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By Richard D. Harroch, David A. Lipkin and Richard V. Smith

Selling your company can be difficult and time-consuming. Mergers and acquisitions (“M&A”) require advance preparation, sophisticated advisors, a dedicated management team, and an understanding of the key business and legal issues involved. The following are a number of key lessons learned from M&A transactions involving the sale of private companies, from the perspective of the selling company:

1. Time

Time is the enemy of all M&A deals for a seller. The price and terms typically only get worse if the process drags on, and there is the risk of the deal falling apart. New issues could arise that result in the price being lowered. The M&A process can take a very long time, and there has to be a driving force on the sell-side and timetable to get the deal to closure. It also helps for there to be a dedicated advocate on the buy-side of the deal to keep the deal moving along.

2. Competitive Process

One of the most important steps in accomplishing a successful M&A exit is to get multiple potential buyers interested. A competitive process helps ensure getting the best price and the best terms, and allows a company to fend off unreasonable requests from one bidder.

3. Due Diligence Preparation

Sellers have to understand that they will be subject to an extensive due diligence investigation, and they must be prepared in advance for all that entails. The buyer will want to see detailed financial statements, copies of all material contracts, information on key intellectual property, employee and benefit arrangements, and much more. Normally, the seller needs to have all of that information in an online data room, which can be quite time-consuming to get correct and complete. Sophisticated bidders will tell the selling company that preparing a comprehensive and well-organized online data room is important. The company will typically respond that it is organized and on top of it—but the selling company often doesn’t understand the enormity of the undertaking involved. (See The Importance of Online Data Rooms in Mergers and Acquisitions.)

4. Non-Disclosure Agreement

It is important for a selling company to have a comprehensive non-disclosure agreement in place with interested buyers. Such agreements should include a prohibition on solicitation of the seller’s employees. (See The Key Elements of Non-Disclosure Agreements.)

5. Investment Banker

A talented investment banker or advisor is important, with the right individual lead person. Key terms for the investment banker engagement letter will include their fee, the “tail” provisions (the circumstances under which the banker is entitled to a fee after termination), indemnification obligations, and conflict of interest provisions. The first draft of a banker engagement letter is always favorable to the banker and needs to be negotiated. (See Negotiating Investment Banker Engagement Letters.)

6. Judgment

You have to have judgment as to what is and isn’t important, and the ability to make quick decisions in the negotiations. Receiving advice from experienced financial and legal advisors is essential. Whether you win a point or not is all about leverage or perceived leverage. You also need to understand where and when your leverage is best exercised, and how to effectively trade unimportant points to win the points that matter most.

7. Exclusivity

Buyers want to obtain exclusivity in negotiations as early as they can in the process to avoid competitors or an auction-type scenario. From the seller’s perspective, this buyer request can give the seller leverage to improve high-level deal terms at the outset of a deal. As the seller, you want to delay granting exclusivity as long as you can in order to optimize the deal terms and continue discussions with other interested bidders, and only reluctantly agree to exclusivity if you have no choice or if you have at least gotten to a detailed letter of intent. Sellers want to have a very short exclusivity period (15 to 21 days) and buyers typically want a longer one (45 to 60 days). From the seller’s perspective, it will want the exclusivity period to terminate early if the buyer proposes a lower price or any other worse terms than detailed in the letter of intent. The seller also wants to make sure that any extension of the exclusivity period requires that the buyer affirm its price and terms and that they have completed their due diligence.

8. Letter of Intent

It is often in the seller’s best interest that a detailed letter of intent with seller-favorable terms is agreed to early on, because once exclusivity is granted to a potential buyer, most of the negotiating leverage shifts to the buyer. Therefore, it becomes important to negotiate in the letter of intent all the key terms: price, terms of payment, representation and warranties insurance terms, escrow/holdback, indemnification obligations by the shareholders, key employee issues, pre-closing obligations, post-closing obligations, closing conditions, dispute resolution (such as mandatory confidential arbitration), and much more. (See Negotiating an Acquisition Letter of Intent.)

9. Price and Type of Consideration

The price and type of consideration are issues that will need to be addressed early in the process, and these go beyond agreeing on the “headline” price. Here are some of these issues:

  • Whether the purchase price will be paid entirely in cash payable in full at the closing.
  • If the stock of the buyer is to represent part or all of the consideration, the terms of the stock (common or preferred), liquidation preferences, dividend rights, redemption rights, voting and Board rights, restrictions on transferability (if any), and registration rights.
  • If a promissory note is to be part of the consideration, what the interest and principal payments will be, whether the note will be secured or unsecured, whether the note will be guaranteed by a third party, what the key events of default will be, and the extent to which the seller has the right to accelerate payment of the note upon a breach by the buyer.
  • Whether the price will be calculated on a “debt-free and cash-free” basis at the closing of the deal (enterprise value) or whether the buyer will assume or take subject to the seller’s indebtedness and be entitled to the seller’s cash (equity value).
  • Whether there will be a working capital-based adjustment to the purchase price, and, if so, how working capital will be calculated. This is ultimately just an adjustment up or down to the purchase price. The buyer may argue that it should get the business with a “normalized” level of working capital. The seller will argue that if there is a working capital adjustment clause, the target working capital should be low or zero. This working capital adjustment mechanism, if not properly drafted or if the target amounts are improperly calculated, could result in a significant adjustment in the final purchase price to the detriment and surprise of the adversely affected party.
  • If part of the consideration is comprised of a contingent earnout arrangement, how the earnout will work, the milestones to be met (such as revenues or EBITDA and over what period of time), what payments are to be made if milestones are met, what protections will be offered to the seller to enhance the likelihood of the earnout being paid (such as acceleration of payment of the earnout if the business is sold again by the buyer), information and inspection rights, and more. Earnouts are complex to negotiate and tend to be the source of frequent post-closing disputes and sometimes litigation. Precision in drafting these provisions and agreement on suitable dispute resolution processes are essential.

10. Lawyers

The selling company’s regular outside counsel will often be inadequate for an M&A event, but there may be great pressure to keep him/her notwithstanding (based on the good work such counsel has performed outside the M&A context). That is a mistake. The company needs a competent, full-time M&A lawyer. If the existing counsel is otherwise well regarded, they should continue to assist the M&A counsel. Your lawyer has to be dedicated and know the urgency of getting things done, but he or she can’t be difficult for the other side to deal with.

11. Strategic Partners

Strategic partners can be the best acquirers. But you have to understand and convince the strategic partner why the acquisition fits in with the buyer’s existing and future business plans. Some strategic investors are granted rights of first refusal or first negotiation as part of early-stage financings or commercial arrangements. This grant is understandable at the time of the financing or commercial arrangement. However, they should be resisted (if possible) and need to be navigated carefully in order to ensure the best possible deal for stockholders. Also, due diligence can be a riskier proposition if the potential acquirer is a direct competitor of the seller.

12. Disclosure Schedule

You absolutely have to start preparing the disclosure schedule (the schedule attached to an acquisition agreement that lists contracts, capitalization, intellectual property, litigation, etc., and exceptions to representations and warranties that would otherwise not be accurate) as early in the process as possible. It’s time-consuming, requires many drafts and can hold up a deal. A great disclosure schedule is the best insurance against post-closing indemnification claims by a buyer. (See The Importance of Disclosure Schedule in Mergers and Acquisitions.)

13. Fiduciary Duty

The Board of Directors of the seller needs to understand its fiduciary duties and engage in a deliberative, thoughtful process to limit liability issues for the company and the Board. Early on, the Board needs to identify and be sensitive to actual and potential conflicts of interest.

14. Shareholders

Shareholder issues need to be dealt with early on. What shareholder approvals will be necessary? How quickly can they be obtained? Will there be dissenters’ or appraisal rights issues? Will the deal require the approval of any shareholder or group of shareholders who are unhappy about the way the company has been run or the return on their investment?

15. M&A Committee

An M&A Committee of the Board is often established, and it’s essential that such a committee can act quickly and nimbly. The benefit of such a committee is to help expedite the negotiating process and limit the burden on the entire Board.

16. Employee Issues

Employee retention/incentive issues can have significant cost and closing condition implications. The seller will want to make sure that its management team and employees will be treated fairly and incentivized by the buyer moving forward, but if the buyer tries to impose the cost of such treatment on the seller, significant issues can arise. The buyer will want to spend a great deal of time with management and employees, as it will want to ensure that the employees will come on board, be motivated, and will be a good fit with the buyer’s culture. In addition, key management who receive certain accelerated or other deal-related payments should be concerned that they won’t suffer adverse tax consequences as a result of Internal Revenue Code Section 280G.

17. Financial Projections

The buyer will spend a great deal of time studying the seller’s financial projections, getting comfortable with the assumptions and the key metrics. The selling company’s CEO and CFO absolutely have to be comfortable and knowledgeable about every component of the projections and be prepared to justify their reasonableness to the buyer.

18. Intellectual Property

The intellectual property due diligence during the M&A process may be incredibly intensive. The seller must be on top of all of its patent filings, trademarks, copyrights, domain names, open source software, etc. The seller also needs to be prepared to deal with the extensive intellectual property representations and warranties that will be proposed by the buyer, and the possibility that the buyer will try to characterize these representations and warranties as “fundamental” (resulting in lengthier survival periods and greater liability exposure). Buyers are also increasingly concerned about data privacy and cybersecurity issues. (See 13 Key Intellectual Property Issues in Mergers & Acquisitions.)

19. Incomplete Records

Sellers almost always have problems with incomplete Board and stockholder minutes, option agreements, contracts with all amendments, etc. An early internal review of these matters (and correction or completion of such materials as needed) is important, as these problems can hold up a deal.

20. Consents

The seller has to review and understand what consents it will need from other parties to its contracts in connection with the acquisition. Sellers should attempt to limit or eliminate any consent requirements that could slow up or kill a deal, or permit landlords, licensors, or other third parties to demand increased payments in exchange for such consent.

