Like A Champion Podcast | M&A Mastery with Wes Shelton

David Black | Avoid Deal Pitfalls & Learn Sale Must-Haves from an Expert M&A Attorney | Like a Champion Podcast #10

• Wes Shelton • Episode 10

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Join M&A attorney David Black of Berger Singerman, a seasoned expert with decades of experience, as David shares insider legal strategies that help businesses avoid costly pitfalls when selling. In this must-watch conversation with Wes, David reveals invaluable insights that could transform the way you approach business transactions. Whether you're an entrepreneur or an investor, you won't want to miss the wisdom that can help you navigate the complex world of mergers and acquisitions.

00:00:00   Introduction and Purpose of the Podcast
00:01:18   Dave's Background and Journey into M&A
00:02:24   The Fun and Challenges of Sell-Side M&A
00:04:37   Building the Right Team for a Liquidity Event
00:11:33   The Importance of Specialized M&A Attorneys
00:20:36   Common Deal Killers and Financial Pitfalls
00:31:42   Engaging Advisors Early and Exit Planning
00:35:50   Handling Key Employees and Management During a Sale
00:38:00   Navigating Sign and Close Deals
00:38:31   Managing Employee Communication During M&A
00:41:03   Legal Risks in M&A Transactions
00:42:42   Tax Implications of Asset vs. Stock Sales
00:46:16   Impact of AI on Legal and Business Practices
00:51:56   FTC Ban on Non-Competes: Implications and Opinions
00:55:27   Career Advice for Aspiring M&A Lawyers
01:04:41   Personal Insights and Recommendations

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Like a Champion Podcast Ep10 David Black

[00:00:00] Introduction and Purpose of the Podcast

 [00:00:00] Dave, thanks for coming in. My pleasure. Like a champion podcast. I think we've been talking about doing this for a while and, all of our great conversations and working together. I respect you a lot as an attorney and I know, This business is one that is high stakes and a lot of cases.

and I think for our clients, it always is high stakes, whether it's a million dollar deal or a hundred million, many times it's their life's work. So I thought it would be relevant, to our audience to have you on and talk about, the unique legal challenges, of selling a business 

You know, for you to provide, your sort of perspective on things and what you see. Because, one of the things that I claim to offer above anything, it's just the empirical, experience of dealing with business owners every day. whether I'm engaged by them or not, you see things and you see trends and you see the things that go right and go wrong.

And that's one of the things that, this podcast offers is an opportunity for people to come and learn. And there's a lot of people out there that are selling a business for the very first time, buying for the very first time. They don't know where to start. And so that's kind of, what it is that we [00:01:00] do, but also the part I probably love as much or even more as just the stories, like what's the journey that got us there?

What is it that really drives us? Right. And so, there's somebody that I've connected with a lot and I'm as excited to have you on because I think that it's it. You've got a lot of knowledge and experience. It's really going to resonate with the audience. So you can just start off Dave. 

[00:01:18] Dave's Background and Journey into M&A

Love to hear about your background experience all the way up to, you know, how you really got into M and A.

How did you, you know, being an attorney, was that something you wanted to do when you were, when you were young? How did you end up, coming into the M and a field and just would love to hear that sort of sure. 

So I was sort of on the fence between going to business school and law school and college towards junior senior year, ultimately decided to go to law school because I had planned on pursuing a career in politics.

Then I got into it and saw that it was really just full time fundraising and had no interest in that. and knew that I've always been a business oriented guy. So I knew that if I went the law route and I didn't go into politics, I'd be doing transactional law, not litigation. I haven't been in court since law school and [00:02:00] I plan to keep it that way.

so when I started, I went to law school in Boston, worked at a firm called Goodwin Proctor right out of school. there, the deal sizes, you know, several hundred million to multi billion dollar deals, started out as a generalist doing corporate work and real estate work. Moved down here, joined Berger Singerman, which was my current firm 15 years ago when I moved down.

And again, there did a mixture of real estate deals and corporate deals. 

[00:02:24] The Fun and Challenges of Sell-Side M&A

and over time, I noticed that I had the most fun selling businesses because In that instance, you're helping someone who's taking their life's work, as you mentioned, their baby, their crown jewel in their portfolio, usually, and selling it.

And it's a major life event. for most of our clients, they've not done this before. They've run this business, they've run it well, but they've not been serial entrepreneurs who bought and sold businesses, right? So they don't know what they're doing on M& A. And so even when I meet a client and they've got an LOI on the table, And they don't know me, at all, sort of automatically become more of an advisor, as you mentioned, [00:03:00] and not just a deal technician because you're guiding them through the process.

And then it's fun, right? It's just fun. You're selling the business. You're converting this EBITDA machine into, you know, a mountain of money. Compare that to buy side M& A, where,the job of the lawyer is really to find skeletons in the closet, right? You're doing diligence, trying to find problems and identify issues.

You're drafting documents. and then taking it outside the world of M& A. Doing debt financings there your client contact is signing a personal guarantee usually or an equity raise there You know, they need every penny because they're trying to raise growth capital for whatever purpose, right? So I find sell side M& A to just be so fun because of what you're doing as compared to other areas of law So about eight or nine years ago.

I started focusing exclusively on sell side M& A. I'll still do Bicep deal with one of my partners who really focuses on Bicep if I have a client relationship that dictates it. But sell side is my 

passion. I say this a lot, I'm curious if you see the same I find myself just [00:04:00] saying that that every deal is so unique in many ways.

Totally 

different personalities, different leverage points, different goals, objectives, risk tolerances, there's no two deals that are the same, even if you take same industry, same purchase price, same form of consideration in terms of rollover or an ounce purchase price, cash at closing every deal is different in terms of what leverage you have to negotiate, what your risk tolerance is from your client, what their real objectives are and sort of seeing through that and seeing where they want to get to and helping them achieve that.

through both verbal and nonverbal communication to me is the most fun part. 

Yeah. Yeah. I totally agree with that. 

[00:04:37] Building the Right Team for a Liquidity Event

so, you know, you wrote an article that, was published in a few different spots with one of your, colleagues, Marlene, about, preparing for a liquidity event and building.

The right team. You walk us through kind of like those pieces and those, sure. You know, 

 I analogize it to, you know, you turn a bar stool over, you have four, four legs of the stool. There's four team members that to me are critical [00:05:00] to, to selling a business. Um, and, and I say that in the sense of.

Maximizing purchase price. If that's your goal, it isn't for every seller, but it often is, minimizing the chance of a retrade from a buyer right before closing, minimizing the chance of, having an indemnity claim after closing and having to cough up purchase price after closing, which is never fun.

ensuring that when you convert that EBITDA machine into a mountain of cash, that's going to go usually in the market, maybe in real estate. It's going to have a very different return profile than it did when it was a privately held business. so making sure that all those things are in sync, requires a multifaceted team.

And as I wrote in that article, it's for four people. It's an investment banker, it's an MNA lawyer. It's a transactional tax focused CPA, not just a tax return filer, which is fine for operating, but not for a sale and then a wealth manager to do cashflow analysis. So I can go into detail on any or all of those.

But yeah, those are the four members of the team that to me are really [00:06:00] critical to achieving what are most people's goals in a sale. 

You made a particularly good point on the tax focus CPA, I think, because oftentimes, the regular. in house CPA that they're using doesn't quite have that experience and skill set to deal with what you're talking about, purchase price allocations and those kinds of things.

And, oftentimes I've found that I need to gently nudge into, Hey, we might, you might need some, because I certainly don't, you know, I can give you ideas to explore with your accountant, but that is not my area of expertise or licensure or what have you. But I think that one is particularly. a valid point.

do you ever find that any of these sort of legs of the stool have a hard time working together? you know, you're talking about accountants in specifically, or, maybe general counsels or whatever, but they're kind of.

likely out of a job when the business sells because the buyer has their own advisors, their own people, And so sometimes it's a challenge for me. [00:07:00] And listen, I get it because every business I sell, essentially I'm doing the same thing, but I understand that going in and I'm a transactional guy in a lot of ways.

