Speaker 1: Hi, everyone. Today, we're gonna talk about mergers and acquisitions. We're gonna do the 101, sort of the intro level course in five or six or 10 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 Senkis. 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 wanna 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 can 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 asset 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, if you buy my business, computers and files and customers and 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 transferring 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 multiples, 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 main street part of the market, which is sales of up to a couple million bucks, and then the lower middle market. The middle market's pretty broad range, from a couple million up into the hundreds of millions, but the lower middle market I would define as two 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 other sort of contract attorneys who work for me. The deals I do would be more around a couple million dollars, five million, 10 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 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 deals 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, main street, lower middle market, middle market, upper, upper, upper end, which is a past life for me. And let's talk a little bit about, so why people do it. So sellers might want to take some chips off the table, 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, this business has 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 gotta 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 they haven't been able to get inroads with, or 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, and 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, 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 there are 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, maybe you can't buy Facebook at this point, they're so big, but the point being, there are reasons to wanna buy rather than build. Let's talk about the players in M&A. They're, 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 main street 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 a company, I'm probably not your first phone call, though I'm happy to talk to you, and feel free to make it. Probably wanna 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, and they will decide whether or not they think they can get the business sold. They will 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 $200,000 retail shop, it might be just a two or three pager about the business. Sometimes they'll do something called a teaser, which is just meant to show people who haven't really, just sort of a surface level without disclosing who the seller is, what the general opportunity is. So there can 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 something to take a look at to 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, I mean, 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, an inheritance, and they wanna buy themselves a job or buy into a business. The investment bankers have larger deals. Those deals don't sell to individuals, they sell to other companies. So the bankers spend 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 and 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 10%, 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 and transactions, and an M&A deal is a transaction. There's parties coming together, a buyer and a seller. We do the documentation, so we'll put together the purchase agreement. We can help with due diligence, which is the process of kicking the tires and 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 a, if the seller sells the business and misleads the buyer, well, the seller's gonna 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, well, 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 air and putting it on paper 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, 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 advisors and things like that. And then occasionally there's consultants around it, one 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 soft stuff about people and performance plans, and some of it might be hard, like things that are more like IT. And the big four, I don't know if it's the big three now, whatever the ever declining number of big accounting accountancies, 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 as a big piece. So those are the big players in M&A. You can visit brokers, investment bankers, they do the same thing, corporate lawyers, accountants, tax advisors, general consultants who help with integration, and so forth. So it's a very sort of sexy space. That said, it gets kind of routine sometimes. I mean, it's fun, it's interesting, it's fundamentally transactive, people are excited about it, it's changing their lives, 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 me, I mean, having done a lot of it, but buyers and sellers, yeah, it's a big deal. They're changing their life. So it's a lot of fun, even if it's not on the front page of the Wall Street Journal. I think that's pretty much it, right? What is M&A, and who are the players, and why are people doing it? 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've bought companies and you didn't use a corporate lawyer, I had a guy call me who was doing a $9 million deal and he was gonna 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.