21. Disclosure

There is a careful balancing act between wanting to disclose to the potential buyer everything about the business early in the process (to avoid misunderstandings later) and limiting disclosure of the really important secrets or other confidential information until a deal is near certain. Sellers need to be concerned about a potential buyer going away armed with important knowledge they could use to compete with the seller’s business, particularly if the potential buyer is a competitor.

22. Definitive M&A Agreement

The definitive acquisition agreement is hugely important to both the seller and the buyer. There are many issues that need to be negotiated, and sophisticated M&A counsel is essential for the seller. Some of the more important issues include: (a) will there be an escrow or holdback of the purchase price or will the buyer solely rely on representations and warranties insurance, and if there is an escrow, will the escrow serve as the sole remedy for a breach of the acquisition agreement; (b) what are the scope of the seller’s representations and warranties and how many can be qualified by “knowledge” and “materiality” caveats; (c) what are the covenants of the seller and any shareholders prior to closing and after the closing; (d) what are the key conditions to closing the deal; (e) how are various risks allocated, such as litigation, intellectual property issues, unknown liabilities, etc.; (f) how are employees to be treated; (g) what are the indemnification obligations of the parties; (h) how can the M&A agreement be terminated before a closing and what are the financial consequences; (h) what regulatory requirements (such as antitrust approvals) must be satisfied before closing and what issues will these raise; and (i) how are disputes to be resolved (e.g., by arbitration). (See 18 Key Issues for Negotiation Merger and Acquisition Agreements for Technology Companies.)

23. The CEO’s Role

The CEO’s role in an M&A process is hugely important. The CEO has to sell the vision for the business and clearly articulate why the company is such an attractive and growing business with sophisticated and differentiated technology, products, or services. The CEO must have an understanding of the fundamental legal and business issues that will arise and be able to make many judgment calls on those issues. The CEO also needs to keep the Board, the M&A Committee, and key investors informed at each stage of the process. The CEO is often put in a difficult position—to negotiate tough on key terms of the deal, knowing that he or she is negotiating with a future employer and not wanting to be perceived as difficult; this problem is exacerbated if the buyer is a private equity investor offering the CEO and other members of management a piece of the post-closing equity. That is why it may be better for a financial advisor or the M&A Committee of the Board to take the lead in negotiating the deal terms/acquisition agreement, which then permits the CEO to act as a facilitator to get the deal done.

24. Shareholder Representative

It’s important to engage a good third-party shareholder representative service to deal with post-closing issues. These include administration of the indemnity escrow provisions, dealing with the working capital and other price adjustment provisions, and enforcing any earnout provisions. It’s not a good idea to have these critical tasks handled by an unpaid volunteer from among the investor ranks.

25. Deviations from Projections During the M&A Process

Since an acquisition process can take a significant period of time to complete, one issue that can come up is the variability of the financial performance of the business while the M&A deal is pending. If the seller misses its projected financial numbers during the process, a buyer can see this as a red flag and require a reduced purchase price or may even terminate the negotiations. Therefore, it is imperative that the management team keeps its eye on the ball in running the business (even though they will be distracted by the M&A process), and that the projections presented to the buyer for the anticipated diligence and negotiating period be easily obtainable.

Related Articles:

Copyright © Richard D. Harroch. All Rights Reserved.

About the Authors

Richard D. Harroch is a Managing Director and Global Head of M&A at VantagePoint Capital Partners, a large venture capital fund in the San Francisco area. His focus is on internet, digital media, and software companies, and he was the founder of several internet companies. His articles have appeared online in Forbes, Fortune, MSN, Yahoo, FoxBusiness, and AllBusiness.com. Richard is the author of several books on startups and entrepreneurship as well as the co-author of Poker for Dummies and a Wall Street Journal-bestselling book on small business. He is the co-author of the recently published 1,500-page book by Bloomberg, Mergers and Acquisitions of Privately Held Companies: Analysis, Forms and Agreements. He was also a corporate and M&A partner at the law firm of Orrick, Herrington & Sutcliffe, with experience in startups, mergers and acquisitions, and venture capital. He has been involved in over 200 M&A transactions and 250 startup financings. He can be reached through LinkedIn.

David A. Lipkin is an M&A partner in the Silicon Valley and San Francisco offices of the law firm of McDermott Will and Emery LLP. He represents public and private acquirers, target companies, and company founders in large, complex, and sophisticated M&A transactions, as well as working with startups and other emerging growth companies. David has been a leading M&A practitioner in the Bay Area for 20 years, prior to that having served as Associate General Counsel (and Chief Information Officer) of a subsidiary of Xerox and practiced general corporate law in San Francisco. He has been recognized for his M&A work in the publication The Best Lawyers in America for several years, and is the co-author of the recently published 1,500-page book by Bloomberg, Mergers and Acquisitions of Privately Held Companies: Analysis, Forms and Agreements. He is a member of the Board of Directors of the Giffords Law Center to Prevent Gun Violence, and has served on additional educational and charitable boards. He has been involved in over 200 M&A transactions. He can be reached through LinkedIn.

