right-sizing m&a documentation for smaller deals
TRANSCRIPT
Right-Sizing M&A Documentation for Smaller Deals: Distinguishing Relevant From Unnecessary Terms, Reducing CostsComparing ABA Long and Short Form Acquisition Agreements
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WEDNESDAY, NOVEMBER 3, 2021
Presenting a live 90-minute webinar with interactive Q&A
Ira L. Blank, Founder, The Enterprise Law Group, St. Louis
Sara K. Stock, Founder & Manager, Stock Legal, LLC, St. Louis
Sam Wallach, Attorney, Stock Legal, LLC, St. Louis
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RIGHT-SIZING M&A DOCUMENTATION FOR SMALLER DEALS
Moderator: Sara StockParticipants: Ira Blank and Sam Wallach
Wednesday, November 3, 202112 – 1:30 p.m. CST
About Ira BlankIra L. Blank is the co-founder of The Enterprise Law Group, LLC, where he works with business owners and leaders who want to run their business and develop and maintain a high-performing workforce without the disruption and cost of employment-related legal claims and investigations, and with the effects of unionization in check.
He has decades of experience as a management-side labor/employment law attorney and litigator and as an HR executive. Mr. Blank has participated in, and has represented buyers and sellers in, M&A deals. He has seen the deals that had a happy ending and the deals that didn’t.
About Sam WallachSam is a member of Stock Legal, LLC’s corporate department, with a focus on mergers & acquisitions, capital raises and general corporate law. Sam’s practice also involves designing and implement equity compensation plans.
Sam received his J.D. from the Saint Louis University School of Law and his B.A. from the University of Missouri.
Sam lives in St. Louis with his wife, Molly, and their daughters, Caroline and Audrey.
About Sara StockSara is CEO and founder of Stock Legal, which was established in 2017. Her dynamic practice focuses on general corporate work for businesses and commercial real estate transactions. Sara advises her clients in all aspects of the business lifecycle including entity formation, financing, general business matters, scaling via capital raise, contractual arrangements, corporate governance, and mergers and acquisitions. Sara also assists clients in acquiring, divesting, leasing, financing, and developing commercial real estate. Sara’s joint MBA and Juris Doctorate degrees uniquely position her to provide the highest quality legal advice seasoned with an exceptional foundation for understanding her clients’ business objectives.
Sara has contributed to the building and growth of other businesses and acted as a fractional COO. Sara is also the co-founder of Legal Back Office which assists small-to-medium-sized law firms, like Stock Legal, in leveraging the benefits of a professional back office to more efficiently achieve growth and success.
Sara is active in the American Bar Association’s Business Law Section where she serves as the vice-chair for the Middle-Market and Small Business Committee. Additionally, Sara sits on the YWCA Board of Directors, the St. Louis Children’s Hospital Development Board, the Gateway 180 Board of Directors, FOCUS St. Louis Board of Directors, and the St. Louis University School of Law Business, Entrepreneurship, and Tax Law Advisory Board.
Outline of Presentation
I. Concept – Right-Sizing the Deal Documents (Assume Asset Purchase)
II. Closing DeliverablesIII. Purchase Price AdjustmentIV. Condition of AssetsV. Employee Representation and WarrantiesVI. Restrictive CovenantsVII. Sampling of Workforce ConsiderationsVIII. The Seller’s Unionized WorkforceIX. Indemnification
Concept – Right-Sizing the Deal Documents
Why is this important?
Right-Sized Closing Deliverables
Seller’s Deliverables Buyer’s Deliverables
Copy of this Agreement Copy of this Agreement
Bill of Sale Purchase Price
Assignment and Assumption Assignment and Assumption
Good Standing and Tax Compliance Cert. Good Standing
Secretary Certificate• Copies of Organizational Documents• Copies of Resolutions• Names and signatures of authorized signatories
Secretary Certificate• Copies of Organizational Documents• Copies of Resolutions• Names and signatures of authorized signatories
Purchase Price Adjustment
What is a purchase price adjustment? What is working capital? Why do you need a purchase price adjustment? When do you use a purchase price adjustment? Short Form – Target Working Capital Adjustment
Condition of Assets
Consolidation is King!
Important to Consider:– Accounts Receivable– Inventory– Equipment– Intellectual Property– Real Property– No Change; Sufficiency of Assets
Employee Representation and Warranties Employment agreements
Compensation structure, commission plans, bonus plans, other incentives
Deferred compensation, profit-sharing, 401(k)
Pension or retirement plans (whether and to what extent funded)
Other employee benefit plans
Vacation pay accrual
Key employees, including total compensation and plans to leave; change in control; golden parachutes
Employees with post-employment activities agreements (non-compete, no solicitation of customers, no solicitation of employees, trace secret protection)
Collective bargaining agreements, including participation in multi-employer pension plan (including potential withdrawal liability in the case of a plan with unfunded vested liabilities); union organizing activities
Restrictive Covenants Seller agreement not to compete
– Scope, including activities, “competing business”– Duration
Confidentiality provision No solicitation of customers, employees, other business relationships Reasonableness in connection with sale of a business is generally broader than that of
employee post-employment restrictive agreements Choice of law issues Drafting tips Tax treatment
A Sampling of Workforce ConsiderationsKey employee flight risk – a provision in the APA or SPA that no key employee, executive, member of senior management has informed seller of intent to terminate employment and that seller has no knowledge of any such plan to terminate employment, may only be worth so much.
As the buyer, what do you know about each key employee? How critical is that individual? Have you analyzed the factors that suggest that the individual is or is not likely to leave? If the individual has a non-compete agreement with the seller, have you analyzed its
enforceability and whether you as the buyer can enforce it? Do you have enough information specific to the individual to assess likelihood of success in enforcement?
Do you have a plan, which may include incentives, for retaining the individual?
The Seller’s Unionized Workforce As the buyer, do you want to retain the seller’s unionized employees? Do you want the
flexibility to decide which of those employees to retain and which ones no to?
Do you want to accept or reject the collective bargaining agreement (CBA)?
Do you want to set new or different terms and conditions of employment, including wage rates?
Does the CBA require the employer to make contributions to a multi-employer pension plan (MPP)? If so, does the MPP have unfunded vested benefits? Will the buy-sell trigger withdrawal liability under the Multiemployer Pension Plan Amendments Act? Do you have an estimate of the amount of the seller’s withdrawal liability? Will a claim by the MPP for withdrawal liability be made against the seller, the buyer, or both?
Whether the buy-sell is an asset purchase or a stock purchase makes a big difference.
Indemnification
The Cap– Average cap for non-fundamental reps around 5%-10% of the
purchase price– Small purchase priced deals may not even cover attorney fees– The smaller the purchase price, the more leeway for a higher cap
Fundamental Representations– Which representations are truly “fundamental” to the deal?– Example: IP representations may be fundamental to a software
company
May make sense to look to the long-form APA for more expansive and comprehensive language
CLOSING REMARKS AND QUESTIONS
Contact Information
Ira L. Blank
Sara K. Stock
Sam Wallach