Merger & Acquistion (M&A) Deal Structures Explained
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- čas přidán 30. 06. 2024
- So, what M&A deal structure is best for you? Great question! You'll find out more about the pros and cons of each structure in this video.
There are a lot of aspects to consider when buying or selling your business. Today we will talk about considerations for the 2 M&A primary structures you'll see in low to middle market deals - sale of stock and sale of assets.
Check out Brett's article:
www.businessattorneyinaustin....
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Have questions? Book a call, and talk to Brett today:
clarity.fm/brettcenkus
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You can reach Brett through:
clarity.fm/brettcenkus
/ brettcenkus
/ bcenkus
www.cenkuslaw.com
braatenwoods.com
merger-resources.com
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Brett A. Cenkus has 20+ years of experience in business law, finance, and entrepreneurship. Through Cenkus Law, PC, he provides advice and services for mergers & acquisitions (M&A), securities offerings, founders’ agreements, and other general business law issues.
Through Braaten Woods, LLC, Brett helps business owners in the lower middle market ($2MM - $25MM) position themselves for sale, find buyers, negotiate, and close M&A deals.
Brett also maintains merger-resources.com, a site packed with free articles, videos, checklists, deal diagrams, template contracts, and other tools to help pass M&A knowledge to others.
Brett regularly consults with entrepreneurs and invests his own capital as an angel investor.
From 2010-2013, Brett served as Chief Legal Counsel of a publicly-traded international oilfield services company. From 2001 to 2006, he and a partner founded and built Paragon Residential Mortgage. Bridge Investments acquired Paragon in 2006.
Brett holds a Juris Doctorate from Harvard Law School and a Bachelor of Arts degree in Economics from Messiah College in Grantham, Pennsylvania.
Brett lives in Austin with his wife, Cathryn, and two children. He enjoys reading, squash, classic movies, great food and wine, and the New England Patriots.
#corporatelaw #mergersandaquisitions #businesslaw #corporatelawyer - Jak na to + styl
This is informative and a straightforward overview of Deal Structuring
I know this vid is very old lol, but just got an internship with an lower MM M&A firm as a graduating senior in high school and these videos help more than you can imagine. Thank you.
How’s it going?
You made this as understanding as possible even for someone who is young. I like your atitude with always reporting and telling how things are being done in mga.
thank you, Jake!
Super helpful perspective on this for us non-Harvard lawyer types. Most lawyers seem determined to keep complex things complex. I appreciate your ability to make complex things simple.
just found your channel and ITS AMAZING. I just finished HS and secured myself an internship at one of the big 4s. Tomorrow is my first day. Keep up the great job!
Succinct and lucid: two words to describe your presentation. Thank you!
Thank you!
You are SO good at explaining this. A+!
thank you!
Thank you for the explanation it really helped me a lot
you're welcome
Thank You so much. I am applying to companies in this field and definitely helps me a lot.
I love your videos ! Great value. Great human being right there.
This is gold! I'm an investment banker and always wanted to learn more about M&A from lawyer perspective! do you have courses related to M&A Law for non lawyers?
Awesome ! Good explanation! I’d like to know how firms use to negociate working capital in a deal and how often buyers agree to a Zero WC basis. Could u make a video covering that topic? Thanks!!
Cool, very simple explanation
Your Videos are great! Thanks for all of your help!
you're welcome, McLean. Thank you for the feedback!
New Sub! Just created a B&A Company and this was in my recommendations..good pick!!!
Thanks for subbing
Thanks Brett for the overview. Where would you put the IP (of a software company)? Assets I assume. What type of asset would that be? How do you structure the deal for such an item? Would love to hear from you. Cheers, Pinaki
Great explanation ... Thank you for this video.
You're welcome!
I just found this amazing video. excellent content
This helps me so much on my first deal coming up 7 fig deal
I am glad it was helpful!
Very informative series! Thank you for creating these videos.
Regarding asset sales, what typically should happen to the seller's legal company entity post-sale? Should the sale agreement dictate that they dissolve the legal entity etc? There don't seem to be many(any) resources out there that cover that detail.
if the seller just spinned off the part of assets or business, it would be onging to do other business. if the seller sold assets because of tax reason and no other businees left, it would be dissolved normally.
Thanks and great explanation
Thank you for the information!!!
you're welcome!
Super helpful. Thanks!