Richard V. Smith is a partner in the Silicon Valley and San Francisco offices of Orrick, Herrington & Sutcliffe LLP, and a member of its Global Mergers & Acquisitions and Private Equity Group. He specializes in the areas of mergers and acquisitions, corporate governance and activist defense. Richard has advised on more than 500 M&A transactions and has represented clients in all aspects of mergers and acquisitions transactions involving public and private companies, corporate governance, and activist defense. He is the co-author of the recently published 1,500-page book by Bloomberg, Mergers and Acquisitions of Privately Held Companies: Analysis, Forms and Agreements. He can be reached through LinkedIn.

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Furniture Market Statistics

Thanks to social media, many people now want to buy unique, picture-perfect furniture. But they also don’t want to spend money on shipping charges.

Furniture Market Statistics

According to Dream Décor Report 2019, “40% of consumers would turn to a major retailer like Amazon or Wayfair if a boutique retailer didn’t offer free shipping, though 11% of consumers had regretted buying mass-produced furniture from a major retailer like Amazon and Wayfair.”

For boutiques, small furniture retailers and home décor retailers, like you, it is a significant opportunity to grow.

You just need to cater to consumers who don’t want to go for mass-produced products and offer those consumers unique furniture items.

What People Feel About Their Furniture

Social media play an important role in our lives. Many of us tend to share our happy moments instantly on social media. So many people want to have picture-perfect furniture.

15% of consumers have felt that others judge their home décor and furniture, and 18% of consumers have felt pressure to have Instagram-worthy furniture at their homes, as found in the report.

What people feel about their furniture

Image: uShipThe report also states that 14% of people feel that big retailers have too many options, making it difficult to choose the right furniture.

Furthermore, many times, big retailers that often sell mass-produced products don’t have the furniture items people want to buy. And consumers end up buying mass-produced furniture.

11% of people, according to the report, regretted purchasing mass-produced furniture.

What Buyers want

Consumers want to have unique furniture. In fact, 25% of people agree that they would likey to buy furniture item that is not mass-produced.

What buyers want

image:uShipAre people ready to pay more for a unique furniture item?

Yes, they are!

31% of people are ready to pay more than their intended budget if they find the perfect item, the survey reports.

How Small Furniture Retailers Can Boost Growth

Small furniture retailers or home décor retailers don’t sell mass-produced products. So there is a huge scope for them to grow their business if they focus on improving their shipping process.

People want to buy a unique piece of furniture but not only they expect free delivery but they also want quick delivery.

How small furniture retailers can boost growth

image:uShipSmall retailers can delight their consumers by adoption shipping innovations.

In a time when 65% of retailers are going to offer the same-day-delivery by the end of this year, no consumer wants to stay in the dark when it comes to getting their furniture delivered.

Here are some shipping innovations to win your consumers’ heart:

  • Offer first-to-final mile delivery
  • Provide live tracking option
  • Provide instant final quote at checkout
  • Try to minimize shipping charge

Kris Lamb, CEO of uShip, says, “It’s never been more important for retailers, big and small, to focus on the entire customer journey.”

“In our experience, boutique retailers have a lot to offer the Instagram-loving, digital-first customer in terms of desirable items, but struggle to compete with fast, free shipping. We hope these insights will help boutique-style retailers address the growing needs of a solid buying experience,” She continues.

The Report

The survey was conducted online by the third-party research firm YouGovPlc. 1227 people (aged+18) participated in the survey. 330 people of the total had purchased an oversized piece of furniture in the past year.

Image: Depositphotos.com

This article, “Your Customers Want Unique Furniture But Don’t Want to Pay for Shipping” was first published on Small Business Trends

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Social media has always been a strange marketing channel. On one hand, Facebook gave businesses a unique ability to find their markets and build relationships. No other marketing tool has been able to reach such large numbers of people and allow businesses to maintain a long-standing connection with them. Despite the ability to enact some type of direct response marketing tactics, those connections don’t immediately translate into sales.

Social Media Content + Branding = Direct Response Marketing

That’s where content marketing steps in. Typically described as “branding” or “engagement-building,” content marketing’s success has been measured by reactions and shares, not by sales. The sales come later.

In many ways, companies are okay with that process. They know social media has contributed to those future purchases. In fact, it’s easier to land a new customer when the lead acknowledges they have a problem and knows there’s a solution.

Even easier is when leads know and trust your solution. Facebook has been an ideal social media marketing solution for raising awareness about those solutions. The social media channel has also helped to build that trust. As a result, conversions can take place when the offer is made.

Using Live Video to Propel Direct Response Marketing

That’s especially true when it comes to live video on social media. Marketers who have used live video have found that there’s no better way to bring leads closer to a sale. Businesses can demonstrate their products, show people how to make the most of them, and emphasize the extra value customers receive from their purchase.

At the same time, though, companies can communicate directly with their audiences. The ability to directly interact builds the trust necessary to convince people to buy from a particular brand.  For example, as viewers watch, sellers can answer questions and quash objections. They get a first-hand view of the benefits available from selecting that product.

