April 25, 2024 • 16 mins
We share the story of a deal that faced potential derailment due to an attorney's intervention. This highlights the critical role of attorneys in the deal-making process and the importance of careful selection and collaboration with brokers and sellers.
We stress the significance of time in deals and discuss pitfalls that arise when attorneys adopt an adversarial stance, risking the deal's closure. Additionally, we explore how banks evaluate deals and how changes in business revenue and cash flow impact financing decisions and sale prices.
Tune in as we provide insights into selecting the right attorney and share tips for navigating the deal-making process successfully. With the right team and approach, overcoming obstacles and closing deals is achievable. Stay tuned for more insights from our experience in business brokerage.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Music.
(00:09):
A red flag. Oh, for sure. So this wouldn't necessarily just change the asking price.
This may change the bank's appetite for the deal entirely.
And they may say, now we need to wait till the end of the second quarter or
the third quarter. They want to see a recovery.
Music.
(00:36):
Welcome back to the Apex Business Advisors podcast. I'm your host,
Andy Kavanaugh, joined as always by the president of Apex, Doug Hubler.
Doug, welcome to the podcast studio. And always happy to be here.
Always here. Yeah, thanks.
Before we get started on our topic today, which is a little bit of a repeat
(00:57):
topic, but is a topic that we've discussed before.
We just have a fresh story to share. Yeah, the stories are good.
The stories are always good. Real life stuff that's top of mind.
So let's get into it. Before I get your blood pressure all up,
we had a closing this week. Tell us about that.
(01:20):
Yeah, we had a closing on Monday. Debbie had another closing and so it was a graphics business,
a graphics design firm and something that she'd been working on for not very long.
I think we'd had that listing for a short time before we got it under contract.
(01:41):
So it was a good closing for her. We found a good buyer on that business, a good fit.
And yeah, closed on that, got financing through Wells Fargo.
On that deal. And again, SBA. We'll talk about that another time,
but boy, the SBA really comes through on getting these deals funded.
(02:02):
Yeah, it was good to see Eric again. And of course, congratulations to Debbie.
So let's talk about attorneys behaving badly. Oh, gosh.
Is that the topic? I should take my blood pressure cuff off.
Yeah. So we had a deal where an attorney who had previously not had a relationship
(02:22):
with the seller inserted themselves aggressively.
Yeah. And I will let you take it from there.
Okay. Yeah. Yeah, because I think this is one where this is a deal Ron's working
on, and we've had the deal under contract for a while, supposed to close in January.
(02:42):
The seller didn't have a transaction attorney, so they went out in the online
yellow pages, I guess, and just picked somebody.
And so they didn't have a relationship with his attorney. The attorney said
that there was no way that he was going to have any time in January to work on their deal.
(03:03):
So it would just have to be put off. Instead of going to a different attorney,
they stuck it out with this attorney.
So tip number one, when you're discussing and selecting attorneys,
one of the first questions you really need to ask that attorney is,
do you have availability to work on my deal right now? Right.
Yeah, we're under the gun. We've got 30 days. So everything else is ready to
(03:24):
go. The finance is in place.
We just need to get through an asset purchase agreement.
And 30 days is plenty of time normally.
And so that was a red flag.
Then he didn't feel
like he had time until maybe March to
fit in in his schedule so there was
(03:46):
a delay and in that delay there happened to be a little bit of a dip in in business
impacted cash flow and there could be some seasonality in there but the buyers
were able to use that to say listen and the cash flows down now, we're in March.
And so we're going to have to.
(04:10):
Talk about the sale price, then maybe we just have to structure it differently.
I think they are being fair and saying, we don't necessarily want to hit the
sale price, but we probably, in order to get this financed now with these new
numbers, we're going to need a little bit more seller financing.
And at that stage, the attorney jumps in and says, there's no way this is going going to happen.
(04:37):
You guys are trying to press us to get this deal done.
Now you're hitting us with a change in seller financing.
The deal's dead, and any further communication needs to come through me.
Well, it was a really kind of a bully pulpit kind of message,
and turns out the seller didn't have any say in that.
(05:03):
They didn't even know that the attorney was going to email that notice out.
And so I think even though they're saying, you know, the attorney's saying, only work through me.
Well, the buyer's attorney did call the seller's attorney and they're communicating.
Ron did talk to the seller and the seller didn't know that the attorney was
(05:26):
going to do that. Again, they didn't have experience with this attorney.
Attorney's trying to make a name for himself, but the deal for the seller is very good, very fair,
and we are always trying to get the best deal for our sellers.