Every video I've watched has inspired me!
I would like your professional opinion about merging businesses with different government requirements. For example, I am interested in a business in the state of Va, and a class A contractor license is required. My current state does not require that type of license. Can I work under their contractor's license for 24 months or less?
Brett,
I'm about to get involved with an "M & A" type deal. Till now, I've mostly been involved with Main Street deals. The seller's attorney's have sought me out. What are the documents I should request from my seller to present to interested buyers as I put together my sales presentation or book? Trying to develop a curated list of potential buyers.
I always enjoy you videos anf find them extreamly educational.
Thanks,
Gerard Marlow
Hi, thank you for the information..
I wanted to know from your experience what are the main metrics investors look at when they want to by a chain of restaurants / franchise ?
Hadi, margins are always important (in all businesses, actually, although especially with restaurants) - gross margins (cost of goods sold), labor as a percentage of revenue, etc. In a chain of restaurants, an acquirer will be interested in understanding how much variation occurs among locations (e.g., does each location use different (even slightly) recipes, which may show itself in the food costs (gross margins). The innovativeness of the concept and reputation of the chain are important, as you'd expect. An acquirer will want to see sales trends and try to hold constant for marketing and promotions to uncover if gimmicks are driving sales for a restaurant chain that is slowing. If the restaurant system is a group of franchises, the relationship with the franchisees is critical. As with any business, valuation overall is a huge driver of getting deals done.
Thank so much for knowledge sharing.
you're welcome!
Fantastic. Thank you.
you're welcome, Sami.
Great video 👍🏻🇬🇧
Very well explained.
Thank you
Thank you so much for this!
You're welcome!
Great job
Hey Brett! Thanks for the info very good information! What would be the better way to structure a deal if lets say I found a seller who wanted to retire so his motivation is freedom of time and lets say he built a company that is well automated he puts in minimal time into the business and wants to just get it off his plate to completely focus on retirement. Now lets say as a buyer I want to get in on this business with little to no money down and I found this deal off market. I appraoch the seller and tell him since his motivation is freedom of time I can take over the company and run it for him and pay him out of the profits of the business over a 2-3 year period since the business has a decent amount of cash flow. He wants 2x multiple of SDE as the sale price we both agree because the business is well managed and automated and seller spends minimum time on the business, The only issue is the seller wants the fulll money upfront to delpoy for other personal reasons whereas I as the buyer want to put minimum down which obviouslyy is less risk compared to paying the seller all upfront. So how could I structure a deal to make it a win a win could I somehow do a stock deal or would it be more of an asset type deal where the seller could somehow get what he wants or is there at least some kind of a middle ground that could be negotiated in this situation? Any thoughts on how you could make this work would be appreciated!
In an acquisition, the acquiring company have requested that the MD (who is a shareholder of the company being acquired) becomes the new MD of the acquiring company and the MD and his partner have been allotted 10% equity (which equals one seat on the Board of directors). Can the MD nominate another board member to represent its shareholding interest or does the one seat equal the MD's seat on the board? I will appreciate your view on this.
Thank you a lot :)))
Could you please make a course! Videos are great
Luca, a course is somewhere in our line of sight (a 2021 initiative). Thank you for your feedback!
@@BrettCenkus how is the class coming along ? I’d be Interested for sure !!
Company A is larger HVAC company (guessing $10M in annual sales) and wants to purchase Company B ($1M and climbing fast in annual sales), an electrical company. The prelim thoughts are Because A doesn't have the licensing or full knowledge to run company B, owner of company B would stay for 7 years to manage that "department" and then retire. Floated out currently is that Company C would develop and Seller of company B would now be a minor shareholder of company C along with share holders in Company A...All now Company C. Thoughts?
Brett, could you do a video explaining when SEC regulations come into play with an M&A?
Austin, I will do that. I gave a CLE (continuing legal education) talk on this topic earlier this year, so I have plenty of material to adapt to a video.
@@BrettCenkus Hello Brett, Just wondering if you were able to do the video on SEC regulations in the M&A
@@nitinbusinessbuilder Not yet, Nitin. I expect to post that video in the next two weeks. I will let you know as soon as I do.
Hi Brett how do I perform a due diligence in international trade
Thanks for this video.
I would like to ask for your advice.
I got into a difficult situation and have no experience with it.
Topic: What happens to the money of small investors in the event of a SPAC merger failure.