Until now, even live video hasn’t been able to close the deal. On the other hand, infomercials have always been able to show the price of the product, flash a phone number, and urge viewers to make a purchase. With live video, sending viewers to a sales page where they can take that action just hasn’t been the best process process.

New Solutions For Direct Sales Results

However, there may be a potential solution waiting in the wings. BeLive, which makes a leading third-party add-on for Facebook Live, recently launched a live shopping list feature. Users can now showcase their products, including item descriptions and prices during the live broadcast.

It’s a simple feature. But, it’s one that promises to make a big difference not just to live video marketing but to social media marketing, in general.

If marketers on a social media platform are able to present information about a product, including its price and sales points, and direct viewers to a place where they can make a purchase, then social media is no longer just about branding and engagement. It’s about sales.

With this transfomation, it’s possible to add a new direct sales benefit to social media content. Marketers can leverage new techniques to finesse the content. Also, there are an expanded number of metrics to measure direct response marketing success.

Although we’re not quite there yet, the direction is clear. Ssocial media marketing is moving toward direct sales. Are you ready, marketers?

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By Richard D. Harroch, David A. Lipkin and Richard V. Smith

Selling your company can be difficult and time-consuming. Mergers and acquisitions (“M&A”) require advance preparation, sophisticated advisors, a dedicated management team, and an understanding of the key business and legal issues involved. The following are a number of key lessons learned from M&A transactions involving the sale of private companies, from the perspective of the selling company:

1. Time

Time is the enemy of all M&A deals for a seller. The price and terms typically only get worse if the process drags on, and there is the risk of the deal falling apart. New issues could arise that result in the price being lowered. The M&A process can take a very long time, and there has to be a driving force on the sell-side and timetable to get the deal to closure. It also helps for there to be a dedicated advocate on the buy-side of the deal to keep the deal moving along.

2. Competitive Process

One of the most important steps in accomplishing a successful M&A exit is to get multiple potential buyers interested. A competitive process helps ensure getting the best price and the best terms, and allows a company to fend off unreasonable requests from one bidder.

3. Due Diligence Preparation

Sellers have to understand that they will be subject to an extensive due diligence investigation, and they must be prepared in advance for all that entails. The buyer will want to see detailed financial statements, copies of all material contracts, information on key intellectual property, employee and benefit arrangements, and much more. Normally, the seller needs to have all of that information in an online data room, which can be quite time-consuming to get correct and complete. Sophisticated bidders will tell the selling company that preparing a comprehensive and well-organized online data room is important. The company will typically respond that it is organized and on top of it—but the selling company often doesn’t understand the enormity of the undertaking involved. (See The Importance of Online Data Rooms in Mergers and Acquisitions.)

4. Non-Disclosure Agreement

It is important for a selling company to have a comprehensive non-disclosure agreement in place with interested buyers. Such agreements should include a prohibition on solicitation of the seller’s employees. (See The Key Elements of Non-Disclosure Agreements.)

5. Investment Banker

A talented investment banker or advisor is important, with the right individual lead person. Key terms for the investment banker engagement letter will include their fee, the “tail” provisions (the circumstances under which the banker is entitled to a fee after termination), indemnification obligations, and conflict of interest provisions. The first draft of a banker engagement letter is always favorable to the banker and needs to be negotiated. (See Negotiating Investment Banker Engagement Letters.)

6. Judgment

You have to have judgment as to what is and isn’t important, and the ability to make quick decisions in the negotiations. Receiving advice from experienced financial and legal advisors is essential. Whether you win a point or not is all about leverage or perceived leverage. You also need to understand where and when your leverage is best exercised, and how to effectively trade unimportant points to win the points that matter most.

7. Exclusivity

Buyers want to obtain exclusivity in negotiations as early as they can in the process to avoid competitors or an auction-type scenario. From the seller’s perspective, this buyer request can give the seller leverage to improve high-level deal terms at the outset of a deal. As the seller, you want to delay granting exclusivity as long as you can in order to optimize the deal terms and continue discussions with other interested bidders, and only reluctantly agree to exclusivity if you have no choice or if you have at least gotten to a detailed letter of intent. Sellers want to have a very short exclusivity period (15 to 21 days) and buyers typically want a longer one (45 to 60 days). From the seller’s perspective, it will want the exclusivity period to terminate early if the buyer proposes a lower price or any other worse terms than detailed in the letter of intent. The seller also wants to make sure that any extension of the exclusivity period requires that the buyer affirm its price and terms and that they have completed their due diligence.

8. Letter of Intent

It is often in the seller’s best interest that a detailed letter of intent with seller-favorable terms is agreed to early on, because once exclusivity is granted to a potential buyer, most of the negotiating leverage shifts to the buyer. Therefore, it becomes important to negotiate in the letter of intent all the key terms: price, terms of payment, representation and warranties insurance terms, escrow/holdback, indemnification obligations by the shareholders, key employee issues, pre-closing obligations, post-closing obligations, closing conditions, dispute resolution (such as mandatory confidential arbitration), and much more. (See Negotiating an Acquisition Letter of Intent.)

