms like retention bonuses or earnouts to incentivize sellers to stay invested in growing the company post-deal. 𝗨𝘀𝗲𝗳𝘂𝗹 𝘄𝗵𝗲𝗿𝗲 buyers lack sufficient upfront cash or want to keep previous owners engaged for transition reasons. 3. 𝗘𝘀𝗰𝗿𝗼𝘄 𝗔𝗰𝗰𝗼𝘂𝗻𝘁𝘀: Holding back a portion of purchase price over a defined time period with an escrow agent to satisfy indemnity claims emerging after closing. 𝗕𝘂𝘆𝗲𝗿𝘀 𝗿𝗲𝗴𝘂𝗹𝗮𝗿𝗹𝘆 𝗿𝗲𝗾𝘂𝗶𝗿𝗲 10-20% escrows given valence of information during diligence. 4. 𝗦𝗮𝗺𝗽𝗹𝗲 𝗖𝗮𝗹𝗰𝘂𝗹𝗮𝘁𝗶𝗼𝗻𝘀: Applying the valuation methodology to sample financials illustrates the pricing model mathematically. However, the purchase price process also comes with 𝗹𝗲𝗴𝗮𝗹 𝗽𝗶𝘁𝗳𝗮𝗹𝗹𝘀 to sidestep: - Leaving valuation methodology 𝘂𝗻𝗰𝗹𝗲𝗮𝗿 𝗼𝗿 𝗼𝗽𝗲𝗻 𝘁𝗼 𝗱𝗲𝗯𝗮𝘁𝗲 rather than explicitly defined. - 𝗡𝗼𝘁 𝗰𝗼𝗻𝗱𝗶𝘁𝗶𝗼𝗻𝗶𝗻𝗴 𝗽𝗮𝘆𝗺𝗲𝗻𝘁𝘀 clearly or tightly enough to anticipated business milestone timelines. - Allowing too much price to hinge on 𝘃𝗼𝗹𝗮𝘁𝗶𝗹𝗲 𝗲𝗮𝗿𝗻𝗼𝘂𝘁 structures that bring heavyweight dispute risks later. You also have to overcome neogtiations. Challenges arise around inputs to valuation methodologies, worthwhile with experienced M&A legal counsel: - Landing accurate forward-looking data forecasts to underpin pricing models rigorously. - Converging inherently misaligned seller value maximization objectives with buyer risk mitigation priorities. With concerted analysis, negotiations and 𝘀𝗲𝗮𝘀𝗼𝗻𝗲𝗱 𝗹𝗲𝗴𝗮𝗹 𝗴𝘂𝗶𝗱𝗮𝗻𝗰𝗲 𝗳𝗿𝗼𝗺 𝗺𝗼𝗿𝗲 𝗲𝘅𝗽𝗲𝗿𝗶𝗲𝗻𝗰𝗲𝗱 𝗽𝗲𝗼𝗽𝗹𝗲, buyers and sellers can meet in the middle for deal terms that provide certainty around price and value delivery. This paves the way for sustainable long-term deals.

Here's a great short read on the importance of successfully navigating the due diligence process. My team and I are here to help guide you through this complex process. Feel free to reach out to me to discuss further! https://lnkd.in/eUBQjxfa

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🔍 𝗦𝘁𝗿𝗲𝗻𝗴𝘁𝗵𝗲𝗻 𝗬𝗼𝘂𝗿 𝗕𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗦𝗮𝗹𝗲 𝘄𝗶𝘁𝗵 𝗘𝘅𝗽𝗲𝗿𝘁 𝗩𝗲𝗻𝗱𝗼𝗿 𝗗𝘂𝗲 𝗗𝗶𝗹𝗶𝗴𝗲𝗻𝗰𝗲! Are you planning to sell your business or looking for potential investors? Ensuring thorough 𝗩𝗲𝗻𝗱𝗼𝗿 𝗗𝘂𝗲 𝗗𝗶𝗹𝗶𝗴𝗲𝗻𝗰𝗲 can be the key to maximizing value and minimizing risks during transactions. At 𝗔𝗞𝗠 𝗚𝗹𝗼𝗯𝗮𝗹, our 𝗩𝗲𝗻𝗱𝗼𝗿 𝗗𝘂𝗲 𝗗𝗶𝗹𝗶𝗴𝗲𝗻𝗰𝗲 𝗦𝗲𝗿𝘃𝗶𝗰𝗲𝘀 offer: ✅ A comprehensive analysis of your business's financial, legal, and operational aspects ✅ Detailed reporting to ensure transparency for buyers ✅ Identification and mitigation of any potential risks ahead of time. With our experienced team, you can approach deals confidently, ensuring smoother negotiations and better results for both buyers and sellers. 💼 Ready to prepare your business for success? 📞 Contact us today for tailored solutions. #VendorDueDiligence #BusinessSale #TransactionAdvisory #AKMGlobal #BusinessGrowth #InvestmentOpportunities #MergersAndAcquisitions

https://buff.ly/48o7H9e A Guide to Dispute Resolution in Business