You're a transactional guy, but do you ever find that to be a challenge? Maybe not necessarily with you, but just seeing the other parties working together. 

Yeah. Once in a while, I've seen CPAs. begrudgingly help because they're pissed off about losing their client. It's not common at all. I mean, we're professionals.

We're supposed to do our job regardless of what comes for us. We're supposed to do our jobs and protect our clients and help our clients. but I'll tell you what I find more commonly with CPAs is the client. thinks that their longstanding tax return filer can manage this deal. And the CPA wants to do that work and says that they can do the work.

And 

it becomes very clear. They can't from day one, because you structure the most germane points of the deal in the LOI, right? one of the very first points in my issues list on an LOI is, what is the tax differential between an asset sale and a stock sale? [00:08:00] Because buyers are usually proposing asset sales, usually.

And usually stock, stock sales are going to have a lower tax burden to my client than an asset sale. So one of the very first things I point out in the issues list is we need to do a tax differential analysis. Nothing too detailed, but just down and dirty to get a rough estimate. If we're going to either insist on a stock deal because of the tax differential or ask for a gross up or whatever.

so immediately I can sniff out if the CPA. Doesn't really know the world of transactional tax. They might be great filers. Sure. preparers and financial statements, but not in the world of transactional tax. And so what I see more commonly than them sort of being territorial, cause they're going to lose the work.

is them being territorial because they want the work and not leveling with their client that they can't handle the work. and the client not wanting to spend money on a mid to large size firm to come in and help on the deal. So yes, I've definitely seen that. It's not common, but that's the only instance I've seen a friction with, the four legs of that stool working together in sync.

[00:08:56] Four Ways an M&A Advisor Adds Value

Yeah, it's, an interesting trend. I've done a lot of research [00:09:00] in, speaking with different potential sellers and I see a lot that, and I estimate roughly 50 percent of the businesses in the lower middle market private businesses sell without an advisor at all. So maybe it's a friend who's, just having an attorney handle it, whatever the specialty of that attorney might be.

Maybe it's an accountant, maybe they're doing it on their own. It's an interesting conversation to have. it's challenging too, because if I suggest that, you know, the hired advisor that seems self serving and I can see why that might be the case, but a lot of times I'll say it and just say, Hey, if it's not me.

It should be somebody. 

I had this conversation about three hours ago in my office. I said, even I have a client with a one off buyer. So the buyer came unsolicited client wants to do the deal. they weren't planning to hire an investment banker. Cause I think as most people do, if they even know what an investment banker does, they say, well, I have a buyer.

What do I need an investment banker for? I don't need to run a process to find a buyer. And I say, there are four things that investment banker brings to the table, even in [00:10:00] a one off deal with a buyer that you've identified. Number one, Is they'll get more value on the front end because of the buyer knows that if they lowball you too much that you're going to be in their ear just telling them to go to market because it's way below market, right?

So you get more value even without going to auction by having the MSN Banker and that alone, I tell them, usually pays for your fees over. So you're effectively free in that regard. number two. You will do a lot of work that we have to bill hourly for, like starting disclosure schedules, right? so some of that fee is paid for by reducing legal fees.

Number three, I can't talk to the buyer directly. I have to go through their lawyer. So anything I say is gonna be filtered through that lawyer. So if we want to go right to the buyer, the principal of the buyer, either has to be the client who will usually be outgunned because they don't know the world of M& A.

They don't know what points to negotiate. Or an investment banker. There's only two ways to get right to the buyer and not have to go through the lawyers. And that's incredibly good. And it also saves those hard conversations for you so that the client doesn't have to have those tough conversations and potentially poison the [00:11:00] well for a post closing relationship.

And number four on the backend, I say, A buyer will be more likely to try to retrade right before closing, knowing that, you know, the pot is boiling and you're ready to depart. You've already figured out what jet or what second house you're going to buy, and you're going to swallow the retrade because you just want to get the deal done.

And if they do that with an investment banker, they know that you're going to be, again, in their ear telling them to go to market. So I say those four things make an advisor, an investment banker worth their fees in gold, even if you found a buyer yourself. And I just had that conversation earlier today.

[00:11:33] The Importance of Specialized M&A Attorneys

on a similar note, you know, and I know there's a trend often where sellers hire an attorney that they have familiarity with, but that does not have familiarity with it, with M and a emergency acquisitions and transaction experience. And can you describe a little bit about the skillset that you offer above and beyond maybe a more generalist attorney or non M and a, 

so, you know, there was a time probably 10 years ago where I did an even mix of buy side and sell side M and a, [00:12:00] and when I was doing buy side M and a, And the seller used their longstanding sole practitioner or small law firm that was their generalist law firm.

And one day is in court and one day is doing a will. One day is doing a real estate deal. I was licking my chops because I knew I was going to get stuff in that agreement that was out of market. And that the seller's lawyer was never going to pick up on because they just don't know what's market. And so they fight over things that they shouldn't fight over and they don't fight over things that they should fight over.

So I tell my clients on the buy side, I used to, and I did a lot of buy side work. I said, look, this is a blessing and a curse. Okay. Because we're going to get stuff at the end of the day that massively protects you more than market, you know, would otherwise dictate, but it's going to be a slog to get there because they don't know what they're doing.

We're gonna have to do a lot of work that we shouldn't have to do. We're gonna have to have a lot of negotiations. We shouldn't have to have. But at the end of the day, you're going to be much more protected on things like indemnities, escrows, the nature of the raps, than you would if this was, an MNA lawyer who knew what they were doing.

So you take the good with the bad. 

Yeah. No, that's interesting. I kind of think of [00:13:00] it, you know, hiring An orthopedic surgeon to, put the stint in your heart, like, clearly a very smart and capable surgeon, but not for what you're looking for and, um, you know, law to me is no different.

So, can you think of a case where a prospective client chose a more generalized attorney? Yeah. And how that turned out and generally detrimental to them. 

Yeah. So, I mean, that's more detailed version of, what I was mentioning a moment ago. So when I was on the buy side, I would get, these sellers, they have, you know, significant businesses, 20, 30, 49 businesses and they're the sole owners.

So they're getting major dollars and there's really no excuse there. to spend real money on a sophisticated M& A lawyer, but they wouldn't. they would just keep with their generalists that they had for 20 or 30 years. And I would get things in that agreement that I had no business getting like no cap on even non fundamental rep breaches, massive escrow holdbacks of 25 percent for two, three years when the market is 18 months, right?

seller financing terms that were just [00:14:00] piggishly pro buyer and you know it's on them to push back on our forms And if they don't do that, or they don't hire lawyers that know what they're doing shame on those lawyers They shouldn't be taking their money. But yeah instances where both from an indemnity perspective, a rollover equity construct perspective, earn out perspective and seller financing.

We got terms in those arrangements that were way outside of market because the other side didn't feel like hiring a real M& A lawyer and that's on them. 

So I've gotten to the point in my practice where, you know, and in our work, as you probably know, it was almost exclusively sell side and, You know, we get to the point where we're contemplating engagement with the business owner, and I'll say, and oftentimes they may ask me for referrals or recommendations of attorneys, in which case I'll usually give them two or three names, yours clearly being one of them, and I'll say, listen, at the end of the day, we don't make any, we don't have any financial benefit for this.

These are people that I like and respect, but you're free to pick whoever you want. But I will say this, that, Whoever you pick, I'm strongly suggesting if not requiring you to pick [00:15:00] somebody who is emerged an acquisition attorney because not only because I know they will produce better outcomes for you, but because I, I mean, I'm a contingency based guy.

 I have enough knowledge and experience to know that if you pick the wrong attorney, they're going to pick the wrong fights over the wrong things. And it's going to drastically reduce our closing ratio. 

Yeah, 

I had one 

by side deal where the, uh, where my client just walked away.

They said, we're never going to get anywhere with this lawyer. They don't know what they're doing. He was a sole practitioner. they spent a ton of money trying to work through documents. The guy just fought about things that made no sense. Finally, my client said, it's not worth it. She was saying it wasn't worth the squeeze.

