11 Lessons We Learned About Protecting Assets and Risks in M&A by Interviewing Joe Prencipe. E102
Here is what my team and I learned from this interview: (These are notes from team members, writers, sometimes AI, and even listeners who submitted what i learned loosely edited and shared here) - If it seems a bit crude, you're reading our notes, so. yeah. -Ron
Concept 1: Know The Risks of M&A
When it comes to mergers and acquisitions (M&A), it is essential to understand the risks involved. M&A can be a great way to expand a business, but it can also be very risky. Knowing the potential pitfalls and understanding how to avoid them is key to success in the M&A process.
Joe Principi, an M&A attorney, has seen firsthand the risks involved in M&A. He began his career at a top international M&A law firm, where he worked on transactions of $100 million or more. He then went on to work in-house at tech businesses, and eventually built and ran his own businesses. Through this experience, he has seen the importance of understanding the risks of M&A.
One of the biggest risks in M&A is the potential for a deal to go bad. Even in smaller deals, people can lose their money if they do not pay attention to the details. Joe recommends being aware of the potential pitfalls and understanding the terms of the deal. He also suggests working with experienced professionals who can help to identify any potential risks.
Another risk in M&A is the potential for unexpected costs. These costs can include taxes, legal fees, and other costs associated with the transaction. It is important to understand the full cost of the transaction before proceeding.
Finally, it is important to understand the legal implications of M&A. Different countries have different laws and regulations regarding M&A, and it is important to understand these laws and regulations before proceeding. Working with an experienced attorney can help to ensure that the transaction is in compliance with the law.
Overall, M&A can be a great way to expand a business, but it is important to understand the risks involved. Knowing the potential pitfalls and understanding how to avoid them is key to success in the M&A process. Working with experienced professionals can help to identify and mitigate any potential risks.
Concept 2: Talk To An Attorney Early
One of the most important steps in the M&A process is to talk to an attorney early. An attorney can help to identify any potential legal issues that may arise during the process. For example, an attorney can help to identify any potential contractual issues that could arise, such as indemnification clauses or representations and warranties. Additionally, an attorney can help to negotiate and draft the necessary documents to ensure that the deal is legally sound.
It is important to talk to an attorney early in the process, as they can help to ensure that all parties are protected. For example, an attorney can help to draft an earn-out clause that outlines the terms of the purchase and sale agreement. This clause can help to protect the buyer in the event that the seller does not meet their obligations. Additionally, an attorney can help to negotiate the terms of the agreement and ensure that all parties are in agreement.
It is also important to have an attorney involved in any deal that is over $500,000. While smaller deals may not require an attorney, it is important to understand the risks involved and ensure that all parties are protected. An attorney can help to identify any potential issues that may arise and ensure that the deal is legally sound.
Concept 3: Ask The Right Questions
However, it is not enough to just talk to an attorney. It is important to ask the right questions. Asking the right questions can help to ensure that all parties are on the same page and that the deal is legally sound. For example, a seller should ask their attorney what they should be looking for in a potential buyer, what reasons other people have failed at selling their business, and what documents are necessary for the deal. Asking the right questions can help to ensure that the deal is successful.
The same principle applies to other areas of life. Asking the right questions can help to ensure that a person gets the information and advice that they need. For example, when researching a medical condition, it is important to ask the right questions to ensure that a person gets the best advice from their doctor. Additionally, when researching a topic, it is important to ask the right questions to ensure that a person gets accurate information.
In conclusion, it is important to ask the right questions. Asking the right questions can help to ensure that a person gets the most accurate and helpful advice. This is especially true when it comes to M&A deals, as asking the right questions can help to ensure that all parties are on the same page and that the deal is legally sound.
Concept 4: Keep Transactions Simple
When it comes to M&A deals, it is important to keep transactions simple. Complex transactions can lead to increased legal fees and can also be difficult to understand. Complexity can also lead to confusion, which can lead to costly mistakes. Keeping transactions simple can help to ensure that all parties are on the same page and that the deal is legally sound.
It is also important to be aware of the general prices for M&A deals. A million to ten million dollar deal will typically cost between fifteen to thirty-five thousand dollars. It is also important to be aware of the documents that are required for the deal, and to make sure that they are of the highest quality. Using a reputable source such as SEC Edgar can help to ensure that the documents are of the highest quality.
In addition, it is important to develop a “BS Meter” when it comes to M&A deals. Being able to recognize when something is not right can help to ensure that the deal is legally sound and that all parties are on the same page.
Overall, keeping transactions simple is important when it comes to M&A deals. Complex transactions can lead to increased legal fees and can also be difficult to understand. Being aware of the general prices for M&A deals and developing a “BS Meter” can also help to ensure that the deal is legally sound and that all parties are on the same page.
