Developing a Strong Advisory Team

C. Robert ZelingerBy C. Robert Zelinger, Esq., partner and
chair of the Business and Finance Department
at Levy & Droney, PC., Farmington, CT

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Business owners seeking to sell would be wise to leverage the expertise of an experienced transaction team including a mergers & acquisition advisor, an accountant and a lawyer experienced in business sale transactions. Sometimes in an effort to minimize costs, they will go it alone and consult professional advisors too late in the game - a critical mistake, in my view. Here’s why. They think they have negotiated a complete deal but invariably, without the benefit of an M&A expert, CPA and attorney, critical business, tax, accounting and legal issues have not been adequately addressed. Once raised, the sellers realize that these issues may be important and now must re-negotiate with the buyer. The prospective buyer might get annoyed; the client may become frustrated and the transaction might fall apart.

This article primarily addresses the lawyer’s role but many of the lessons learned are applicable to all M&A advisors. Experienced lawyers are trained to help clients plan for the “What ifs” of commercial life, avoiding risk and taking advantage of opportunity. My mantra has always been to provide my client with the benefit of my judgment, based on my training and experience, but NOT to substitute my judgment for that of my client. I think that’s how business lawyers add value.

Case Study: Bridging the Gap between Seller and Buyer

Our firm represented a company in the sale of its business. The company was engaged in application of hard surface coatings for industrial applications. It had three locations. Its midwest and southern plants were new more modern facilities; its Connecticut headquarters was the oldest and had significant environmental/health and safety issues.

The owners were all in their late 70s. One was active in the business and owned 50 percent of the shares. The other two, long retired, owned the rest of the company between them. Initially, when the owners decided to sell, a Fortune 100 competitor became interested and made a higher than expected offer. The shareholders were elated. But as due diligence progressed, the suitor became increasingly concerned about the potential environmental and other liability at the Connecticut plant, and insisted that the shareholders indemnify the buyer for all claims that may arise and the cost of remediation.

The client understandably balked at the prospect of unlimited liability and the deal cratered. Business went on as usual for a couple of years, but the owners still wanted to sell. Any new buyer would have the same concerns as the Fortune 100 suitor, since the liability profile had not improved. Things seemed to be at a standstill.

Finally, at a meeting of the three shareholders, I tried to really get at what they wanted in order of priority. After much discussion, the following emerged: First and foremost, they wanted no post-closing responsibility or liability for anything. The buyer could overturn every stone in due diligence but once the deal closed, the buyer owned everything - the good, bad and ugly.

Second, they wanted a fair price, but did not need to squeeze every penny out of the deal. They wanted most if not all their money at closing. However, they were willing to take back some paper but with a greater potential return.

Third, they wanted the buyer to provide opportunity for their employees.

Fourth, they wanted to reward the President/CEO for his many years of service and for his skill in turning their modest investment into many millions of dollars.

The clients were no longer floundering. We retained an investment banker to identify potential acquirers. We teamed up with a Chicago based holding company (backed by private equity from outside investors), which was in the process of rolling up several companies engaged in similar coating technology. Here’s how the final deal looked.

The owners discounted the final purchase price by approximately 8 percent in exchange for release from post-closing liability That discount was in line with the estimates we had received for the cost of environmental remediation. The buyer assumed control of all remedia¬tion and decided how and when it would spend the money. Some of the expenditures would be tax deductible and some could qualify for government “brownfield” money.

The sellers took 90 percent of their money at closing. The remainder of the purchase price was in 3-year convertible notes, which carried a healthy rate of interest, paid quarterly. The sellers could decide to be repaid their principal in cash or convert it to the buyer’s stock.

The buyers agreed to take on most of the employees and all three locations. In addition, they agreed to continue certain benefit plans for the CEO, along with a generous consulting arrangement for him.

In retrospect, it took nearly four years from the time the three shareholders decided to sell to actually closing the deal. It is essential that clients are honest with themselves and their advisors to determine what they really want and what’s really important to them. Armed with that intelligence, their advisors working as a team can become creative and add value by proposing a win-win solution to business problems.

In my view, good business lawyers first figure out the client’s business, why they’re in business; how they make money; what drives the business - essentially, what’s really important or ought to be important to the client. Armed with that information, the attorney can determine which issues are most important and which less relevant. The lawyer’s obligation is to educate the client on the legal risks and possible solutions to limiting or at least quantifying that risk so that the business person can make an informed and intelligent decision.

C. Robert Zelinger, Esq. can be reached directly at (860) 676-3036, or via e-mail at

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