And we walked away. So, that's rare. You can't reason. That's rare. Yeah, you can't reason. You 

can try to be as logical and fair as possible, but they're just, you know, you're not on the same page. And the 

lawyer would tell him, I've been doing this for 45 years. Well, sure, you've been out of law school for 45 years.

It doesn't mean you've been doing MNA for 45 years. So that, that client lost that, that, that seller lost that sale because my client just got sick of it and walked away. 

Yeah. [00:16:00] Those are frustrating conversations to have, and speaking of that, like, what would you say, I'm curious, and only because we're all very often asked this and measured by closing ratio, my line of work is, parallel to yours, but it's different in terms of our task is, getting a deal across the finish line and we're paid accordingly, your task might be slightly different in that you're, you Your first, really, I think, charge objective is to advise your client and protect their interests, right?

Where we're taking a fiduciary stance as well, but, you know, our client's looking at us to get this thing done, and if not, you're really not getting paid, right? we are often asked what our closing ratio is, and I'm curious as to, of the deals that you're engaged to work on, how many roughly get to the closing line?

So it depends on where I'm engaged at. If I get brought in as a sell side specialist after an LOI sign, which unfortunately happens, it's not the right way to do things in my opinion, but it happens, I'd say 70 to 85 percent of deals close if you [00:17:00] actually get to a signed LOI. That's really negotiated, that the parties are eyes wide open on, and it's, reasonably detailed, so that you flesh out any deal breaking issues in the LOI.

Probably 70 85%. But if you go back in time, where I'm sort of the outside GC to a client and we say, okay, it's time to sell, which happens a lot, and we're going to go and hire an investment banker and we're going to start a process, there it's probably Slightly under 50 percent because there, you know, you might go out to market.

I just had this happen last year. You go out to market and you get no buyers, right? Just the market has shifted I had a client three years ago, was told by several investment banks that he had 140 million business to 150 million business was confident he'd get a litany of buyers.

And right as we were going out to market, it was a direct to consumer business that was marketing through e commerce. The e commerce rules changed. He couldn't market to his customers as effectively and he got no offers. So, you know, again, it depends if you're, if you get to a signed [00:18:00] LOI, I think your chances are more likely than not you close and usually significantly more likely than that.

But if you're just going out to market, you know, it's, it's a coin flip. 

Yeah. No, that's a great explanation and perspective. Do you think, And just to touch back at the beginning of that, your preference is to get engaged prior to LOI. and why would that be? 

Yeah. So I, I've seen this happen so many times.

so clients, particularly when they're not represented by an investment banker, right? Business owner gets an unsolicited LOI from a buyer. It's more money than they ever dreamed of and they sign it and they figure, well, if the buyer gets serious, I'll hire a lawyer then because after all, it's nonbinding.

It is and it isn't. An LOI is non binding only in the sense that if you choose not to do the deal, you're welcome to not do the deal. But if you sign an LOI with certain terms in it, and even though you didn't understand them, and then I come in post LOI during the definitive agreement stage, and I tell the client, do you realize this is what this means?

And they flip out and they say, well no, go back and [00:19:00] fight the buyer on that. I go to the buyer, I fight the good fight, and in almost every instance, the buyer says, You don't have to do this deal, because it's non binding, of course. But if you want to do this deal, you're doing it on the terms you signed in the LOI.

And so the ship sails on, on a litany of fundamental things that I like to negotiate in the LOI. Like indemnity limitations. So a buyer, knowing that dynamic, We'll usually take advantage of a seller by very, very subtly putting in the LOI that seller will fully indemnify buyer, something to that effect.

Okay. Or not mentioning any limitations. And then, and then when I raise what our market terms for indemnity limitations and escrow provisions, they don't even come close. I'm talking like they may be offer up 50 percent caps when it should be 10 percent caps. Because the LOI said fully indemnify, or didn't include, any limitations.

So I like to negotiate those things up front in the LOI. Because the fact of the matter is, in most deals, not all, as the deal progresses, and particularly after you sign the LOI, [00:20:00] the seller loses leverage along the way, and the buyer gains leverage. Because think about it, you're going exclusive, so you're forsaking all others, if you went through a process and you have others.

you're exposing your diligence to what is otherwise usually a competitor. because usually you're getting bolted on to a platform owned by a private equity firm or you are on the platform and so you're disclosing sensitive information, you're starting to think about what you're going to do with this mountain of cash and so you lose leverage over time and buyers know that and so I like pre LOI to be engaged and make sure that we are negotiating all the fundamental terms of the deal before we sign that exclusivity and before we lose that leverage.

[00:20:36] Common Deal Killers and Financial Pitfalls

On that note, what would you say are, are The most common deal killers that you see from the legal side of deals. 

I mean, it's not legal per se, but it's, it's financials. I mean, by like 80 percent of deals that die to me are from either financial performance, not meeting projections on a go forward basis as we're evaluating run rates through the deal.

Or the buyer's Q of E coming back that [00:21:00] pre, pre auction, the numbers are not what we purported in the auction documents. and so in either instance, it doesn't necessarily kill the deal. What it, what it brings about is a retrade by the buyer. And then the client either swallows the retrade or the deal dies because there's just such a gap in valuation.

And sometimes you can bridge that gap with an earn out. But that's just, you know, I am dealing now with two earnouts where, it's just a disaster. and so I always advise clients, if you're going to do it, try to avoid it, but if you're going to do an earnout, make sure that you are comfortable doing this deal just for what you're getting at closing.

Because all you're getting in an earnout is a right to sue the buyer if they refuse to honor the earnout. Yeah. 

Those are hard. And we definitely try to advise against them unless it's sort of. Like gravy for lack of a better term icing on the cake or I read a stat the other day from one of the study focus groups that we follow and, uh, they said, you know, less than 60 percent are announced or paid [00:22:00] out ultimately.

So that's a, that's an, I mean, I knew it wasn't a hundred, but that was a pretty low number compared to, because the only, the only one or two that we've ever had to do in a deal were paid out. So it's pretty rare, but we're batting a thousand with a low sample size, but 59 percent is something that, you know, now, anytime that number comes up, it's really.

It's something we definitely try to avoid, but you know, what's fascinating to me about financials is that the two biggest issues that I see with financials, number one, and what you just mentioned, Q of E coming back and financial performance not matching what was represented, right? And, and usually that's not something that was intentional, right?

I mean, businesses started zero and oftentimes have sort of, you know, grassroots mom, pop bookkeeping, and they never really quite evolved it to the point where it's. It's almost never gap compliant, right? so you have financial performance. It doesn't meet what was represented. But the other thing is the other issue is that you've got [00:23:00] business owners that are running way too many personal businesses through the expense.

You know, it's a true lifestyle business, right? But, but that causes a litany of issues in and of itself, right? So in In an effort to save as much in taxes as possible, they're doing that, but then you have all these businesses that are essentially over representing what they're actually making and not even intending to do it.

So you've got both ends of the, you know, both extremes, but, you know, I try to tell people now, and it's part of a lot of the presentations I give is that you've got to stop. It is way counterproductive and you're not saving nearly as much as you think. Because if you go into the sale process and you, you know, you have All of these.

And I, the last two podcasts ago I had Josephine on and he talked about, you know, having your uncle Joe on payroll and he's never showed up and all of these things, I think you lose credibility with a buyer, but banks oftentimes just won't take it. Right. So you say, Oh, you know, I did all these things are ad backs and you know, I've had banks say before, how do we know that?

Right. You [00:24:00] know, you say you have 100, 000 travel and entertainment expenses, but how do we know? Right. Right. Right. That trip to Hawaii didn't bring all your key managers out there and that's part of their perk every year. so it's interesting. Those are the two biggest things that I see. But, you know, that leads me to the next question.

Talked about retraining. How can business owners protect themselves from buyers who try to renegotiate or lower the price at the last minute? 

So two things to the point I made earlier, one of the four ancillary benefits of an eye banker, even if you have a buyer on the table is preventing that retrade because They know that the sellers prep to just go right back out to market.