So, you know, when we talk about teaming up with attorneys, we want to be together in a a message.
(05:52):
And we also want the attorney to understand what's the marketplace right now.
I mean, if you just blow up a deal like this with when the cash flows down to
what's this mean for the marketability of that business going further,
if we've got a buyer in hand.
Is pretty flexible, maybe we should treat it a little differently.
(06:16):
Maybe we should maybe have an open discussion rather than just throwing out an email.
So, you know, we've talked about this before where attorneys can kill a deal.
And the reason why I wanted to talk about this now was this is happening right now.
This is another instance where an attorney who really didn't have a background
(06:38):
in the business or the industry is now all of a sudden playing the boss and
wanting to drive the decisions.
And apparently not even really advising the client, his client,
the seller, which is our client also.
And so, you know, teaming up with the broker,
(07:01):
the attorney, the financial advisor probably, and the seller together and discussing
changes rather than just blowing up the, an email or, or a phone call or something.
So yeah, that was pretty disturbing because that was, that deal was supposed to close.
I think it was supposed to close last week. And so now it's kind of like,
(07:24):
we're not sure where that's going.
Yeah. So let's walk this through. So now you've got a business that is down in In cashflow.
And so if that business were to go back to market because we blew up this deal,
it goes back to market with a little bit of a stain on it due to the fact that the cashflow is down.
(07:44):
And so, you know, again, there's a recency bias on the valuation of these deals.
So when you, when buyers and banks and financing sources are looking at deals,
they're looking at the most previous.
(08:27):
The current information. of the second quarter or the third quarter.
They want to see a recovery.
And if it's, especially if it's something that is, maybe if it's seasonal,
they're going to want to compare to the prior years.
And again, if it's down, maybe there was just a short-term blip and maybe it
was in receivables or something. I don't know the details on that.
(08:49):
But yeah, the bank's going to possibly put that on hold.
And because of the multiples on our deals, in that case, that was probably a
five or six multiple, that's pretty substantial potential hit to the sale price.
Yeah. So the other tip here that we would share is as you're selecting attorneys,
there are different types of attorneys and they've got different dispositions.
(09:12):
Some are deal makers, some are deal breakers, and some are litigators.
When you get a litigator that's on a deal, that becomes a very adversarial situation
where they become adversaries with everybody because they're fighters.
That's what they're used to doing. They have to win every argument.
And so, you know, at the really the deal that a seller is looking for is,
(09:39):
am I getting what was agreed upon?
Am I getting a fair deal? Am I protected?
Anything above and beyond that is really attorney ego. go?
Yeah, I think, you know, a seller should probably interview two or three attorneys
and probably deal attorneys,
(10:01):
not just, you don't want to throw a divorce attorney or real estate attorney
in on the deal, but talk to two or three deal attorneys and make sure the personalities
are fit and that they're going to, going to work toward the goal of getting a deal done,
not the goal of, you know, putting up obstacles and the win is the,
(10:23):
is what I, what I want is the win.
Anything else I'm losing. So if you've got that attitude, then it's going to
be a bad attorney for the deal.
Yeah. You can win 99 battles, lose a hundredth, lose the war.
And so if you, if you can't negotiate to a settlement, you know,
ultimately the goal goal hasn't been achieved.
(10:44):
Yeah. And I think we run into situations all the time where there needs to be
a balance. There is a win-win.
It's going to be difficult to have a win-lose situation and get to a closing.
So there needs to be balance. There needs to be discussion, some negotiation,
but there's usually some give and take on everybody's part.
(11:06):
Yeah. And this goes back to our conversation too about how the bank's involved.
Mm-hmm.
(11:39):
Because they were very fortunate with their timing.
I mean, you kind of get into due diligence and you realize like,
well, maybe they're not the greatest of buyers. And so if they decide to walk, no problem.
But other times you get a buyer on a business and you're like,
we are lucky to have them. Right, right.
Thank you for sending me this person because we need to bend over backwards
(12:03):
to make sure we get everything that they need.
Because, you know, sometimes you're just lucky to have a buyer.
And if you start seeing a business that starts declining in revenue and cash
flow and things like that,
you need to do everything you can to hold on to the buyer that is on that deal
because the next buyer that comes around is going to scrutinize and look at
(12:24):
that business as a declining business.
And that's just not the position you want to be in. Yeah. And I think on this,
you know, time kills deals.
We've said that over and over again. This is an example of time killing a deal.
