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Things That Cost More in the Long-Run

 
John Kielich, Managing Director of Kolb+Co. M&A Advisers   email | bio
LeAnne Foster, Senior Associate for Kolb+Co. M&A Advisers   email
June 2010

Have you ever thought that dodging your attorney's phone calls would save you money? Yes, it puts off the fees, but how much money do you really end up saving?

We were recently involved in a transaction where the seller waited until the very end of the process (after the first draft of the deal documents) to get advisers involved, and unfortunately all parties involved experienced the consequences of that decision.

To set the stage, Kolb+Co. M&A Advisers were engaged very early on in the process by the buyer to assist throughout the transaction. We were active in the due diligence, valuation, structuring, financing, and ultimately the preparation and negotiation of an indication of interest. After the presentation of the original indication of interest there were further discussions held, and we had a deal. We, including our client, were operating under the assumption that the seller was utilizing his team of advisers. Thinking the deal was "done," our client hired a very qualified legal team to complete the transaction documents.

Now, well into the transaction process, the seller confided that he had been dodging his attorney's phone calls. He knew the services of his attorney were essential and needed his expertise for the transaction to take place, but the seller was trying to "defer" fees as long as possible. Unfortunately, no matter how good an attorney is, he still needs information from his client before he can take action and give advice.

The seller eventually did return his attorney's call and actively engaged his legal team. At this point things started to get interesting. A number of issues that we thought had been agreed upon were suddenly being re-opened by the legal advisers including issues regarding the bank financing that our client was trying to obtain. We now needed to go back to the bank in order to see what changes could be made while still obtaining the required financing. This took time and cost our client additional fees.

The good news is we, once again, got to the point where we thought we had a deal. We had the documents agreed upon, but the seller could not produce the schedules required by the Asset Purchase Agreement to close on the date of signing. Why? It turns out he had not talked to his accountant, another essential part of the process. Now, once again, we had to wait for information. The day before the money was to exchange hands, the schedules arrived along with a call from the seller's attorney who hadn't been involved in the initial discussions. Sadly, the information presented in the schedule was very different from what was previously presented in the financial statements. So again, there was no closing, and more time and more fees were incurred.

Moral of the story: If you are a buyer or a seller, get the very best team you can in place as you start the process. Buying or selling a business will probably be the largest financial transaction you will ever be involved with, and you will be well served to spend a little extra to have a great team supporting you from the very beginning. The missteps taken by the seller in this situation cost him as much or more than the fees he would have paid by involving the needed advisers from the beginning.

Introduce your advisory team to each other as early as possible in the process. Exchange email information; it is a great tool for keeping everyone involved in the transaction process abreast of the latest developments. Also, be sure to establish and communicate your expectations of the team. Are you comfortable with your advisers talking with each other, or do you want to be involved in every conversation?

In comparison, we recently completed a deal in which both the buyer and seller had great teams from the beginning. Every 'i' was dotted and every 't' was crossed. The advisers were asking each other if any possible stone was left unturned. This deal closed without a hitch, because the experts addressed and resolved all needed issues.

As for an ending to the first story, we are pleased to report a happy ending, but it came with a financial cost and many unnecessary delays. Which pair of shoes would you rather be in?