Right? so having an investment banker on the deal I think drastically reduces what I'll call illegitimate retrades as to legitimate retrades because the financials are not what was represented or whatever sell side QVs if we're doing a relatively small deal of you know 15 25 million bucks client might not want to spend 50 grand on a sell side QV Prior to going to market because it's a flyer, but if it's, 40 million plus, I tell the client, look, [00:25:00] this is anti, like you play poker, you got to put money in it to get your cards.

Annie up, spend 50 grand on a sell side QV to make sure you know what that EBITDA machine is producing because ultimately. Rather than spend 40 grand on a, on a QV to assure you know what you're going to market with, you're going to spend a hundred or 200 grand in legal to advance a deal that ultimately is going to die.

because once the buyer realizes through their buy side QV that your numbers aren't what they say. The deal's going to crater anyway. So I said, don't be penny wise and pound foolish. so I'd say for legitimate retrades, you mitigate that by doing a sell side Q of E before you go to market.

Yeah. Like have your numbers be rock solid. 

And by the way, you don't have to pay for a full, you know, formal report. You know, when you're buy side, you do a full report. Sell side, you just want to make sure you know what your numbers are. And you want to make sure that the CPA firm is prepped and knows your business inside and out.

So when they get the buy side Q of E. They can jump on it immediately and they don't need a month to gear up and learn your business. Right? So [00:26:00] you can just get the workbook, get the numbers. And for that you can get a real QV done for 40 grand, which is real money. But you know, if you're trying to sell a business for 40, 50, a hundred million bucks, it's anti to get in the game.

I was at, a panel discussion down in, Miami a few years ago for the Alliance of mergers and acquisitions. And there was a PE buyer on the panel and we were talking about this very topic. and he said, listen. He said, listen, we're very well aware of the reputation of PE specifically in regards to re-trading.

Mm-hmm . 

And we, we don't like it. And we do not want to. we don't want to confirm that narrative at all. So the reality is, though, is that we realize a lot of the businesses that we're buying in the lower middle market have financials that are less than stellar. 

Mm-hmm . 

Okay. So what do we do with that, with the re what we really do?

is we often build in a discount to our offer in such a way that, and he used it, he used the metric 10%. And so [00:27:00] they'll go and say, all right, you know, if you got a 5 million EBITDA company that's we're representing and we'll pay six multiple on that, we'll build in a discount of roughly 10 percent because what we're anticipating in diligence is that we're going to find.

That our Q of E doesn't match what they said. And so, if we got some wiggle room there, then we don't have to retrade. We can say, you know what, Mr. Black, here's what we found. It's a little lower than we were expecting, but you know what, that's okay. We're prepared, prepared to move forward to closing. We don't want it because most PE is, is requiring sellers to roll some equity, right?

They want you to stay, continue to utilize your expertise and keep the team. So the last thing I want to do is go into this new partnership with bad blood and you thinking that I just used you out of something that you're very emotionally attached to your business that you've built. Right. So to me, Just do the math on that.

Why, if you can spend the money to do a QV and have a buyer that's bidding with that much more confidence, you've just made yourself many, you [00:28:00] know, a strong ROI on that, so. Pays for itself. Pays for itself, so. It's a tough investment, I think, for sellers to make often because they're not anticipating that.

They know that investment bankers, you know, they make a fee, they know their attorneys, you know, make hourly fees and stuff, so. Um, but you know, what you're saying really ties into that. I'm curious as to what some of the most aggressive negotiation tactics are used by buyers and how sellers can counter them.

So, I'm dealing now with a litany over the last two years of buyers post closing just refusing to, work in good faith, I would say, on honoring put rights. earn out and, and just taking completely egregiously wrong positions based on what the documents say and the construct that the document requires because they think they can push around this seller.

You know, the American legal system, unlike other countries where the [00:29:00] loser has to pay the buyer, the winners legal fees, and that incentivizes people to be reasonable. You know, the American legal system in general, everyone pays their own fees. So, there are pros and cons to both systems, I'm not judging, but, but, the, the fact of the matter is in the American legal system, where everyone pays their own fees.

That heavily favors the deeper pocket. So what I think is happening is, you know, private equity over the last few years has been squeezed in a way that they hadn't for almost 20 years with historically low interest rates, right? They're being squeezed cause they're, they're costing capitals higher. and so I think what's happening is, cause I've just seen this too often in the last few years for it to be a coincidence, I think what's happening is.

They're being squeezed on the front end with their cost of capital with interest rates being higher than they were for the prior 20 years and they're looking to make up some of that delta by just completely rolling over their sellers and, and just not paying out what they're supposed to.

So classic example, I had a deal where we had to put right, kind of like an earn out, but you know, it was optional, uh, put right for, for our rolled equity [00:30:00] and it was based on a specific formula. we put forth what that amount was. I think everyone knew because it was a pretty stripped down, simple business.

and the buyer just came in at just an egregiously low number using concepts that were explicitly prohibited by the purchase agreement and essentially dared us to sue them. And so my client, on the eve of going through neutral dispute resolution procedures, settled for a substantial discount from what they were entitled to.

Because they wanted to avoid the uncertainty and the cost and the grief of litigation, right? Litigation is expensive, it's uncertain, and it's stressful. So they took a massive haircut to what they really were owed. still phenomenally higher than what the buyer initially proposed. 

But 

took a massive haircut to avoid that.

And I think a lot of private equity firms are doing that. because, you know, a lot of sellers that are not Wall Street guys that have run a business for 30 years. They know most of them don't have the stomach to go sue a deep pocket [00:31:00] and spend a million bucks suing for the next two years, even though they're in the right.

And I think that's shameful. And so on the back end, to answer your question, I see that, unfortunately, a lot. I'm dealing with it right now. In another matter. On the front end, Preclosing that is, you know, I see it in the sense that buyers just are unwilling to negotiate, you know, we throw everything at them of, you know, this is what's market your, your, your concepts are wildly out of market.

and they just say, no, take it or leave it. and I, you know, I could tell the client until I'm blue in the face, you know, I think they're bluffing. I think if you walk, they're going to come to the table, but the client doesn't want to risk it. And so they swallow what are incredibly non market provisions because they're afraid of losing the deal.

Wow. 

[00:31:42] Engaging Advisors Early and Exit Planning

How far in advance should business owners engaged? I mean, a attorney, 

a year or two is great because what I like to do is really two different things. I like to do what I call corporate cleanup. A lot of closely held businesses. They don't have good records. There's not even a clear record of who owns the business.

I'm dealing with this right now on a deal. [00:32:00] There's a disparity between what the tax returns say the owners are through the K ones and what the org docs say. So I like to have time to do, you know, a corporate cleanup. Put the company on a silver platter, make sure stock rolls are correct, articles, bylaws, or whatever, or ducks there are, officers, directors, everything is clean on a silver platter.

That takes a while to do sometimes, right? If the company's super messy and I once did a deal where I was in a room for two weeks going back looking at stock certificates from the 1950s. And this was 10 years ago. So I was looking at 60 years worth of stock records to reconcile what was an incomprehensible cap table.

that can take a while. So that's number one. Number two, I like to get clients talking to investment bankers a year or two before quote, before a sale process, because if there are things that need to be changed in order to drastically increase either the value. Or drastically increase the chance of closing or both.

You often need time to do that. One such example is, you're internally [00:33:00] prepared or your compiled financials are a mess. Go get reviewed, at least financials for this year. Go get an audit, right? And then next year, on the basis of those reviews or that audit, and the new CPA firm getting familiar with your books, do a Q of E next year, right?

That takes time to do and put in place. Sometimes you can't just do it a month out from going to auction. And so if we talk a year or two in advance, it enables us to do that corporate cleanup. It enables us to talk with investment bankers and find out what we can be doing to best position the company when we do go to market.

