Hi everyone, today we're going to talk
about mergers and acquisitions. We're
gonna do the 101, sort of the intro level
course in five or six or ten minutes,
we'll see where it goes. So we're gonna
talk about what it is, why people do it,
who are the players in the space. Mergers
and acquisitions 101 coming right up, but
first a couple minutes about me. My name
is Brett Cenkus, I am a business
attorney and I am the Startup Shepherd.
My law practice, which is most of what I
do, I help clients with business matters
so my clients are all businesses, they're
never consumers. I help with capital
raising, I help with contract drafting
and negotiations, partner and founder
structuring and disputes, and mergers and
acquisitions. So that's a good lead-in,
let's get into it.
So M&A stands for merger and
acquisition and it's nothing more than
companies buying and selling each other.
So company A wants to sell out; the
owners of company A,  they're tired of the
business they want to move on and sip
cocktails on the beach forever, so they
go and find a buyer for the business.
That's what falls under the umbrella of
M & A. There's different types of deal
structures, so fundamentally all these
things I'll describe, well all three of the
main ones are sales of businesses, but
you could sell the assets of the
business, which is a whole list of
computers, desks, people, files and records
and contracts like boom buyer buy it and
you transfer all that stuff to the buyer
kind of individually. It's still
ultimately the whole operation; people
hear assets sale and they think it's just a
piece of a business or something, it can
be the whole thing but it's done via its
assets. Another type is a stock or equity
sale and in that case, right, if you buy
my business computers and files and
customers all that sort of stuff, if you
buy that and I don't transfer you the
individual assets, you could buy the
equity interests, like the stock or LLC
interests or whatever partnership
interests and then you just sort of step
into my shoes if you will. You're not
transferred all the individual assets,
you're just taking over ownership of
this entity that holds this container
that holds all the assets and the third
major type is a merger and so mergers
are the least common of
the structures, I would say; they show up
a lot at the higher end of the market,
public companies merge for a couple main
reasons that mergers are often driven by
complex tax considerations that show up
in bigger deals or make sense to worry
about in bigger deals or the ease of
combining two companies, it's kind of a
simple way to do it actually. Sounds
complex and the drivers of a merger are
complex, but the paperwork itself like
the actual process of merging what
happens is company one comes together
with company two they come together and
one of them just disappears; it's this
magical thing that happens by operation
of law, one's just left standing and
there could be multiple
companies involved in things but it's
pretty seamless and then all of a sudden
all the assets and stuff that were in
this and the assets and stuff that were
in the other business are just together.
Now, they don't show up a lot in the
lower parts of the market so a lot of my
practice is in the mainstream part of
the market, which is sales of up to a
couple million bucks and then the lower
middle market--the middle markets pretty
broad range from a couple million up
into the hundreds of millions, but the
lower middle market I would define as 2
million to 50 million--so I kind of play
in that lower part of the space I've
done billion-dollar deals but when I was at
a big law firm charging a whole lot of
money and have huge, huge deal teams.
Today it's me and a couple others who are
contract attorneys who work for me; the
deals I do would be more around a couple
million dollars, five million, ten million
that kind of thing. So the mergers aren't
a big part of that. You see a lot more
asset sales at the very low end of the
market Main Street and then stock sales
starts to start to come in and again
it's not driven by the dollars at stake
it's driven by other things; if you do
assets or stock or merge but it does
tend to kind of group at different
points in the market. I have another
video if you want to check out about
more about these types of deal
structures for M&A, so asset sales and
stock sales and mergers and why you
might use one or the other and pros and
cons and what sellers usually like, what
buyers usually like. So that's sort of deal
structures and that's defining the
market, you know Main Street or middle
market, middle market you know upper, upper,
upper end,
which is a past life for me. And let's
talk a little bit about you know so why
people do it. So sellers might want to
take some chips off the table and they
could be sick, could be sick of the
business, could just think it doesn't
look like a good business going forward.
I mean fundamentally the way deals get
done is some seller is valuing
continuing to be in this situation less
than the buyer who comes in and wants to
buy it, right so sellers want to take
chips off the table. Maybe they feel like
it's hard to compete at the size they
are--I've got a client who's doing that,
we're going through a deal right now,
where he's just thinking you know it's
this business is just gotten much, much
harder, it's really a world of haves and
have-nots there's not much room for sort
of a little player and he's a relatively
little player in that mix and he's
thinking I got to do a deal or there may
not be a future for me in a couple years
that sort of thing is possible. On the
buyer side, fundamentally to grow your
business you have to decide between
buying something and growing organically
is the term, where instead of buying
another business you just launch another
business or division or something like
that but a buyer who wants to get into a
new market, where it's tough to break
into that market or type of customer
maybe to get in with a certain type of
customer when they haven't been able to
inroads with or you know break into a
new space start a new product line
things of this nature might view it as
easier just to buy their way in right.
Google, Facebook they're big acquirers;
they buy their way into markets right.
Facebook bought whatsapp; why did they do
that? There was no revenue I think at the
time and but they're looking to buy
technology and the user base and just
get going quick and they're willing to
pay something like a billion bucks for
that. So their reasons and they tend to
be around speed of starting, complexity
of building something out, barriers to
entry maybe it's hard to get in if the
network's already built, something like a
Facebook look I don't care who you are
but you shouldn't probably be trying to
compete with Facebook today, but if you
were Amazon or Apple or something you
might be inclined to buy them, I mean
you can't buy facebook at this point
they're so big, but the point being there
are reasons to want to buy rather than
then build let's talk about the players
in M&A. In my part of the market I
see business brokers and I see
investment bankers and they
fundamentally do the same thing in the
world. The business brokers are what
you'll see in the mainstream part of the
market and the bankers come in a little
bit higher up. Fundamentally they do the
same thing;
they're the ones who market the company.