-What is happened if a SPAC Merger fails?
SPAC Company,
THUNDER BRIDGE ACQUISITION II, LTD - announced its intention to merge with INDIE SEMICONDUCTOR last year (2020) to bring it listed on NASDAQ stock exchange in 2021 first quarter.
But an investigation has been launched against the blank check company, saying that "the shareholders have not been properly informed and small investors will have little stake in the formed, new company. After the merger".
> 1.If the merger fails, what happens?
Small investors lose their invested capital either
return to a low share price and "their invested capital get stuck in this SPAC, "blank check company" ?,
I do not understand why an investigation is launced against SPAC with the reason that small private investors can only have wenig stake (prozent) in new company after the Merger because the small investors do not think rhey could more have in it, for them is not point, they are not interesed in how much prozent they can have in a very big company.
The ones who are "big companies" like financial companies, funds want to have more in a SPAC, but not private small investors.
> 2. What should I do in this case if the stock price has already dropped so much that it is lower than the average of my buying price?
Thanks for help, answers,
what is make whole provision in acquisitions?
NASDAQ SPAC acquisition of an OTC biotech im in & todays PR said MWP {make whole provision) in 6 months.
We think some licensing from big pharma will be announced AFTER SPAC deal closes.
Thank you!
What’s the difference between a stock purchase vs a reverse sub merger?
Brett, how does "Sellers want to sell stocks and Buyers want to buy assets" relate to tax?
The selling company's assets are valued on its books at any given time at their "book values," which is often much less than fair market values due to depreciation that the selling company has recognized over the years. When a buyer purchases stock (other equity) of the selling company, the buyer steps into the shoes of the selling company's owners, and nothing changes at the company level. So, the selling company's assets remain the assets of that same entity (which is now owned by the buyer) and are still valued at their book value.
If the buyer purchases the selling company's assets, the assets will be transferred from the selling company to the buyer (i.e., the buying entity). When that happens, the buyer will value those assets on its books at their fair market values and begin depreciating them from there. Because depreciation results in reduced taxable income, a buyer is motivated to maximize the amount of depreciation it recognizes. And the higher the starting value of the assets, the higher the depreciation.
From the seller's perspective, when the owners of the selling company sell shares of stock (or other types of equity), the sale proceeds come to them directly and, assuming they owned the stock for more than one year, they will pay long-term capital gains tax on their net gains. BTW, these are all federal tax considerations.
If the selling company sells assets, the assets owned for more than one year may be taxed at long-term capital gains rates, although that is not always the case. Some assets, e.g., substantially appreciated inventory and unrealized receivables, are taxed at ordinary income rates, which are generally higher than long-term capital gains rates, often much higher. Other concerns include depreciation recapture and the second level of taxation if the selling company is not a pass-through entity, e.g., if it's a c-corporation.
Im looking into M&A. What is the starting average salary?
what would your role likely be in M&A (lawyer, investment banking associate, etc.)?
Brett Cenkus Lawyer
Salaries in law, at least for medium to large-size firms, are fixed by year, not by practice area -- litigation associates, corporate M&A associates, those working in the bankrupty group, etc. are all paid the same. I hear first year associates at the top law firms ("Big Law") are now starting at $190,000 .
There's a fairly healthy drop off from Big Law to the rest of the world. I'm not sure where regional firms are on starting salaries, probably $120,000 or so. Small firms come in considerably lower than that. My sense (I haven't seen the data) is that M&A pays better than average if you just look at market rates across the board (i.e., not what law firms pay associates but what clients pay an M&A attorney vs. a comparable attorney (same year, same firm) in another area of law).
In other words, I believe M&A lawyers are well-compensated generally, although I suspect their average compensation at the partner level is in line with most other areas of corporate (business) law, that they only look highly-compensated when matched against government lawyers, non-profit lawyers, public defenders, struggling solo practitioners, very small firm lawyers, etc.
Given what I believe to be true (that compensation of an M&A lawyer vs. a corporate finance lawyer vs. an IP attorney vs. a bankruptcy attorney vs. a corporate (commercial) litigator is likely to be impacted by things such as size of firm, geographic area, etc. and not much by the specialty practice area), I think you'd be wise to choose from an area of law that excites you rather than trying to maximize compensation if you're choosing among areas of corporate law. Candidly, I think you'd be wise to choose an area that excites you whether it's in corporate law or it isn't, although I recognize that may be tougher to do if the only thing that you love doing is working as a public defender but you're saddled with high student loan debt.