And thirdly, there's, there's a state planning that can be done. That cannot be done immediately before a sale that can have great asset protection and great tax benefits. if it's done well before a sale. So for all three reasons, I ideally like to talk to a client a year or two before they want to sell.

but about a third of my deals are, you know, someone gets my name as a cell cytome and a specialist. They've got an LOI either on the table or they've signed an LOI thinking, Oh, it's non binding and we swoop in and we get it done and [00:34:00] it's fine. It just might not be done as well as it could have been done or for as high a value as it could have been if we'd been talking a year or two earlier.

Yeah. I get that question for our services all the time. You know, when should I introduce you to my client? I say it's never too early. You know, if there's nothing to be done now, then there's no harm in a 30 minute, you know, zoom meeting or what have you. But it's certainly something to where, we get a disproportionate amount of calls from people who Haven't really done any planning, and I think there's a whole emerging field of exit planning as they call it, and the statistics from what I've seen from the Exit Planning Institute, they publish what they call is a business owner readiness survey, and they do it every year, and sometimes they do it by region, sometimes national, and you see the awareness among business owners who have at least thought about a plan to have a full complete plan in place.

is rising very steadily, which is good for the sellers, right? Because in my opinion, and I don't think I'm alone in [00:35:00] this, it is going to be very much a buyer's market in the very near future because the statistics are with boomers retiring as quickly as they are and the numbers that they are, I think that you're really going to have to be the best of the best to really sell.

At premium multiples because otherwise, you just, you know, I mean, I think 80 percent of businesses on biz by self do not sell. So I think you're going to need to have these affairs in order. We're in years past. Maybe you didn't need to have these things in order and you still sold and made a lot of money.

You just got out of a feeding frenzy. But, I think that field is, is certainly much needed. And listen, you, this is it. the American dream to me is starting your own business and growing it and making into something that's a saleable enterprise. And so I want to see that happen and I don't care who you are, if you put the time and energy in, I want to see you be able to bear, the fruits of that.

[00:35:50] Managing Employee Communication During M&A

So, one thing I kind of wanted to hone in on, and, this is something that I deal with more and more is dealing with key employees and management during the sale process. [00:36:00] And I wish that I had, sort of the secret recipe to that for any particular business. But I think every business is just so different in terms of the tapestry that it's made up of.

I'm just curious as to, the conundrum is right, is that buyers Naturally, we'd want to speak to anyone and everyone that they could who are employees in the business, and if they could speak to all the vendors, they would do that, too, and the clients and all those, and just as naturally, the sellers don't want to allow any of that if they can afford to, and it doesn't affect their pocketbook.

So, I'm just curious as to if you ever have to get involved in that. maybe some of the ways in which you handle mitigating the risk of the because of the seller in particular, because I think some of the audience may know some may not in that deals are often conducted on a simultaneous closing with a buyer is 

Really not bound to the deal at all with the exception of the risk that they have in spending money and diligence costs, right? So they do have risk but nothing puts them on the hook with the seller with it Where if they [00:37:00] walk away from a deal even if things are damaged the seller gets anything out of it So it really puts the seller in that vulnerable position that you were kind of alluded to earlier I'm just kind of curious is what kind of philosophies you have there in regards to that, just a very wide open question.

So there's a few things. 

first on the front end, if I get engaged, you know, again, prior to LOI where we're, where I'm involved doing the NDA with that buyer. I put in the NDA that notwithstanding the covenant to, turn over diligence as requested in the basis of this NDA, that notwithstanding that concept, buyer recognizes that they are not allowed to reach out to our customers, our vendors, our employees without our prior written consent, acknowledging that that prior written consent will not come until the deal is much further down the road, right?

Cause the NDA is pre LOI. So pre a lot, you don't, you don't even know what, what's the buyer's going to offer. 

Yeah. 

So, so you don't want to disclose that. So that's one thing just to preview with the buyer. Hey, these things are off limits for now. Let's talk once we're, once the dance is a little further down the [00:38:00] board.

so that's number one. Number two. So, as you alluded to, you can do a sign, then close deal that gives a little more comfort, but usually a buyer will have a Mac out the material adverse change out so that even if they're theoretically bound, they have ways to wiggle out. And even if they don't have a legitimate basis to wiggle out.

To the point I made earlier about egregious earn out positions and put right options a buyer may just walk away and dare you to sue them Yeah, and and just dare you to sue a billion dollar fund over their breach, right? 

[00:38:31] Key Employee Communication in a Sale

So so even doing a sign then close it can give a seller some comfort, but it's not great So what I find helps is you go to your key employees because usually a buyer is not going to insist on talking to rank and files Until the week before closing when they send out, employment documents.

And in that instance for Rankin Files, I say no. Clients not comfortable with that, day of closing when all the documents are done and we're ready to close and the signature pages are exchanged, we're gonna hold a town hall meeting and [00:39:00] you're gonna get to introduce yourself to everyone and tell them they're being offered employment with the buying entity if it's an asset sale.

or that there's a change of ownership if it's a stock sale. And on Rankin Files that's your only exposure. And so if you do that Then what you're really talking about, what you've narrated to are just key people, right? Your management team. And so what I often see clients doing on the sell side is, we'll enter into a closing bonus agreement if they don't already have one.

So it says, we're going to tell you about this deal. All right. and if you keep that confidential and you don't go telling people in the break room about it, You furvishly work towards, helping us close this deal while juggling your full time job. You're going to get a bonus payout of exit closing.

And so it incentivizes them to essentially do two jobs for a while because they're going to be working on the deal. and managing their regular job. So if it's people who you need working on the deal, that's easy because you need them working on it. You need to tell them like your CFO or whatever.

And so you do a closing bonus so that if the deal closes, you pay them out at closing through [00:40:00] payroll. Even if you don't need them on the deal, but the buyer's going to want to talk to them sooner than later. You can do the same thing. You can say, here's a confidentiality and closing bonus agreement.

And so, you know, this buyer or this partner, if we're rolling over equity and we want to frame it, not as an outright sale. To keep sort of the nerves in check, this new partner wants to talk to you and here's an NDA and bonus agreement, you know, you keep quiet and respect those obligations, you're going to get a bonus of closing.

And so that's one way to control it on the employee side from, spreading and causing mass hysteria. But ultimately, like in many things in sell side M& A, I tell clients, you have to jump off the cliff. you have to just take the risk, right? you try to make sure that you go as far down the mountains, that the jump is as small as possible, but to some degree, just like disclosing any confidential information to a potential competitor.

At a certain point, you've got to mitigate the risk, but at a certain point, you got to jump off the cliff and take that risk. Otherwise you're not going to get a deal done. 

Yeah. You can't necessarily expect all the buyer to assume [00:41:00] all of that risk. And, I definitely see both sides of that. 

[00:41:03] Legal Risks in M&A Transactions

what are the biggest legal risks that sellers should watch out for in an M& A transaction?

You think this is all reps and warranties and indemnities and that kind of thing? 

Yeah, I mean, you know, the, my, my sort of passion in a, in a definitive agreement is What are the survival terms for reps and warranties? What are the caps and baskets for indemnity? What's the escrow trying to have no escrow if there's seller financing involved because they can always just offset against the note.

So those sort of things are near and dear to my heart because what I don't want to have happen is the client just, breezes through the reps and warranties the documents littered with inaccuracies that I don't know of because I don't know the business the way the client does. And then after closing, they get tagged for an identity claim and they have to cough up purchase price, right?

That's never fun. And if the client's working for the buyer after closing, it just creates acrimony. So in terms of legal issues, That's about as legal as it, as it gets is, is minimizing the chance of having a disgorge [00:42:00] purchase price after closing and maximizing the chance that if there is a third party indemnity claim that we have the ability to control the defense of that, because if the buyer controls the defense, usually one or two things are going to happen, they're going to say, you know what?

It's not our money. It's the seller's money. Pay them full freight. Don't negotiate it. Don't fight it and send the bill to the, to the seller. Right? So there's that moral hazard problem. Or if they do want to fight it for their own self interest, right? They'll hire their law firm at 1, 500 an hour and send you the bill.

So either way, there's a massive moral hazard problem. So I try to really dig in on what instances can the buyer take control of a third party claim after closing and try to keep that as limited as possible so that we control the claim as much as possible. 