9. Price and Type of Consideration

The price and type of consideration are issues that will need to be addressed early in the process, and these go beyond agreeing on the “headline” price. Here are some of these issues:

  • Whether the purchase price will be paid entirely in cash payable in full at the closing.
  • If the stock of the buyer is to represent part or all of the consideration, the terms of the stock (common or preferred), liquidation preferences, dividend rights, redemption rights, voting and Board rights, restrictions on transferability (if any), and registration rights.
  • If a promissory note is to be part of the consideration, what the interest and principal payments will be, whether the note will be secured or unsecured, whether the note will be guaranteed by a third party, what the key events of default will be, and the extent to which the seller has the right to accelerate payment of the note upon a breach by the buyer.
  • Whether the price will be calculated on a “debt-free and cash-free” basis at the closing of the deal (enterprise value) or whether the buyer will assume or take subject to the seller’s indebtedness and be entitled to the seller’s cash (equity value).
  • Whether there will be a working capital-based adjustment to the purchase price, and, if so, how working capital will be calculated. This is ultimately just an adjustment up or down to the purchase price. The buyer may argue that it should get the business with a “normalized” level of working capital. The seller will argue that if there is a working capital adjustment clause, the target working capital should be low or zero. This working capital adjustment mechanism, if not properly drafted or if the target amounts are improperly calculated, could result in a significant adjustment in the final purchase price to the detriment and surprise of the adversely affected party.
  • If part of the consideration is comprised of a contingent earnout arrangement, how the earnout will work, the milestones to be met (such as revenues or EBITDA and over what period of time), what payments are to be made if milestones are met, what protections will be offered to the seller to enhance the likelihood of the earnout being paid (such as acceleration of payment of the earnout if the business is sold again by the buyer), information and inspection rights, and more. Earnouts are complex to negotiate and tend to be the source of frequent post-closing disputes and sometimes litigation. Precision in drafting these provisions and agreement on suitable dispute resolution processes are essential.

10. Lawyers

The selling company’s regular outside counsel will often be inadequate for an M&A event, but there may be great pressure to keep him/her notwithstanding (based on the good work such counsel has performed outside the M&A context). That is a mistake. The company needs a competent, full-time M&A lawyer. If the existing counsel is otherwise well regarded, they should continue to assist the M&A counsel. Your lawyer has to be dedicated and know the urgency of getting things done, but he or she can’t be difficult for the other side to deal with.

11. Strategic Partners

Strategic partners can be the best acquirers. But you have to understand and convince the strategic partner why the acquisition fits in with the buyer’s existing and future business plans. Some strategic investors are granted rights of first refusal or first negotiation as part of early-stage financings or commercial arrangements. This grant is understandable at the time of the financing or commercial arrangement. However, they should be resisted (if possible) and need to be navigated carefully in order to ensure the best possible deal for stockholders. Also, due diligence can be a riskier proposition if the potential acquirer is a direct competitor of the seller.

12. Disclosure Schedule

You absolutely have to start preparing the disclosure schedule (the schedule attached to an acquisition agreement that lists contracts, capitalization, intellectual property, litigation, etc., and exceptions to representations and warranties that would otherwise not be accurate) as early in the process as possible. It’s time-consuming, requires many drafts and can hold up a deal. A great disclosure schedule is the best insurance against post-closing indemnification claims by a buyer. (See The Importance of Disclosure Schedule in Mergers and Acquisitions.)

13. Fiduciary Duty

The Board of Directors of the seller needs to understand its fiduciary duties and engage in a deliberative, thoughtful process to limit liability issues for the company and the Board. Early on, the Board needs to identify and be sensitive to actual and potential conflicts of interest.

14. Shareholders

Shareholder issues need to be dealt with early on. What shareholder approvals will be necessary? How quickly can they be obtained? Will there be dissenters’ or appraisal rights issues? Will the deal require the approval of any shareholder or group of shareholders who are unhappy about the way the company has been run or the return on their investment?

15. M&A Committee

An M&A Committee of the Board is often established, and it’s essential that such a committee can act quickly and nimbly. The benefit of such a committee is to help expedite the negotiating process and limit the burden on the entire Board.

16. Employee Issues

Employee retention/incentive issues can have significant cost and closing condition implications. The seller will want to make sure that its management team and employees will be treated fairly and incentivized by the buyer moving forward, but if the buyer tries to impose the cost of such treatment on the seller, significant issues can arise. The buyer will want to spend a great deal of time with management and employees, as it will want to ensure that the employees will come on board, be motivated, and will be a good fit with the buyer’s culture. In addition, key management who receive certain accelerated or other deal-related payments should be concerned that they won’t suffer adverse tax consequences as a result of Internal Revenue Code Section 280G.

17. Financial Projections

The buyer will spend a great deal of time studying the seller’s financial projections, getting comfortable with the assumptions and the key metrics. The selling company’s CEO and CFO absolutely have to be comfortable and knowledgeable about every component of the projections and be prepared to justify their reasonableness to the buyer.