And so some some of
those red flags lack of experience probably the
(12:44):
wrong attitude not having the time to work on the deal and i don't know if there's
another one there those are three three probably red flags things to watch out
for with attorneys yeah i think that one of the biggest things is like you know
your best ability is availability so if they're not available at that that time,
you know, move on.
(13:06):
And then two, if they don't have the direct experience of dealing in deals,
if it's not really their expertise, probably not the best situation.
And then the third thing would be is what is their attitude as far as getting to a deal?
(13:27):
Are they adversarial from the jump, or are they really looking to help you land
your deal with the proper protections?
And that's why we end up having referrals to attorneys that we know are experienced.
They're not working for us.
They're not beholden to us at all.
(13:49):
They're still working for the seller or the buyer, but we know attorneys that
will get deals done and know the ultimate goal.
And they're still protecting their clients, but they also know to get a deal
done, there's got to be some workarounds.
And so if all somebody's doing is throwing up red flags and roadblocks,
(14:10):
the deal's not going to happen.
So we need to stay away from those kind of advisors.
Yeah. Current client that I'm working with kind of hit some adversity earlier
this week, and he was just like, why didn't you tell me selling a business was going to be so hard?
Did we not say that?
(14:37):
We've talked about this. Many sellers think the hardest part is finding a buyer
and it's not finding a buyer.
Finding the buyer actually tends to be one of the easier things for most of
the listings that we have.
It's really managing all of the different personalities.
And I'm kind of fond of saying like, well, we don't know who our enemy is until
(15:00):
we actually get into the deal, but we'll find them.
They'll reveal themselves. You know, we talked the last episode,
we did talk about how, you know, things get caught at the 11th hour from the bank.
And those are things that we may not discover or the bank doesn't discover until the 11th hour.
And there's another, so yeah, this looks like, okay, these things do happen.
(15:23):
There are roadblocks. We can
overcome them, but there are challenges along the way most of the times.
If we have a deal that's an easy button, we all remember that deal because there
might be one a year that was like, wow, that went smooth, easy, quick.
That doesn't happen very often. Yeah. So, well, if you are looking at buying
(15:44):
or selling a business, there's only really one place you need to go.
And that's our website. It's kcapex.com. And that's where we put all the resources
and content that we create.
All of the lessons that we've learned throughout the years are going to show
up on these podcasts. They're going to show up as blogs, white papers.
Best resource, of course, is just getting in touch with one of us brokers.
We're happy to answer your questions. All of our contact information's out there.
(16:07):
And then, of course, our active listings.
So if you're looking for a business, that's the best place to go.
And if you are looking at buying or selling a business.
Music.
Music.
(00:09):
A red flag. Oh, for sure. So this wouldn't necessarily just change the asking price.
This may change the bank's appetite for the deal entirely.
And they may say, now we need to wait till the end of the second quarter or
the third quarter. They want to see a recovery.
Music.
(00:36):
Welcome back to the Apex Business Advisors podcast. I'm your host,
Andy Kavanaugh, joined as always by the president of Apex, Doug Hubler.
Doug, welcome to the podcast studio. And always happy to be here.
Always here. Yeah, thanks.
Before we get started on our topic today, which is a little bit of a repeat
(00:57):
topic, but is a topic that we've discussed before.
We just have a fresh story to share. Yeah, the stories are good.
The stories are always good. Real life stuff that's top of mind.
So let's get into it. Before I get your blood pressure all up,
we had a closing this week. Tell us about that.
(01:20):
Yeah, we had a closing on Monday. Debbie had another closing and so it was a graphics business,
a graphics design firm and something that she'd been working on for not very long.
I think we'd had that listing for a short time before we got it under contract.
(01:41):
So it was a good closing for her. We found a good buyer on that business, a good fit.
And yeah, closed on that, got financing through Wells Fargo.
On that deal. And again, SBA. We'll talk about that another time,
but boy, the SBA really comes through on getting these deals funded.
(02:02):
Yeah, it was good to see Eric again. And of course, congratulations to Debbie.
So let's talk about attorneys behaving badly. Oh, gosh.
Is that the topic? I should take my blood pressure cuff off.
Yeah. So we had a deal where an attorney who had previously not had a relationship
(02:22):
with the seller inserted themselves aggressively.
Yeah. And I will let you take it from there.
Okay. Yeah. Yeah, because I think this is one where this is a deal Ron's working
on, and we've had the deal under contract for a while, supposed to close in January.
(02:42):
The seller didn't have a transaction attorney, so they went out in the online
yellow pages, I guess, and just picked somebody.
