Get a Good Lawyer
A close friend called me the other day and said that his dad had gotten an offer for his construction business and that they were interested in taking it because it sounded credible and mom and dad were getting ready to retire. “What,” he wanted to know, “are the logical next steps?”
The first thing I said was, “Do you have a lawyer yet?”
They didn’t and didn’t know how to go about finding one that would do a great job and also be cost effective relative to the size of the potential transaction. So I asked Taylor (our CLO and in charge of Compliance!) and Taylor knew someone in their area so we made the connection (be a helper, right?).
The reason the most important detail here was to hire great representation has to do with information asymmetry. In this case my friend’s dad had spent 40 years running construction businesses and zero years selling construction businesses. The potential buyer on the other hand had spent a decade-plus running construction businesses and also a decade-plus buying construction businesses. Ergo the seller had no experience selling construction businesses while the buyer had lots of experience buying them. That’s an unlevel playing field!
That’s problematic because deals are complicated and all of the details you negotiate in diligence are real things you have to live with post-close. Not only is there money, but there’s also time, risk, liability, etc. If you’ve never dealt with any of that before, then you may not know what to ask for or what’s typical and may therefore end up agreeing to accept a term that you never in a million years should.
This is why having good representation matters. This person ideally will have also spent a decade-plus buying and selling construction businesses and therefore level the playing field in the transaction, making it much more likely that a fair outcome will be achieved for both sides.
And yet in our line of work, we often see sellers engage representation too late (when many terms have already been agreed upon) or engage attorneys who are perfectly good lawyers in other matters but have scant deal experience. This defeats the purpose. The point of hiring a lawyer on your deal is not only to have someone on your side who knows the law, but also someone who knows the law and has applied it many times to deals.
Why does this happen? I think a couple of factors are at play…
First, lawyers are expensive and you can save money by waiting until the last minute to hire one. But if you do that, you also limit the impact one can have. Look, no one skimps on planning for their wedding because (one hopes) it’s something you’ll only do once. For most, that’s also true about selling a business. So do it once and do it right.
Second, overconfidence and association fallacy are real things. This is the idea that many people get that if they are good at one thing, then of course they will be good at others. For example, if someone has been very good at running a construction business for 40 years it is very common for that person to think that they will also be good at selling a construction business. Not true! They are different tasks!
So if you’re buying or selling a business, make sure you engage a good and experienced attorney early (but not Taylor, he’s ours). But more broadly, if you’re doing something for the first time, don’t be afraid or too proud to pay up for help. You may not think you need it, but I guarantee you’ll end up with a better outcome that you would have otherwise.
– By Tim Hanson