Here’s The Deal

Subtitle: Everything you wish a lawyer would tell you about buying a small business.

The subtitle pretty much nails it. Whether you are a business buyer, seller or broker, you owe it to yourself to gain the perspective an experienced business lawyer can bring to the process. The book is chock-full of examples of what can go wrong if you decide to save a few dollars and wing it on your own. At the same time, Joel Ankney is very pragmatic, pointing out many issues that simply aren’t worth haggling over if your objective is to buy the business instead of torpedoing every deal you’re in. (It can also be a bit scary for a seller in realizing all the ways a buyer can create havoc if they feel like it and their own business lawyer isn’t up to it.)

It’s a sizable book, about 270 Kindle pages. The bulk of it is devoted to walking through a typical Purchase Agreement, first explaining the clauses and then pointing out the pitfalls and opportunities in each one.

One of the key points to understand is the difference between an equity sale (buying the business outright by taking over the ownership share) and an asset sale, which is not just a bankruptcy liquidation as many expect but rather a mans of transferring all the assets, including intangibles such as  “goodwill” and customer lists, to a company you own.  The point here is liability for past events and future discovered latent issues, and here I wish the book had gone into even more depth.

The author is so opposed to a buyer doing this that he gives it pretty short shrift, but there are several situations in which that’s not possible or preferable. Examples include when you’re buying a company with desirable government contracts (very common in Virginia) or with licenses that are not transferable, such as medical and elder-care facilities (also very popular right now). He does not say this, but (while conceding that I am not an lawyer and highly likely to be wrong since common sense and the law are not always aligned) it stands to reason that but I believe, that any sort of employee deals (e.g. key people, education retention, non-competes, etc.) would also be off the table if the prior company with which they signed their agreement disappeared in an asset sale; they would have no obligation to the new company and its owner.

Another key point is the non-viability of “agree to agree later”  clauses, at least in Virginia.

One area that deserves comment is the strong preference Ankney gives to using a Letter of Intent (LOI) instead of a Purchase Agreement. Of course the buyer would like that, as they are committed to nothing at all, while requiring the seller to do a lot of work and expose a lot of proprietary or competition-sensitive information. In Transworld’s experience, this approach may be more appropriate for larger purchases in the $3 million+ range, but is unreasonable to expect for a smaller deal.

Ankney has also had some bad experiences with business brokers. As with every profession, there are some snake-oil salesmen out there. That is a superficial basis for critiquing the entire role. I would agree that if a seller and a willing buyer have already found one another, then the broker’s basic task is complete.  Assuming they are competent as a “business intermediary”, the broker can still play a critical role in keeping everything at arms’ length to avoid the inevitable spats that occur over 6 months and often spiral out of control if there is no intervening party, and to keep the ball rolling so that inertia does not set in while the principals are both busy conducting their daily businesses.

Again, a book that all parties to a business deal should read.

Amazon link: https://www.amazon.com/Heres-Deal-Everything-Lawyer-Business-ebook/dp/B01N810N0T