Thankyou
Brett Cenkus Hey Brett 👋, Can you tell me how much can i expect to make as an investment banking associate? Thanks you very much
Are you licensed in Colorado?
nope. That doesn't mean we can't do some work there, although that depends (on the work, including if it's a one-off deal vs. a long-term relationship)
What is a typical path for graduating law students to enter M&A?
Laura, most corporate law firms handle M&A transactions, although for a lot of smaller firms (local, small regional), M&A isn't a huge part of what they do, which means it can years and years and years until a lawyer at one of those firms acquires deep experience and they may have challenges trying to trade up the food chain to work on much larger deals. For those reasons, a more clear path if being involved in M&A is THE focus would be to work for a larger firm where M&A is a huge part of what they do and they have an entire department devoted only to M&A. There are small boutique firms, too, so large AmLaw 100 firms aren't the only path, although they are a common path and a few years at one of those firms will be recognized as valuable if/when an associate wants to move to a smaller firm or go in-house as a company's business lawyer, or switch gears and get into M&A on the deal side of things (outside of law).
@@BrettCenkus Brett, you mentioned the "deal side of things" in M&A. I'm a commercial real estate broker and am interested in getting into M&A. What advice do you have for venturing into that arena? Thank you
@@alivefree Mike, a few things come to mind.
First, in the vein of "the obstacle is the way," I'd suggest leading with your background in commercial real estate and seeking deals that have real estate as a component. There are plenty of those deals, and those are hybrid M&A deals/real estate deals. The fact that you'll be positioning as more component on the real estate side of things is a differentiator. That's an interesting niche for you to grab.
Second, this is not a tough field to break into if you're willing to teach yourself what you need to know and not immediately turned off by what you don't know. There are few industries with a comparable chasm between the perceived necessary expertise/knowledge to be competent vs. what you actually need to be reasonably competent. It is not a tough industry to understand, IMO. Granted, I have a natural affinity for finance and strategy, and I'm trained in law, so I'm relatively far removed from being a novice (i.e., I may be operating from a blind spot), but I don't think I am off here. Understanding how to value and market a small business is a fairly easy skill set, although because of the barriers to entering the M&A industry at higher levels (good luck landing a job at Goldman Sachs), the money and glamor of high-level investment banking, and the industry jargon all help make the industry look inaccessible. But, it's not. I suspect, because of your background, that you have a sense for the point I'm communicating here, although if there is any doubt, hopefully, I'm removing it. If you're effective in your current field, you can take this one by storm. It's not that the people in it aren't knowledgeable professionals or that the top performers are considerably stronger/more effective than the also-rans. They are. But, it's not a super difficult field to master if you're willing to work at it.
Third, read M&A for Dummies. It's not perfect, but it's great -- lots of solid material and very accessible for a newbie. Most other books on the topic are written at too high a level for a new entrant. Full disclosure: I love the Dummies series. The first time I approach a new subject, I want you to tell it to me like I'm 6 years old -- simple, high-level. Next time, like I'm 16. Then finally, like I'm an adult. Build in concentric circles from a simple base, and I can learn anything. Throw me headlong into the quagmire of senior-level course details, and I'll never get out of the forest. If you're the same way, this is the book for you.
Brett
Brett Cenkus Thanks Brett!
Can you use Tax Credit as M&A tender?
On the seller's side, tax credits can be valuable to buyers and may be among the drivers for setting the purchase price (what a buyer is willing to pay). I haven't seen a buyer deliver (offer) a tax credit as part of the purchase price. We don't do a whole lot around tax credits, although my experience with them is that they are not simple to transfer, so it's tough to imagine a deal where a buyer has one that would somehow make sense and practically could be shifted to the post-closing selling company/shareholders.
@@BrettCenkus Can we connect thru LinkedIn, here my profile: www.linkedin.com/in/vanphab/ Possibly we can discuss the M&A that I possibly use your service for it. My email: ttot1812@gmail.com or 504-913-2693
I got a question about the buyers why would they buy a company assets isnt this just the action of buying a property or whatever asset it is? why is it called aquisition if the buyer buys assets of a company or a business?
another question: what are assets in a business is it property or something else?