So if you're looking to sell company I'm
probably not your first phone call,
though I'm happy to talk to you and feel
free to make it, probably want to figure
out who can help me find buyers and
that's not what I do as a corporate
lawyer. Go to a business broker if you're
selling a business worth about a million
dollars; they will decide whether or not
they think they can get the business
sold and we'll put together a seller's
memorandum, which might also be called
the confidential information memorandum
or it's a book you know in a small
company of like a two hundred thousand
dollar retail shop might be just a
two or three pager about the business.
Sometimes they'll do something called
the teaser, which is just meant to show
people who haven't really just a sort of
a surface level, without disclosing who
the seller is, what the general
opportunity is. So there could be a
teaser and then there's the book or the
offering materials and on a bigger deal,
when the investment bankers do a book it
can be 60 pages of stuff, you know
modeling out what's going on and taking
the financials and recasting them so the
teaser, if you use it, would be the
something to take a look at decide
whether or not you're interested and
then they'd get the potential buyer to
sign a non-disclosure agreement to see
the rest of it. But they'll put together
the brokers or the bankers that book,
then they'll help market the company
they do a lot like business brokers are a 
lot like real estate agents; they'll go
out and they'll list the business for
sale on a lot of websites, BizBuySell.com
is a big one. The investment
bankers don't really think of themselves
as having listings and a lot of their
deals, because they're not bought by
individuals the brokers are selling to
other individuals who have some money,
came into some money and inheritance and
they want to buy themselves a job or buy
into a business. The investment bankers
have larger deals, those deals don't sell
the individuals they sell to other
companies. So the bankers spent more time
curating a list of potential buyers,
contacting those potential buyers.
Sometimes they'll run something called
an auction, which is a process where they
get the potential buyers to come kind of
line up, take a look at everything, submit
offers you know there's a process to it
but fundamentally they both are engaged
to sell your business and they're both
gonna take sometimes some upfront money,
almost always a good portion could be
six or seven or ten percent depends on
the size of the deal, investment banking at the
higher levels will be lower, but they're
gonna take a commission for getting the
deal done. Then there's corporate lawyers
or business lawyers of which I am one.
Corporate lawyers don't litigate, they
don't go to court usually, some can but
you know we do stuff with contracts and
relationships in transactions and an M&A
deal is a transaction; there's parties
coming together, a buyer and a seller. We
do the documentation to put together the
purchase agreement. We can help with due
diligence, which is the process of
kicking the tires, making sure that you
as a buyer are getting what you think
you're buying. We give advice around that
to sellers, how to structure deals, risks,
we talk a lot in these purchase
agreements about liabilities and risk
and is it capped, you know there's things
called caps on what uh if the seller
sells the business and misleads the
buyer, well the seller could be liable
no matter what. But the seller could sell
the business and the next day something
could go wrong and the seller had no
idea, the document we put together, the
purchase agreement we'll talk about what
happens then, we spend a lot of time on
that. How to assign the assets, things
like that. So that's my stuff, it really
is around documentation so you almost
always see, in any sort of any
transaction 10, 20, 50 million, I mean
it's possible they just meet each other
and they just do a deal but almost
always will be corporate lawyers on each
side negotiating the deal terms and
taking that deal from the you know, from
the air and putting it on paper and to
make it clear to everyone later on. The
lower end of the market you might see
business appraisers be involved. At the
higher end of, you know to kind of figure
out value, now it's all negotiated so
there doesn't have to be an appraisal. If
the buyer on a deal is
getting financing a bank might order an
appraisal; bigger deals that's not,
those don't get appraised like that. New
investors decide whether or not they're
gonna fund a deal like that. Accountants
are involved sometimes, there's tax
advisers and things like that and then
occasionally there's consultants around
it for various reasons; there could
be integration consultants on a much
bigger deal with lots of personnel, lots
of contracts, lots of IT systems, CRM
systems, stuff like that that needs to be
integrated. You can have a lot around how
do we integrate these companies and some
of that might be human resources, it
might be kind of, you know soft stuff
about people and performance plans and
some of it might be, you know hard like
things that are more like IT and the big
four, I don't the big three now, whatever
the ever declining number of like big
accounting, accountancies have have a
practice around M&A and some of it is
sort of that investment banker kind of
thing actually. Some of the M&A practices
do that consulting and marketing of the
company and others do integration is a
big piece. So those are the big players
in M&A; business brokers, investment bankers
they do the same thing, corporate lawyers,
accountants, tax advisers, general
consultants who help with integration
and so forth. So it's a very sort of sexy
space, that said you know gets kind of
routine sometimes, I mean it's fun it's
interesting, it's fundamentally a
transaction that people are excited about, it's
changing their life. So that's all great
but small and Main Street sort of deals
are pretty kind of easy, straightforward
deals for the most part, but for for me I
mean having done a lot of it but buyers
and sellers that's a big deal, they're
changing you know their life so it is it's a lot of fun, even if it's not on the
front page of The Wall Street Journal.
That's pretty much it, right? What does M&A mean?
Who are the players? Why are
people doing it?
I've got other videos to talk about M&A
so we'd love to hear from you, if you've
never bought a company, if you're
thinking about buying a company, if you
bought companies and you didn't use a
corporate lawyer and a guy called me
who's doing a nine million dollar deal
and he's going to DIY it which is
interesting, but I'm really curious like
if you run into the players and which
ones you think add a lot of value and
which ones don't or hearing some of your
war stories are always fun. So feel free
to drop me a line or put a comment
in. Thanks for listening today.