And so they didn't have a relationship with his attorney. The attorney said
that there was no way that he was going to have any time in January to work on their deal.
(03:03):
So it would just have to be put off. Instead of going to a different attorney,
they stuck it out with this attorney.
So tip number one, when you're discussing and selecting attorneys,
one of the first questions you really need to ask that attorney is,
do you have availability to work on my deal right now? Right.
Yeah, we're under the gun. We've got 30 days. So everything else is ready to
(03:24):
go. The finance is in place.
We just need to get through an asset purchase agreement.
And 30 days is plenty of time normally.
And so that was a red flag.
Then he didn't feel
like he had time until maybe March to
fit in in his schedule so there was
(03:46):
a delay and in that delay there happened to be a little bit of a dip in in business
impacted cash flow and there could be some seasonality in there but the buyers
were able to use that to say listen and the cash flows down now, we're in March.
And so we're going to have to.
(04:10):
Talk about the sale price, then maybe we just have to structure it differently.
I think they are being fair and saying, we don't necessarily want to hit the
sale price, but we probably, in order to get this financed now with these new
numbers, we're going to need a little bit more seller financing.
And at that stage, the attorney jumps in and says, there's no way this is going going to happen.
(04:37):
You guys are trying to press us to get this deal done.
Now you're hitting us with a change in seller financing.
The deal's dead, and any further communication needs to come through me.
Well, it was a really kind of a bully pulpit kind of message,
and turns out the seller didn't have any say in that.
(05:03):
They didn't even know that the attorney was going to email that notice out.
And so I think even though they're saying, you know, the attorney's saying, only work through me.
Well, the buyer's attorney did call the seller's attorney and they're communicating.
Ron did talk to the seller and the seller didn't know that the attorney was
(05:26):
going to do that. Again, they didn't have experience with this attorney.
Attorney's trying to make a name for himself, but the deal for the seller is very good, very fair,
and we are always trying to get the best deal for our sellers.
So, you know, when we talk about teaming up with attorneys, we want to be together in a a message.
(05:52):
And we also want the attorney to understand what's the marketplace right now.
I mean, if you just blow up a deal like this with when the cash flows down to
what's this mean for the marketability of that business going further,
if we've got a buyer in hand.
Is pretty flexible, maybe we should treat it a little differently.
(06:16):
Maybe we should maybe have an open discussion rather than just throwing out an email.
So, you know, we've talked about this before where attorneys can kill a deal.
And the reason why I wanted to talk about this now was this is happening right now.
This is another instance where an attorney who really didn't have a background
(06:38):
in the business or the industry is now all of a sudden playing the boss and
wanting to drive the decisions.
And apparently not even really advising the client, his client,
the seller, which is our client also.
And so, you know, teaming up with the broker,
(07:01):
the attorney, the financial advisor probably, and the seller together and discussing
changes rather than just blowing up the, an email or, or a phone call or something.
So yeah, that was pretty disturbing because that was, that deal was supposed to close.
I think it was supposed to close last week. And so now it's kind of like,
(07:24):
we're not sure where that's going.
Yeah. So let's walk this through. So now you've got a business that is down in In cashflow.
And so if that business were to go back to market because we blew up this deal,
it goes back to market with a little bit of a stain on it due to the fact that the cashflow is down.
(07:44):
And so, you know, again, there's a recency bias on the valuation of these deals.
So when you, when buyers and banks and financing sources are looking at deals,
they're looking at the most previous.
(08:27):
The current information. of the second quarter or the third quarter.
They want to see a recovery.
And if it's, especially if it's something that is, maybe if it's seasonal,
they're going to want to compare to the prior years.
And again, if it's down, maybe there was just a short-term blip and maybe it
was in receivables or something. I don't know the details on that.
(08:49):
But yeah, the bank's going to possibly put that on hold.
And because of the multiples on our deals, in that case, that was probably a
five or six multiple, that's pretty substantial potential hit to the sale price.
Yeah. So the other tip here that we would share is as you're selecting attorneys,
there are different types of attorneys and they've got different dispositions.
(09:12):
Some are deal makers, some are deal breakers, and some are litigators.
When you get a litigator that's on a deal, that becomes a very adversarial situation
where they become adversaries with everybody because they're fighters.
That's what they're used to doing. They have to win every argument.
And so, you know, at the really the deal that a seller is looking for is,
(09:39):
am I getting what was agreed upon?
Am I getting a fair deal? Am I protected?
Anything above and beyond that is really attorney ego. go?