Concept 5: Hire Experienced M&A Attorneys
When it comes to M&A deals, it is important to hire experienced attorneys. While a general business attorney may be able to handle some of the legal aspects of a deal, they may not have the expertise needed to handle the complexities of an M&A transaction. Therefore, it is important to look for attorneys with an M&A background and experience.
When searching for an M&A attorney, it is important to ask the right questions. One should ask what kind of deals the attorney has worked on, the size of the deals, and the firms they have been associated with. Checking the rankings of the firms the attorney has been associated with can also be beneficial. Additionally, it is important to look for attorneys who have experience with deals that are of similar size and scope to the one at hand.
Overall, it is important to take the time to find the right M&A attorney. Experienced attorneys can help to ensure that the deal is legally sound and that all parties are on the same page. Taking the time to ask the right questions and checking the rankings of the firms the attorney has been associated with can help to ensure that the right attorney is hired for the job.
Concept 6: Hire an M&A Attorney, Not Just Any Attorney
When it comes to M&A deals, it is important to hire an attorney that specializes in this area. Many small business owners make the mistake of using a family attorney they have used in the past or an attorney who helped set up the LLC. However, this is not the right approach. M&A attorneys are specifically trained to handle these types of transactions and understand the language used in these deals. They are also familiar with the laws and regulations associated with M&A transactions.
It is also important to hire an attorney from a reputable firm. Attorneys from New York, Los Angeles, and San Francisco are often the most experienced and knowledgeable in the M&A field. It is also important to ask the attorney how much of their practice is dedicated to M&A. If the answer is less than 10%, it may be wise to look for an attorney with more experience in this field.
Signing documents without having them reviewed by an attorney is also a mistake. The documents provided by the seller’s broker are often not in the buyer’s best interest and should be reviewed by an experienced attorney. It is important to remember that the broker is not aligned with the buyer’s interests and should not be expected to provide legal advice.
In conclusion, it is important to take the time to find the right M&A attorney. Experienced attorneys can help to ensure that the deal is legally sound and that all parties are on the same page. Taking the time to ask the right questions and checking the rankings of the firms the attorney has been associated with can help to ensure that the right attorney is hired for the job.
Concept 7: Protect Your Interests First
When it comes to M&A transactions, it is essential to protect your interests first. It is important to understand that the other party in the transaction is looking out for their interests and not yours. It is also important to understand that the other party may try to pressure you into signing documents without fully understanding the implications.
In the podcast transcript, we can see an example of this pressure. The broker was trying to get the client to sign closing documents without fully understanding the risks and implications of doing so. The attorney, however, was able to protect the client by refusing to sign the documents until they were revised to include provisions that would protect the buyer.
The attorney also gave the client good advice, which was to not follow the advice of the other side and to instead follow the advice of their counsel. This advice is important to remember when engaging in any M&A transaction. It is important to remember that the other party is looking out for their own interests and not yours.
It is also important to remember that when engaging in any M&A transaction, it is important to take the time to review all documents thoroughly. An experienced attorney can help to ensure that all documents are legally sound and that all parties are on the same page. They can also help to identify any potential risks or issues that may arise from the transaction.
In conclusion, it is important to remember to protect your interests first when engaging in an M&A transaction. It is important to understand that the other party is looking out for their interests and not yours. It is also important to take the time to review all documents thoroughly and to hire an experienced attorney to help ensure that the transaction is legally sound and that all parties are on the same page.
Concept 8: Protect Yourself With Contracts
Contracts are essential when it comes to protecting yourself during an M&A transaction. Contracts should be reviewed carefully to ensure that all parties are protected and that all assets are listed. Additionally, it is important to ensure that all state laws are taken into consideration and that any waivers are done properly. It is also important to ensure that all parties are aware of any risks associated with the transaction and that all parties are aware of any potential consequences.
When entering into an M&A transaction, it is important to remember that contracts are there to protect you. It is essential to take the time to review all documents thoroughly and to make sure that all parties are aware of any potential risks and consequences. Additionally, it is important to make sure that all state laws are taken into consideration and that all waivers are done properly. By taking the time to properly review all documents and to ensure that all parties are aware of any potential risks and consequences, you can protect yourself and ensure that the transaction is legally sound.
One important element to include in any contract is a set-off provision. A set-off provision is a clause that allows one party to reduce or offset the amount of money they owe to another party if liabilities arise. This can be especially important in a seller note, as it allows the buyer to reduce the amount of money they owe to the seller if liabilities arise. For example, if the buyer discovers that the assets they purchased are not in working order, they can use the set-off provision to reduce their payment to the seller.