 D

[00:42:42] Tax Implications of Asset vs. Stock Sales

o you get involved in implementing legal strategies to help minimize the tax burden on a sale? 

I'm privy to those conversations. 

 on the front end of the LOI, I'm looking if it's an asset sale or a stock sale because those two things, while getting you substantively to the same end result of selling your business. Can have [00:43:00] massively, massively different tax consequences, right? So, as the lawyer, I will raise that issue, but ultimately it's on the CPA to do the analysis to determine, and I just had this happen on Friday, what is the actual tax differential.

So right now, on Friday, I was negotiating a, 30 million dollar deal. And on a 30 million dollar deal, a, a stock sale resulted in a million and a half dollars less of tax than an asset sale. You know, that's a real number. That's a 5 percent of the deal in extra taxes, right? So, so then the question becomes, okay, well, if those are the tax profiles of the deal, what can we do?

We could insist if we have the leverage that the buyer buy stock rather than assets, right? We could do that, but most buyers don't want to buy stock because of assume liabilities. And, um, the fact that their tax profile is not as good, right? So most, most buyers won't do that. So then the question becomes, okay.

Buyer, you don't want to buy stock, but you're going to have a much better tax [00:44:00] position if you buy assets than stock because of your depreciation schedule. So let's split the difference and gross us up. If the enterprise value was 30, and this is the conversation I had, if the enterprise value is 30, in a stock sale, give us 32 in an asset sale or give us at least 31 so that we can offset those extra taxes and we split the difference.

Are you seeing more? Do you do more asset purchases than stock, if you had to say, or? 

I would say that in one off deals, where there's no investment banking process, I'd say the majority are asset deals, because in general, and this is, you know, kudos to your industry, we have much more leverage on the sell side when we have an investment banker there, for the reasons I raised earlier, right?

So in an auction process I'd say it's more commonly a stock deal because we have the leverage to insist that, right? We have a pool of buyers. 

And the investment banker says, this is going to be structured as a stock deal. And usually they can get the buyers to agree to that because we have the leverage, right?

Because they're competing with each other. So a buyer that says, no way I'm doing an asset deal there, they know their [00:45:00] bid is just not going to be looked at as favorably as one that complies with that request. Whereas in a one off deal, I would say the norm is definitely assets because their, their buyer has the leverage and they know it.

I find it interestingly enough that, More deals seem to be stock deals that I'm doing recently. And I know the default for a buyer is almost always asset, right? with some exceptions. But seeing more and more gravitate towards the stock. And largely because of contracts in place with either vendors or customers where change of control language applies.

And it's usually sometimes it doesn't even exist at all. And there's no, you know, notice requirement there, whereas, you know, assignment language is almost always, you know, and it is much more, cumbersome to follow through with. if you have a construction base, we've done a lot of subcontractors and you've got permits outstanding and you know, you've got, contractor agreements out there and MSAs and stuff like that to where to sign those is just a total nightmare.

So they just end [00:46:00] up going the stock route. And obviously I think that you tend to have a more robust purchase and sale agreement, Because you have to, you know, the buyer is going to require more. Protection against, you know, liability and things like that. And so, I'm kind of switching gears a little bit, for you here.

[00:46:16] The Impact of AI on Legal Work

But, do you see a I changing your business or my business much? Yeah. 

I mean, I haven't thought before this, for that question about how it's going to change your industry. But I think, you know, technology generally, and AI is the latest iteration of technology changes every industry.

And so what I'm seeing already is, I'll give you two examples. So 15 years ago, when I first moved down here from Boston and I was an associate doing SIG pages, right? The way you close the deal was you sent out a PDF. With all the SIG pages. And then you manually went around a closing table with 50 documents that collectively effectuated closing, right?

And you're slip sheeting signature pages in these documents. And then as the documents [00:47:00] change, you're removing the body of the documents and you're putting in the updated versions. So that come closing, everything's ready to go, okay? I did a deal where that process is basically all I did for a week, sitting in a conference room, just me and 50 different documents spread out around the table, manually inserting pages up till four o'clock in the morning, the day before closing, assembling all that, scanning it, getting it in.

So we were ready to go when the wires were going to go. Now we have a program that does that with one click of a button. So those 30 hours that I spent that, that week gearing up for that closing. Those hours are gone, right? It's now one click of a button. so I'll give you an example now, a more updated version.

 A big piece of what we do is reviewing documents and redlining them and then analyzing them and strategizing with the client, right? That is, that is probably 70 percent of the hours we put into a deal. it goes into that process, right? Because you have in essence, typical deal, 300 pieces of paper, every one of which needs to be drafted, [00:48:00] analyzed, negotiated, revised, et cetera.

that's 70 percent of the person hours that goes into a deal. there are new technologies that are now using AI to analyze documents, compare them to what's market and making suggested red line edits. With the click of a button. Now, a client just sent me, we got an NDA back from the buyer, yesterday and the client, while they were waiting for me to look at it, sent me some AI programs analysis of those changes.

I mean, it was comical. The AI program made up sections that didn't even exist in the contract and then noted changes in sections where there were no changes. So it's in its infancy. But technology proceeds at such a lightning pace that even though it's at its infancy and virtually worthless now in a year, it's probably going to be quite valuable.

And in five years, it's going to be taking out as many hours from my industry as those SIG page programs took out from 15 years ago. That doesn't hurt me because I'm not doing [00:49:00] that sort of minutiae work anyway. That's what associates do because a client shouldn't be paying my rate to do that sort of work that isn't that sophisticated or difficult.

But the associates, who are doing that work at a much lower rate, those hours are disappearing. And that creates a challenge for my, profession because doing that work is how they learn. Right? Doing that work is how they learn. And so with those hours going away, we have to question. How are we still going to train our associates, right?

It's going to be a different process. It's going to be, I think, fewer associates, right? So I think associate jobs are going to shrink and how those associates that do get jobs at law firms learn is going to be different. it's going to be taking the AI produced thing and analyzing it and having that human element of judgment come over top of it.

so it's basically assisted work. So it's not eliminating the hours, it's drastically reducing them. And so therefore drastically reducing the number of associates needed to progress a deal. So let's say a deal would have previously required three associates for me to [00:50:00] do. Now get it done with one and some AI programs.

Wow. I'm still trying to figure out. I'm sure it will affect our business. I think that there's ways I'm excited about that. It will improve efficiencies for us, for sure. But I'm still trying to figure out, I feel like what we do in this, maybe this is total naivety or defense mechanism, but I feel like what we do is so, I guess personal, iterative, Every situation is so unique in terms of how we rerun a process.

But I am very much excited about, AI tools to help us essentially, coordinate and curate what it is that we do because there's just so much back and forth. I mean, imagine running a process and having 50 NDAs concurrently going on at one time. Everybody wants to redline them, right? When you're dealing with institutional buyers, they all want to know nobody does and just does that.

So I'm excited about that. I'm smart enough to know what I don't know that there could [00:51:00] be ways we could negatively affect us, but I still somewhat optimistic that what we do, You know, it'll hopefully make us better and yeah, I think 

it'll help you, more quickly identify buyers and what value ranges are rather than you doing your LBO model on your spreadsheet and then putting in your pitch book.

I think it'll help you do that at a lightning pace. but I think we're far away, though, not impossibly far away from A situation where it becomes virtually fully automated, where bids go out and computers talk to each other, just like redlining will eventually become just between computers and there'll be an attorney overseeing it and providing judgment for the client, but a lot of those hours will be done in an automated fashion.

I suspect perhaps in our professional lifetime, but certainly in the next generations, you'll see a lot of those processes automated with just you sort of overseeing how the bidding process is going. 

So still a human element, but just drastically shrunk. Yeah. Right, right. 

[00:51:56] FTC's Ban on Non-Competes

Um, you know, recently FTC had passed a ban on non [00:52:00] competes and employment agreements.

and I think there's a lot of misconception as to what's, what a non compete is versus a non solicited. I'm just curious as to, have you seen that applied? In the workplace and what you're doing and, you know, in the crosshairs. 

