John J. Maalouf: How to Select M&A Advisors

In Part 1, M&A Exits: Sell-Side M&A Process, we briefly discussed IPO and M&A exits for angel investors while John J. Maalouf, one of the “Nation’s Top 10 International Trade & Finance Lawyers,” walked us through the sell-side M&A process for a small fictitious company called AppleSoft, whose valuation lies below US$50 million.

According to exit strategist Basil Peters, selecting a great M&A advisor is crucial to the M&A process because advisors who can sell “ice to Eskimos” can increase the sale price 50% to 100%, which means investors and founders will make more money if the company is successfully sold.

Here, Maalouf picks up where we left off in Part 1 and talk about the roles lawyers play in the M&A process; why M&A deals fall apart and how to prevent it; how to select M&A advisors; and the purpose of Special Purpose Acquisition Corporations (SPAC).

* Edited interview

VH: From starting dialogue to closing, how long does it take to complete the M&A transaction?

JM: A typical M&A transaction can take anywhere from 2 to 5 months or longer. But it can vary widely depending on a number of different factors, such as

• the complexity of the deal;
• the amount of due diligence required; and
• how far apart the parties are with regard to price and other deal terms.

VH: Where do M&A lawyers come in? In what ways can attorneys help AppleSoft?

JM: Lawyers come in at the beginning of the M&A process to help AppleSoft move forward efficiently and maximize gains from the sale.

They can

• offer insight into selecting the right investment bank;
• help negotiate and structure the deal in the most profitable manner possible;
• help prevent unforeseen pitfalls, which can ruin an otherwise profitable M&A deal;
• draft all necessary agreements and documentation to protect AppleSoft’s rights and ensure it’ll receive all of the considerations agreed to; and
• advise on minimizing tax liability from the sale.

VH: Why do M&A deals fall apart? How to prevent it?

John J. Maalouf

JM: The due diligence phase is where a lot of M&A deals fall apart. If AppleSoft hasn’t involved an experienced finance lawyer in the drafting of Information Memorandum (IM) and Executive Summary (ES), then the documents may contain innocent misstatements and/or omissions, which can come back and haunt AppleSoft in the due diligence review process.

During due diligence review, if the acquirer discovers information that’s inconsistent with that in the IM and ES, even if the inconsistencies are seemingly minor, the acquirer will likely view these as “red flags” and walk away.

VH: Any advice for AppleSoft as to how to choose M&A advisors?

JM: The United States Lawyer Rankings puts out an annual list of Top 10 Finance lawyers in the US. Any of whom will be able to provide AppleSoft with excellent legal and business advice.

If AppleSoft has a value of less than US$50 million, then it may want to choose one of the smaller firms on the list to make sure it’ll receive the senior level attention it deserves.

Experienced finance lawyers have relationships with all of the major investment banks, as well as most of the smaller ones. They can help AppleSoft decide which investment bank is right for the company.

VH: Anything else you’d like to add?

JM: We’ve seen a significant increase in M&A activity lately, due in large to the use of Special Purpose Acquisition Corporations (SPAC) to fund acquisitions.

A SPAC is a newly formed company organized for the sole purpose of going public and using the proceeds of the offering to acquire an existing business.

In general, a SPAC will raise between US$50 million and US$500 million in equity in order to fund an acquisition. Key features of SPACs:

• Have a limited life span of 24 months (with a 12-month extension). During which, the SPAC must identify 1 or more companies and conclude the acquisition(s).
• All acquisitions are subject to approval by the public shareholders of the SPAC.
• Pending an acquisition, a minimum of 99% of the IPO proceeds must be held in a trust account with a major money center bank.

SPACs have increased in popularity lately, as both the NYSE and NASDAQ have amended their rules to allow this type of offering.