6 Tips for a Better M&A Contract
Joel Espelien
Very relevant, Jim. In addition to these 10, there are a few more general topics to consider. We start with Marc O'Brien in Silicon Valley, on choosing M&A counsel.
Marc O’Brien
As an entrepreneur, you've only got one company to sell, so it's critical that the advisors and professionals that form your team are experienced and up to the task. M&A is not for the faint of heart and not an area you want people learning on the job. When it comes to your attorney you need someone who closes technology acquisitions day in and day out, that knows all the tricks of the trade. Geographic proximity is less important these days than you think. Many deals are done under Delaware law and rely on national standards and customs. The ability to look outside your local community, if no one fits the bill that you are looking for.
Joel Espelien
Thanks, Marc, couldn't agree more. Next, we go to Martin Lowrie in Boston.
Martin Lowrie
Address the issues, don't avoid conflict even though it's a natural human behavior. Most people are conflict avoiders. Good deal makers, though seek out conflict, finding the issues where the seller and buyer are clearly going to be at odds. And dealing with them before they cause problems. If you end up with a bad contract, it may just be sloppy work. But often the bad contract is the result of avoiding what should have been a good negotiation.
Joel Espelien
Good advice, Martin. Next, some thoughts from Serge Jonnaert in Southern California.
Serge Jonnaert
Related to what Martin just discussed, don't let the issues die with the lawyers. As the CEO, you need to manage the lawyers, they work for you. Their job is to inform you of the risks so that you can make informed decisions. But you still make the business decisions, and you still, as CEO, carry all the risks.
The lawyers only negotiate and reach out various legal and technical points, but for sure they will get to business issues that they are not authorized to compromise on. This could create an impasse, resulting in weeks of possible, costly, and stalemate negotiations. Instead, just ask them to create a list of open business issues, escalate them to you and your advisor, and then structure a negotiations framework where which those issues can be resolved.
Joel Espelien
Great advice, Serge. And now back over to Europe for Julius Telaranta in Berlin. Julius?
Julius Telaranta
Keep it organized, a blocked obligation of work during due diligence. Questions on the due diligence list will require a response. Many of those same questions will pop up again as reps and warranties in the contract, again requiring at least study. Then, they will pop up a third time, because those are going to disclosure schedules. In other words, as you go through this initial diligence response, don't just dump data on the buyer and consider it done. Keep all your relevant information organized and cataloged in a virtual data room. It will save time and money.
Joel Espelien
Organization is definitely key. Next, we have Steve Jones in Salt Lake City, Steve?
Steve Jones
When the purchase agreement or the contract is signed, the deal isn't done, as we've said before. It isn't done until it closes. Usually, there are contingencies that have to be satisfied after the signing but before the closing. These are the loose ends. Like a contingency based on code review ensuring that any third party products that are open source code, is accounted for. It is possible to have a simultaneous signing and closing. That's certainly ideal, but not common. As the seller, your goal is to have no contingencies, so don't let these drag on, or your deal can be delayed significantly, raising the possibility that it never closes.
Joel Espelien
Thanks, Steve. And finally, today, let's head down to Texas and hear from Allan Wilson in Austin, Allan?
Allan Wilson
As mentioned earlier there may be family members, dissident stakeholders, key employees and the like, that have a stake in the game. If they are not properly satisfied it can delay or kill the deal. I had one closing, for example, where the venture investor was Monday morning quota banking everything, creating a lot of stress for all parties involved. You know the type. We finally had to deal with him, otherwise, the buyer may have walked. Who needs that grief? In another case with a very loyal employee, we needed to be part of the deal with something special, as they'd never been a stakeholder.
Joel Espelien
Solid advice, Allan. As you can see, definitive agreements contain many traps for the unwary. Be careful out there. Back to you, Tim.
Timothy Goddard
Thank you, Joe. And we are right at our half hour mark, so we'll follow up with the questions that have come in by email. Feel free to send those in as we close things out. Now we will go to our close. Thank you very much.
This is a segment from Tech M&A Monthly: Best Practices for Definitive Agreements in Tech M&A (August) webcast. For more information, please visit Corum Group's Software M&A Webcast Archive.