Yeah. I mean, it doesn't really affect us in m and a because it does not, that ruling does not affect, sell size, sale based non-competes.

Right? So right. Standard for a sale is a five year non-compete, right? That's untouched by this. This is about employment based, non-competes, not sale based non-competes. So those standard five, three to five, but it's almost always five, three to five year sale based non-competes. completely enforceable, and untouched by this ruling.

So in my world of M and A, not really seeing it as an issue. I have seen in my role as an outside GC to some clients. Clients either on the employer side being more skittish about, about this or on the employee side being more brazen and what they're willing to sign because they think, Oh, it's not enforceable.

Anyway, there are exceptions. It's being heard [00:53:00] through the courts. Who knows how it's going to come out. But like I said, in my world of M and a, it's really a non issue because that five year sale based on compete is, is largely what's governing. 

You know, I, I see, although I'm very pro business, I see a lot of ways where I feel like, we could be, better to our workers in this country.

And, you know, I've been subject to non compete in the past in various different degrees. And it's like, you, you, you're going to pay me for six months, but you want me not to compete for a year. And we're not talking about me soliciting your clients or your employees, right? Things that I wouldn't do regardless, but I just kind of curious to what your opinion is on that.

if that's a ban that you think is healthy and justified for people out there trying to make a living. 

Yeah. So look, I think with most laws, there are good intentions and there are good consequences and bad. So when you take an extreme example that I think was the impetus for this ruling where, you know, a Domino's delivery driver.

Was not allowed to go deliver for Pizza Hut after he left Domino's, right? That's rather absurd. [00:54:00] Keeping in mind that NDAs, you know, confidential information agreements are still enforceable. Non solicits of employees, non solicits of customers is still enforceable. I think where, as with most things in law, I think it's a balance of what are the pros versus the cons.

And trying to find that balance. is affected by or determined by what the exceptions are, right? so financial industry is carved out of that. executives are carved out of that, right? So as it works its way through the courts, I think much will depend on what are the legitimate exceptions to that.

Because for sure, right? Two ends of the spectrum. Should a dominoes delivery driver not be able to go work for Pizza Hut, right? I don't think so. should a CEO making 15 million a year not be able to go work for a direct competitor for a year after they leave? Yeah, I think that's, I think that's fair.

 so I think the balance of pros versus cons is really determined [00:55:00] by what is your group of exceptions versus who are you really trying to protect here. So I like it in concept. But I'm anxious to see where the courts come out in terms of what exceptions are legitimate and what, and maybe if the FTC revises it based on those rulings, which is what I suspect may happen, where, where the legislators and the policymakers try to find that right balance.

Yeah. Switching kind of gears one more time. 

[00:55:27] Advice for Aspiring M&A Lawyers

For anybody considering getting into your line of work as a career. You know, young aspiring attorney in law school, what would you say, just generally speaking, the pluses and minuses are what you do and maybe the type of person that would be a fit for it. And, and it wouldn't be, obviously there's a lot, 

yeah, well, yeah, I mean you got to keep you on your toes.

That's good. I like it. good question. So I know my answers for my job, but you don't want 

to hear those, you know, so I'm the head of my firm's, M and a group. So I have this conversation when we hire a new associate, I say. Here are Dave Black's keys to success as an M& [00:56:00] A associate. I say there's two buckets of things that you have to do if you want to be competent at your job.

And there's a third bucket of things that you should do if you want to be a superstar. number one is, you have to be technically excellent. We are nothing if we are not thorough. Okay, I mean, you know, I once read a case in law school where it was like, it was like a hundred year old contract.

So it was very Hard to read because it was scanned 500 times and the court, there was a dispute over whether a mark on the contract was a semi colon or a comma and whether it was a semi colon or a comma decided it one way or the other for the sides and it was a 45 million dispute.

So one side was winning or losing that 45 million dispute over whether it was a. So when I first started practicing law, this deal lawyer who's still my partner now told me what we do is like surgery and I thought that was rather pompous. But as I learned what we do for a living, he's right. It's the business version of surgery because if a comma versus [00:57:00] semicolon is going to make a 45 million difference one way or the other, that's the business version of surgery.

We have to be so precise. and obviously to our point earlier, AI is, is helping with that. Forms are helping with that. But, You still have to have that human element because no form document is perfect for a deal, right? so I say you have to be technically excellent. Both at, at being thorough, at being a good drafter, and being good with all this technology that we spend money on to be efficient and compete in the market, right?

So that, that's the first bucket. The second bucket is You have to work really hard. Our mantra at our firm is big deals never sleep. So we don't either. I very rarely, as you know, from deals we've done very rarely finished work before midnight. I take a good chunk out of the evenings to be with my kids, but I go back to work and basically work from like 8 p.

m. to midnight at least three or four nights a week because that is the pace of deals, right? Think about it. In a litigation, you might get to a point where there's nothing else to do. You've taken your depositions, you've done your interrogatories, there's nothing to do. [00:58:00] Until the hearing. And the court sets the hearing for two months from now.

And so you just can't force the court to advance the process, right? So you're just sitting around waiting. In a deal, unless you're in the nine figure territory and you have HSR approvals, in the eight figure territories, the only thing stopping your client from getting their money before the house burns down is how quickly the lawyers can work.

So they expect, rightfully so I think for the money they pay us, to work around the clock. So we're sending emails from like 6 a. m. to midnight every day until a deal closes, right? It's a rigorous life. It's a rigorous life. It's not for everyone. I don't mind it. I mind it sometimes. But taken as a whole, I love selling businesses.

And if that's the downside of my business, well then so be it. But you have to be prepared for that, right? Like, I tell, so the second bucket to my associates I say is like, If you think there's a, an eight to six job Monday to Friday, if you think you can ignore emails over the weekend, you're not going to last.

Deals move seven days a week. 365. I worked a part of my kid's first birthday. I worked part [00:59:00] of my wife's first mother's day. It's the nature of the job. You take the good with the bad, right? And there's a lot of good. So those are the two things you have to do. You have to be technically excellent and thorough and you have to work really hard.

 to just do a decent job. The third thing is, I say, you have to, and I'll get back to really your question of how does that fit a personality type. Um, the third thing is, you have to take ownership. Right. Again, to the point about deals progressing, you can't just send out an email and then forget about it until it comes back to you because it might get lost in spam and then the deal is not progressing.

Take ownership of what you're doing. If you don't hear back to something that you know should have been sort of responded to follow up, be a pain, advance the deal with urgency and take ownership as if this was your deal. This was your client. This was your business. And if you can do those things, you're going to be at least.

A B M& A lawyer, if not an A M& A lawyer. So to me, the personality profile is you don't mind working hard. You, you sort of have an, an [01:00:00] instinctual. Joy at being a perfectionist. But, but being able to cut back against that because after all, we built by the hour and clients maybe don't want perfect cause they don't wanna pay for perfect, but finding a good balance between sort of done right.

And perfect to meet the client's price point and expectation. at the upper level at the partner level, having good emotional intelligence. Because a lot of my job is understanding what's being said without it being said. Right? Looking at body language, looking at the leverage of the parties, and what their actions are really indicating, and developing a strategy based on what I see going on, even though it's non verbal.

so having good emotional intelligence, and being practical. I find a lot of lawyers are, by nature, very academic, and very risk averse. And I feel so bad for clients, like, they're paying a lot of money for what is, in essence, very academic, non practical advice. I give the example, like a lot of lawyers, if a client tells them, I'm going to go drive to the grocery store to get food because I'm hungry, a lawyer will say, well, you know, if you go drive to the grocery store, you could get hit by a bus, 

right?

That's technically true, but it's not very practical advice, right? [01:01:00] And it's not even because they're trying to see why they themselves, it's just because their mind is a very risk averse mindset. That's not very practical advice. So I find what has helped me propel my career much faster than I expected was, like I said, I'm a business guy.

Would have gone to business school had I not had an interest in politics. So I really think and act and talk like an entrepreneur, a business owner, but who looks at things through a legal lens. And I think that really helps distinguish me from other lawyers in the market and, and is, resulted in a lot of success that I didn't expect to have this early in my career.

