Navigating Legal Considerations in Small Business M&A Deals | Ep. 30

Before You Buy or Sell a Business

In this episode, host Jared Johnson interviews Eric Pacifici, an attorney specializing in small and medium-sized business (SMB) mergers and acquisitions (M&A).

Eric shares valuable insights and advice for buyers and sellers in the acquisition process. He emphasizes the importance of having legal representation and discusses key contractual terms such as indemnity and non-compete clauses. Eric also addresses the cost of legal services and the benefits of a fixed fee model.

He highlights common challenges in SMB M&A deals, including issues with quality of earnings and seller disputes. Eric provides practical strategies for mitigating risks, such as addressing customer concentration and involving investors in the deal. Throughout the conversation, Eric's passion for SMB M&A shines through, as he offers valuable guidance for navigating the complexities of these transactions.

Key Takeaways:

• Treat your bank as an ally, not an adversary. Your interests are aligned, and the bank can help identify potential issues such as customer concentration.
• The three most important contractual terms in an SMB M&A deal are indemnity, non-compete, and a strong letter of intent.
• Quality of earnings is a crucial aspect of due diligence. Hiring a quality of earnings provider can help uncover potential issues and protect your investment.
• Customer concentration is a common challenge in SMB deals. Mitigate this risk by including contingent compensation in the purchase agreement or promissory note.
• When bringing in investors, consider their control rights, objectives for the business, and potential impact on governance.

Notable Quotes:

• "You're risking your financial life. You're taking multimillion-dollar personally guaranteed debt. You need to have a checklist of things that you need in your deal."
• "Don't be a jerk, but you don't need to walk on eggshells. You're risking your financial life, and you can always pull the plug and go do another deal."
• "Find smart money people who can serve as strategic advisors. It's better to have strategic alignment than just generic dollars."

Resources:

• SMB Law Group
• Eric Pacifici on Twitter
• Eric Pacifici on LinkedIn

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If you have questions for Jared, visit JaredWJohnson.com

DISCLAIMER: The views and opinions expressed in this program are my own and/or those of my guests. They do not necessarily reflect the views or positions of my employer.