18. Intellectual Property

The intellectual property due diligence during the M&A process may be incredibly intensive. The seller must be on top of all of its patent filings, trademarks, copyrights, domain names, open source software, etc. The seller also needs to be prepared to deal with the extensive intellectual property representations and warranties that will be proposed by the buyer, and the possibility that the buyer will try to characterize these representations and warranties as “fundamental” (resulting in lengthier survival periods and greater liability exposure). Buyers are also increasingly concerned about data privacy and cybersecurity issues. (See 13 Key Intellectual Property Issues in Mergers & Acquisitions.)

19. Incomplete Records

Sellers almost always have problems with incomplete Board and stockholder minutes, option agreements, contracts with all amendments, etc. An early internal review of these matters (and correction or completion of such materials as needed) is important, as these problems can hold up a deal.

20. Consents

The seller has to review and understand what consents it will need from other parties to its contracts in connection with the acquisition. Sellers should attempt to limit or eliminate any consent requirements that could slow up or kill a deal, or permit landlords, licensors, or other third parties to demand increased payments in exchange for such consent.

21. Disclosure

There is a careful balancing act between wanting to disclose to the potential buyer everything about the business early in the process (to avoid misunderstandings later) and limiting disclosure of the really important secrets or other confidential information until a deal is near certain. Sellers need to be concerned about a potential buyer going away armed with important knowledge they could use to compete with the seller’s business, particularly if the potential buyer is a competitor.

22. Definitive M&A Agreement

The definitive acquisition agreement is hugely important to both the seller and the buyer. There are many issues that need to be negotiated, and sophisticated M&A counsel is essential for the seller. Some of the more important issues include: (a) will there be an escrow or holdback of the purchase price or will the buyer solely rely on representations and warranties insurance, and if there is an escrow, will the escrow serve as the sole remedy for a breach of the acquisition agreement; (b) what are the scope of the seller’s representations and warranties and how many can be qualified by “knowledge” and “materiality” caveats; (c) what are the covenants of the seller and any shareholders prior to closing and after the closing; (d) what are the key conditions to closing the deal; (e) how are various risks allocated, such as litigation, intellectual property issues, unknown liabilities, etc.; (f) how are employees to be treated; (g) what are the indemnification obligations of the parties; (h) how can the M&A agreement be terminated before a closing and what are the financial consequences; (h) what regulatory requirements (such as antitrust approvals) must be satisfied before closing and what issues will these raise; and (i) how are disputes to be resolved (e.g., by arbitration). (See 18 Key Issues for Negotiation Merger and Acquisition Agreements for Technology Companies.)

23. The CEO’s Role

The CEO’s role in an M&A process is hugely important. The CEO has to sell the vision for the business and clearly articulate why the company is such an attractive and growing business with sophisticated and differentiated technology, products, or services. The CEO must have an understanding of the fundamental legal and business issues that will arise and be able to make many judgment calls on those issues. The CEO also needs to keep the Board, the M&A Committee, and key investors informed at each stage of the process. The CEO is often put in a difficult position—to negotiate tough on key terms of the deal, knowing that he or she is negotiating with a future employer and not wanting to be perceived as difficult; this problem is exacerbated if the buyer is a private equity investor offering the CEO and other members of management a piece of the post-closing equity. That is why it may be better for a financial advisor or the M&A Committee of the Board to take the lead in negotiating the deal terms/acquisition agreement, which then permits the CEO to act as a facilitator to get the deal done.

24. Shareholder Representative

It’s important to engage a good third-party shareholder representative service to deal with post-closing issues. These include administration of the indemnity escrow provisions, dealing with the working capital and other price adjustment provisions, and enforcing any earnout provisions. It’s not a good idea to have these critical tasks handled by an unpaid volunteer from among the investor ranks.

25. Deviations from Projections During the M&A Process

Since an acquisition process can take a significant period of time to complete, one issue that can come up is the variability of the financial performance of the business while the M&A deal is pending. If the seller misses its projected financial numbers during the process, a buyer can see this as a red flag and require a reduced purchase price or may even terminate the negotiations. Therefore, it is imperative that the management team keeps its eye on the ball in running the business (even though they will be distracted by the M&A process), and that the projections presented to the buyer for the anticipated diligence and negotiating period be easily obtainable.

Related Articles:

Copyright © Richard D. Harroch. All Rights Reserved.

About the Authors

Richard D. Harroch is a Managing Director and Global Head of M&A at VantagePoint Capital Partners, a large venture capital fund in the San Francisco area. His focus is on internet, digital media, and software companies, and he was the founder of several internet companies. His articles have appeared online in Forbes, Fortune, MSN, Yahoo, FoxBusiness, and AllBusiness.com. Richard is the author of several books on startups and entrepreneurship as well as the co-author of Poker for Dummies and a Wall Street Journal-bestselling book on small business. He is the co-author of the recently published 1,500-page book by Bloomberg, Mergers and Acquisitions of Privately Held Companies: Analysis, Forms and Agreements. He was also a corporate and M&A partner at the law firm of Orrick, Herrington & Sutcliffe, with experience in startups, mergers and acquisitions, and venture capital. He has been involved in over 200 M&A transactions and 250 startup financings. He can be reached through LinkedIn.

