By Norman D. Kallen, Partner and Co-Chair of the Commercial Transactions Practice
To create a successful exit strategy via mergers and acquisitions, a collaborative alliance among legal advisors, investment bankers, and tax professionals is vital. These advisors, together with the principals of the target company, create the four legs of a stool that comprise the essential elements of an M&A transaction. This article will briefly elaborate on the distinct and indispensable roles played by each professional group, underscoring how their collective and coordinated efforts form a comprehensive approach to navigating the intricate challenges inherent in M&A transactions.
Investment bankers assume a pivotal role in shaping the financial contours of an M&A transaction. Their expertise in deal structuring and financial analysis are instrumental in maximizing the value derived from the sale. They (should) bring a deep understanding of a company’s financials, industry dynamics, and market trends. They create the strategic approach necessary to align the objectives of both buyers and sellers. Beyond financial engineering, they act as negotiators and intermediaries, managing relationships, facilitating negotiations, and ensuring mutually beneficial deal terms. It is exceptionally difficult for sellers to negotiate their own transaction. As a result, the investment banker’s strategic guidance, rooted in analysis of market conditions, valuation strategies, and potential synergies, contributes to a robust and tailored sale strategy. Collaboration with legal advisors ensures a complete approach addressing both financial and legal considerations.
Legal advisors, particularly those with specialized M&A experience, provide a crucial influence in shaping the framework of a company sale transaction. Their expertise spans a comprehensive understanding of regulations including antitrust, securities, and corporate governance, ensuring compliance throughout the transaction. Moreover, attorneys understand and are tasked with handling the legal aspects of due diligence. They conduct thorough reviews to identify potential legal risks, and ensure the buyer comprehensively understands the target company’s legal standing. Most importantly, they are essential in proactively working with the seller, prior to closing and throughout the M&A process, in attempting to minimize those risk elements that will impact the seller’s enterprise value. M&A attorneys adroitly navigate the delicate processes of crafting and negotiating contracts, bringing forth a wealth of knowledge in structuring agreements aligned with the deal’s strategic objectives.
Tax professionals, including accounting and legal professionals, bring a unique and critical expertise to M&A transactions, assisting and advising in structuring deals to minimize tax liabilities for both sellers and buyers. Their involvement is crucial as tax implications can significantly impact the overall financial outcome of the transaction — for all parties. Collaborating with legal counsels, investment bankers, and tax professionals contributes to the strategic planning of the deal by identifying opportunities for tax optimization. Mitigating tax risks is a vital function of tax professionals, involving comprehensive due diligence to assess tax implications, identify potential liabilities, and develop strategies for their resolution.
Last, but not least, is the owner of the seller and his/her key personnel who will be provided with knowledge of and participate in the transaction. These people include the owner’s chief financial officer or controller, who will tasked with providing financial and tax information to the buyer, and possibly, the seller’s HR professional, who will provide employee and benefits information and assist with the post-closing transition of personnel (and culture). Although there is always the need to keep the knowledge of the potential transaction “close to vest,” without certain key employees becoming part of the process, the burden on the business owner in running the business at the same time he/she is negotiating the transaction and responding to the buyer’s information requests can be suffocating.
The selection of professionals with specialized expertise in M&A transactions — legal advisors, investment bankers, and tax professionals — together with the owner and his/her key personnel, is pivotal for the success of a company sale transaction. Recognizing the collective value of engaging the right professionals becomes a strategic imperative as companies embark on the journey of selling. Knowledge of the M&A process brought to a transaction by qualified professionals along with their industry insights, and strategic guidance all enhance likelihood of a successful company exit, navigating its intricate path with dexterity and precision. Equally important, their experience brings calm to what otherwise is, generally, a very emotional exercise for the seller.
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