Yeah, I think, you know, a seller should probably interview two or three attorneys
and probably deal attorneys,
(10:01):
not just, you don't want to throw a divorce attorney or real estate attorney
in on the deal, but talk to two or three deal attorneys and make sure the personalities
are fit and that they're going to, going to work toward the goal of getting a deal done,
not the goal of, you know, putting up obstacles and the win is the,
(10:23):
is what I, what I want is the win.
Anything else I'm losing. So if you've got that attitude, then it's going to
be a bad attorney for the deal.
Yeah. You can win 99 battles, lose a hundredth, lose the war.
And so if you, if you can't negotiate to a settlement, you know,
ultimately the goal goal hasn't been achieved.
(10:44):
Yeah. And I think we run into situations all the time where there needs to be
a balance. There is a win-win.
It's going to be difficult to have a win-lose situation and get to a closing.
So there needs to be balance. There needs to be discussion, some negotiation,
but there's usually some give and take on everybody's part.
(11:06):
Yeah. And this goes back to our conversation too about how the bank's involved.
Mm-hmm.
(11:39):
Because they were very fortunate with their timing.
I mean, you kind of get into due diligence and you realize like,
well, maybe they're not the greatest of buyers. And so if they decide to walk, no problem.
But other times you get a buyer on a business and you're like,
we are lucky to have them. Right, right.
Thank you for sending me this person because we need to bend over backwards
(12:03):
to make sure we get everything that they need.
Because, you know, sometimes you're just lucky to have a buyer.
And if you start seeing a business that starts declining in revenue and cash
flow and things like that,
you need to do everything you can to hold on to the buyer that is on that deal
because the next buyer that comes around is going to scrutinize and look at
(12:24):
that business as a declining business.
And that's just not the position you want to be in. Yeah. And I think on this,
you know, time kills deals.
We've said that over and over again. This is an example of time killing a deal.
And so some some of
those red flags lack of experience probably the
(12:44):
wrong attitude not having the time to work on the deal and i don't know if there's
another one there those are three three probably red flags things to watch out
for with attorneys yeah i think that one of the biggest things is like you know
your best ability is availability so if they're not available at that that time,
you know, move on.
(13:06):
And then two, if they don't have the direct experience of dealing in deals,
if it's not really their expertise, probably not the best situation.
And then the third thing would be is what is their attitude as far as getting to a deal?
(13:27):
Are they adversarial from the jump, or are they really looking to help you land
your deal with the proper protections?
And that's why we end up having referrals to attorneys that we know are experienced.
They're not working for us.
They're not beholden to us at all.
(13:49):
They're still working for the seller or the buyer, but we know attorneys that
will get deals done and know the ultimate goal.
And they're still protecting their clients, but they also know to get a deal
done, there's got to be some workarounds.
And so if all somebody's doing is throwing up red flags and roadblocks,
(14:10):
the deal's not going to happen.
So we need to stay away from those kind of advisors.
Yeah. Current client that I'm working with kind of hit some adversity earlier
this week, and he was just like, why didn't you tell me selling a business was going to be so hard?
Did we not say that?
(14:37):
We've talked about this. Many sellers think the hardest part is finding a buyer
and it's not finding a buyer.
Finding the buyer actually tends to be one of the easier things for most of
the listings that we have.
It's really managing all of the different personalities.
And I'm kind of fond of saying like, well, we don't know who our enemy is until
(15:00):
we actually get into the deal, but we'll find them.
They'll reveal themselves. You know, we talked the last episode,
we did talk about how, you know, things get caught at the 11th hour from the bank.
And those are things that we may not discover or the bank doesn't discover until the 11th hour.
And there's another, so yeah, this looks like, okay, these things do happen.
(15:23):
There are roadblocks. We can
overcome them, but there are challenges along the way most of the times.
If we have a deal that's an easy button, we all remember that deal because there
might be one a year that was like, wow, that went smooth, easy, quick.
That doesn't happen very often. Yeah. So, well, if you are looking at buying
(15:44):
or selling a business, there's only really one place you need to go.
And that's our website. It's kcapex.com. And that's where we put all the resources
and content that we create.
All of the lessons that we've learned throughout the years are going to show
up on these podcasts. They're going to show up as blogs, white papers.
Best resource, of course, is just getting in touch with one of us brokers.
We're happy to answer your questions. All of our contact information's out there.
(16:07):
And then, of course, our active listings.
So if you're looking for a business, that's the best place to go.
And if you are looking at buying or selling a business.
Music.
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