It is also important to make sure that the language in the contract is clear and concise. If the language is not worded correctly, it could lead to confusion and potential disputes. This can be especially true in consumer protection cases, where the wording of the contract can be the difference between a successful transaction and a failed one. As an example, one investor was bragging about his contract and said that it waived the right for foreclosure. Unfortunately, when he went to court, the judge asked who the heck wrote it and the investor was unable to enforce the contract.
In conclusion, it is essential to protect yourself with contracts when entering into a M&A transaction. By taking the time to review all documents thoroughly, making sure that all parties are aware of any potential risks and consequences, and including a set-off provision in the contract, you can ensure that the transaction is legally sound and that all parties are protected. Additionally, it is important to make sure that the language in the contract is clear and concise, as any confusion or disputes could lead to costly and time-consuming legal proceedings.
Concept 9: Follow SEC Rules For Fundraising
When it comes to fundraising, it is important to follow the rules set forth by the Securities and Exchange Commission (SEC). The SEC is the primary regulator of securities markets in the United States, and it is responsible for enforcing securities laws and protecting investors. In order to raise money from the public, companies must register with the SEC and comply with the rules and regulations set forth in the Securities Act of 1933, as amended.
When raising money from the public, companies must provide investors with information about the company and the securities being offered. This includes information such as the company's business plan, financial statements, and risk factors. Companies must also disclose any material information that could affect the value of the securities being offered. Additionally, companies must comply with the SEC's rules regarding the sale of securities, such as the prohibition of fraud and the disclosure of material information.
Companies that are raising money must also be aware of the SEC's rules regarding private placements. Private placements are sales of securities to a limited number of investors, usually with a minimum investment amount. Companies that are engaging in private placements must comply with the SEC's rules regarding the sale of securities, such as the prohibition of fraud and the disclosure of material information. Additionally, companies must provide potential investors with a private placement memorandum, which contains detailed information about the company, the securities being offered, and the risks associated with investing in the securities.
When raising money from the public, it is important to follow all of the SEC's rules and regulations. By doing so, companies can ensure that their fundraising efforts are compliant with the law and that investors are being provided with the information they need to make informed decisions. Additionally, following the SEC's rules can help to protect companies from potential legal liability and ensure that their fundraising efforts are successful.
Concept 10: Follow SEC Rules For Fundraising.
The SEC has two main rules that must be followed when fundraising from the public. The first is a general solicitation rule, which requires companies to satisfy a certain 506C exemption from registration. This means that companies must file certain documents with the SEC, such as a form and some information, in order to be legally allowed to raise funds. The second rule is the 506B exemption, which allows companies to raise funds from up to 35 non-accredited investors, also known as sophisticated investors. Companies must also meet certain criteria when complying with this exemption, such as having a net worth of at least $1 million, excluding their home property, and having an income of at least $200,000 or $300,000 in the past two consecutive years.
It is important to note that if a company is raising funds from accredited investors, they must comply with the 506C exemption. This means that they are not allowed to accept funds from non-accredited investors, as this could result in the company breaking securities laws and potentially facing legal liability.
Overall, it is essential for companies to ensure that they are following the SEC's rules and regulations when fundraising from the public. By doing so, companies can protect themselves from potential legal liability and ensure that their fundraising efforts are successful. Additionally, following the SEC's rules can help to ensure that investors are being provided with the information they need to make informed decisions.
Concept 11: Verify Accredited Investors' Documents
Verifying accredited investors' documents is an important part of the fundraising process. Companies are required to provide accurate financial disclosures and other information to potential investors. Additionally, companies must also verify the accredited status of potential investors by obtaining documents that prove they are accredited. This process can include obtaining documents such as tax returns, bank statements, and other financial documents. Companies must also provide investors with an accredited investor questionnaire to complete.
Once all of the necessary documents have been obtained, companies must then file a Form D with the SEC. This form is used to inform the SEC that the company is relying on the exemption from registration. Additionally, companies must also file the same form or related form in each state in which they are raising funds. This is known as the Blue Sky Laws.
Finally, it is important for companies to have an attorney who specializes in securities law to file the forms for them. Filing the forms incorrectly can lead to serious legal consequences. Companies should always consult with an attorney before engaging in any fundraising activities.
Overall, verifying accredited investors' documents is an important part of the fundraising process. Companies must ensure that they are following the SEC's rules and regulations and filing the necessary forms in order to protect themselves from legal liability. Additionally, companies should always consult with an attorney to ensure that all of the necessary paperwork is properly filed. By taking these steps, companies can ensure that their fundraising efforts are successful.
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