That's a great way of putting it. I've always thought of you as a deal maker lawyer, somebody that's going to protect their clients as they should, but at the same time think with. My client wouldn't come to me about selling a business if they weren't interested in making a deal. Right?

Yeah. The deal has to work, but let's think about it in terms of how do we get to that side where we make the deal, but do so in such a way that we're not unrealistically creating unneeded roadblocks or those kinds of things. And so I think that's really valuable to bring to a [01:02:00] transaction. And, I think you, the way that you describe that in terms of the risk averse.

It makes a lot of sense. It's not a right or wrong thing. It's just maybe not the best advice for, for a client and especially one who wants to make a deal. So I love the way you put that. and, and just to kind of like dovetail on that too, is, is it something that you can do kind of from wherever? Like your job, you're not chained to a cubicle desk or, 

you know, 

I think that's a plus too.

Yeah, for sure. like I said, you take the good with the bad, right? I can go on vacation for two weeks and work from wherever I am and not miss a beat. I mean, during COVID, we moved to North Carolina for two months to get our kids out in the mountains when everything was closed here in Florida, even the parks.

I closed a 300 million deal from this house I rented in North Carolina. no one in my firm, let alone the client group, knew I was gone because, my job is on the phone and it's on a computer. closings don't happen in person anymore. I did one live closing in my life and it was in Boston 20 years ago.

So, yeah, I mean, everything is remote. I mean, there is a [01:03:00] benefit to being in person with your colleagues in training them, for sure, but it's not impossible. I mean, virtually everyone at my firm I work with on MNA, not other matters, but MNA. Is in my firm's Miami office. So even when I'm in the water office, like I was today, I'm kind of remote.

These would be my cop, my M and a crew. Right. And so we just, we make it work. We get, we get on teams. I go through red lines with them and I explained, they scroll through the document and I explained, and would it be more convenient if they were sitting next to me? Sure. But we make it work. So, but yeah, in terms of putting aside the internal dynamics, just doing deals with the external world.

As long as you're willing to play by the, the driver's, time zone, 

you can 

do it from anywhere in the world. 

Which I, I think it's a big positive. Totally. You know, and, and probably, I don't know, do you have to travel much? No. Yeah. So you don't have to travel and live your life out of a suitcase or an airport.

You can 

do it from wherever, you know, the mountains or Colorado, just as long as you're like, I don't mind picking up the phone or, having my laptop open. If I can do [01:04:00] it from wherever I want to, I mean, to me, that's a big positive. 

One of the reasons I don't so much mind working from, 8 to midnight during the week is because I'm standing at my desk in my home office and flip flops and a t shirt, right?

I'm not at the office till 10 o'clock missing my kids. I get to put my kids to bed. My eight year old still falls asleep on my chest, and then I go back to work downstairs, and I get my work done, if I want to take a break and go to my kitchen and have a full fridge of food, it's right there.

I'm not stuck in an office till nine, ten o'clock at night like I was in Boston. It's fundamentally different. 

Would I rather have the The attorney in suit and tie in the downtown office from eight to six, or the guy I can reach at any time that's going to provide the same quality service and reachable at almost any hour.

So, I mean, I know what my choice is. 

[01:04:41] Personal Insights and Recommendations

just kind of winding down, Dave, more about you personally, is there any books that you've found have been impactful for you as a person or? as a business career guy or, or either one. 

Yeah. So I'll start with the more boring one. I think first, you know, a lot of what, I mean, I haven't been in court since law school, I think I might've mentioned, 

I'm fully a deal guy. so, you [01:05:00] know, the language of business is financial statement, right? It's a financial statement. so there's a book, I don't remember the title. I think it's financial statements and valuations for The practical lawyer. I think it's something to that effect. that was really helpful in sort of understanding financial statements because when I was in undergrad, I took some financial economics courses, but by the time I was practicing law, I'd forgotten most of what I learned in those classes.

And in law school, it's so ridiculous. Like your corporations class, you think you're going to learn about different entity types and like the or doc nuances of each. Yeah. You're learning Delaware poison pill takeover. You're still studying case law. Yeah, Delaware case law of corporations, which like 2 percent of M& A lawyers in the country do that level of work, right?

Public company merger work. Yeah, so it's so impractical. So That book was immensely helpful in my practice So that's the only book that I've read that really helped Well anatomy of a deal also anatomy of a merger anatomy of a deal something like I think it's called anatomy of a [01:06:00] merger Is also very helpful.

I read like half of it and later in my career and realized like I already know this. I'm not reading the other half. So I put it down in terms of personal. I mean, I'm a huge dork and I love history. So, you know, Ben Franklin's biography, you know, I think Ben was the intellectual architect of the American experiment.

I mean, Washington and Jefferson get a lot of the credit, but if it was anyone's brainchild, it was more so Franklin's than anyone else. So reading his biography I find fascinating because it really underpinned his thinking on the evolution of the constitutional republic in which we get to live.

Harvest of Empire, I think is a really good book about, how America went from this, burgeoning little experiment to an empire. and it's really eye opening. It's not stuff they teach in most high school history classes. And then that used to be us, is a more modern book about how we've evolved over the last 40 years and both the benefits and the cons of that evolution and what we can do to sort of keep the benefits, but, mitigate the cons in this rapidly evolving world that we find [01:07:00] ourselves in.

So those are three off the 

top 

of my head. 

Well, I've known you for a while, the fact that you're a history nerd, I didn't know. So I'm glad to ask. Huge door. Huge history door. I've got a lot of friends like that. The older I get, the more I start reading into it too, so maybe I need to read something else.

Yeah, I got a whole 

library of dorky history books and presidential biographies, so come over anytime. 

I read, a book on Lewis and Clark's expedition, and I can't remember which one it was called, but that was kind of my foray into that space and really fascinating and just unfathomable what those guys went through.

Yeah. 

And then, like, at the very end of the book They're sleeping by the Missouri River. I think that's where they built the St. Louis Arch, right? Where they kind of ended their journey. You know, the gateway to the west. And they talked about how massive and plentiful the mosquitoes were. So much so that while they're sleeping they're wiping themselves in mud.

If you study history, it really gives you perspective on how blessed we are, right? A mere hundred years ago, you know, penicillin didn't exist, right? You could die from an eye infection. So, [01:08:00] like, we are, we are lucky.

We have our challenges. but I think studying history gives you both a perspective of how fortunate we are and it gives you a perspective on where we're headed, right? If you're not looking at where we are in isolation and you see it as the evolution of a multi generational process. It gives you a better understanding of the trajectory we're on and where we're headed.

And if you don't think that's a good trajectory, how you adjust for it. without real deep historical context, I find it much harder to assess where you are and where you're headed and how you might adjust for that trajectory. 

Well, the last one is, I don't know how much of a car guy you are, but we are at Rebel Motor Company, who we have this podcast who's graciously allowed us to be here.

is there a dream car that you would build that you'd. Pull off the rack if it was sitting here, 

you know, you'll like this because your family's history. I always joke I want a red Ferrari to my kids when my kids say that's not fair. I go life isn't fair I want a Ferrari. I don't drive a Ferrari right 

I mean, I like racing. I've always loved racing I love to go go karting with clients. I rent out the track and we do [01:09:00] that so if I had a car, I mean I'd love to Be able to like drive an F1 car or an Indy car. I know you're a fan of the Indy cars. but no, I love racing. So, the most robust race car I could drive would be exhilarating.

I am by far an adrenaline junkie. There's no question. That's what, that's, Deals is the professional version of adrenaline. Yeah, yeah. racing, rock climbing, scuba diving. That's where I get my private adrenaline fix. 

Hey, man, thanks for joining us as, as totally expected. You were great and so insightful and your words are, you articulate your thoughts and your words so well.

And, frankly, when we're doing deals together, like having you on, cause you make me look good. It's my pleasure, bud. Thanks, Dave. Thank you. Take care. Now, see, see how official we are here, Dave? 

Thanks, guys. 

 

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