David A. Lipkin is an M&A partner in the Silicon Valley and San Francisco offices of the law firm of McDermott Will and Emery LLP. He represents public and private acquirers, target companies, and company founders in large, complex, and sophisticated M&A transactions, as well as working with startups and other emerging growth companies. David has been a leading M&A practitioner in the Bay Area for 20 years, prior to that having served as Associate General Counsel (and Chief Information Officer) of a subsidiary of Xerox and practiced general corporate law in San Francisco. He has been recognized for his M&A work in the publication The Best Lawyers in America for several years, and is the co-author of the recently published 1,500-page book by Bloomberg, Mergers and Acquisitions of Privately Held Companies: Analysis, Forms and Agreements. He is a member of the Board of Directors of the Giffords Law Center to Prevent Gun Violence, and has served on additional educational and charitable boards. He has been involved in over 200 M&A transactions. He can be reached through LinkedIn.

Richard V. Smith is a partner in the Silicon Valley and San Francisco offices of Orrick, Herrington & Sutcliffe LLP, and a member of its Global Mergers & Acquisitions and Private Equity Group. He specializes in the areas of mergers and acquisitions, corporate governance and activist defense. Richard has advised on more than 500 M&A transactions and has represented clients in all aspects of mergers and acquisitions transactions involving public and private companies, corporate governance, and activist defense. He is the co-author of the recently published 1,500-page book by Bloomberg, Mergers and Acquisitions of Privately Held Companies: Analysis, Forms and Agreements. He can be reached through LinkedIn.

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10 Ways Your Small Business Can Use 90s Nostalgia Marketing

Nostalgia is a great way to get folks to buy what you’re selling. Small Business Trends contacted  99designs COO Pamela Webber to find 10 ways your business can use 90s nostalgia marketing.

“Tapping into a consumers’ memories is one of the most effective ways to connect on an emotional level,” she writes. “But, it’s not just about the “feel-good” factor. Research shows consumers are actually willing to spend more when thinking about the past.”

90s Nostalgia Marketing

Pick the Right Generation

If you can sell your goods and services to Gen Xers, you’re in luck. This group has a real appetite for this type of marketing. Webber even says a study published by Think with Google reports 75% of Gen Xers use YouTube primarily to watch videos that relate to past events

Use the Right Amount

This is about how much retro you can use with your brand. Webber suggests you don’t always need to go all in.

“A common method is taking a modern logo and tweaking it to look weathered. Or even use an established date to highlight the company’s history,” she writes.

Get the Details Right

You need to rely heavily on authenticity. People will warm up to your brand if you don’t mess with their memories by tweaking them too much. You just need to steer clear of what’s copyrighted or give credit where it’s due.

Take Advantage of The Trickle Down

Your can target specific consumers who haven’t lived through a specific era. For example, Millennials might not remember the pre-smartphone era. But they might be fond of the “old tech” styles and music from their parent’s youth.

Webber explains.

“Depending on current pop culture, there can be a trickle-down and trickle-up effect.”

Tap into Themes and Images

She also suggests small businesses look beyond specific pop culture references and fashions to tap into broader themes and imagery. Highlighting the design trends (fonts, color schemes) and music trends works.

Don’t Get Stuck in One Era

It’s good to look beyond 90s nostalgia, to not put all of your marketing eggs in that one basket. Webber predicts that while the 90s might be all the rage right now, marketing will shift focus to round the corner into early 2000s nostalgia very soon.

Don’t overcommit resources.

Be Respectful

If you ‘re going to reference another brand, make sure you’re doing it respectfully. And it needs to make sense for your product.

“When Jack Daniels marketed its blend of whiskey to commemorate Frank Sinatra’s 100th birthday. As it was his drink of choice, the brand piggy-backed on the anniversary in an authentic and effective way.”

Don’t Overo It

If you rely too much on the emotional nostalgia connection, you might lose you message in the mix. The best 90s nostalgia marketing balances tweaking your target audience’s memories with your value proposition.

Decide If It Works for You

“Consumer packaged goods, food and beverage, fashion and beauty can take successful advantage of this approach,” Webber writes. “Although even forward-thinking technology brands are also getting in on the trend.  Microsoft jumping on the Stranger Things band wagon. And rumors circulating that Apple is considering a return to its iconic rainbow-hued logo.”

Long story short is you need to do a little research. Check out to see if your competition has used this method.

Mix the Old with The New

This type of marketing works best when you use both the old and the new. Don’t forget to pair your 90s nostalgia marketing campaigns with social media.

Post when you’re target market is online. A little research with tell you what times and days are best.

Webber finished with an encouraging prediction.

“What’s old is new again, and nostalgia is one of 2019’s biggest creative trends. It’s everywhere, which also means it’s not going away any time soon.”

Image: Depositphotos.com

This article, “10 Ways Your Small Business Can Use 90s Nostalgia Marketing” was first published on Small Business Trends