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Private Company M&A Boot Camp - Post-Closing Issues: Integration & Potential Buyer/Seller Disputes

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Private Company M&A Boot Camp - Post-Closing Issues: Integration & Potential Buyer/Seller Disputes

The deal is complete, and the parties have finished the hard work. Or have they? Integration planning turns to execution as people, process, and technology are combined once the deal is legally closed. The buyer will need to consider the purchased business or assets from the standpoint of employees, IT, customers, suppliers, and a multitude of other areas. In addition, numerous post-closing legal issues may arise, including purchase price adjustments, breaches of representations and warranties, enforcement of key negative employment-related covenants and restrictive covenants, collection of pre-closing accounts receivable, and true-ups of final financials. This episode guides listeners through the process, timing, and issues which most commonly arise after the closing of deals.

To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/post-closing-issues-buyer-seller-disputes-2020/

The deal is complete, and the parties have finished the hard work. Or have they? Integration planning turns to execution as people, process, and technology are combined once the deal is legally closed. The buyer will need to consider the purchased business or assets from the standpoint of employees, IT, customers, suppliers, and a multitude of other areas. In addition, numerous post-closing legal issues may arise, including purchase price adjustments, breaches of representations and warranties, enforcement of key negative employment-related covenants and restrictive covenants, collection of pre-closing accounts receivable, and true-ups of final financials. This episode guides listeners through the process, timing, and issues which most commonly arise after the closing of deals.

To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/post-closing-issues-buyer-seller-disputes-2020/

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Private Company M&A Boot Camp - Post-Closing Issues: Integration & Potential Buyer/Seller Disputes

  1. 1. 1
  2. 2. 2 Practical and entertaining education for attorneys, accountants, business owners and executives, and investors.
  3. 3. 3 Thank You To Our Sponsor
  4. 4. "I am so in love with the awards. I only wish everyone could walk away with one. Amazing job! They are perfect." -Jessica C, European Wax Center Mention “Financial Poise” and get 10% OFF your entire order!
  5. 5. Disclaimer The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. 5
  6. 6. Meet the Faculty MODERATOR: Robert Londin - Jaspan Schlesinger LLP PANELISTS: Jonathan Friedland - Sugar Felsenthal Grais & Helsinger LLP Phil Buffington - Adams and Reese LLP Swata Gandhi - Saul Ewing Arnsteing & Lehr LLP 6
  7. 7. About This Webinar – Post-Closing Issues: Integration & Potential Buyer/Seller Disputes The deal is complete, and the parties have finished the hard work. Or have they? Integration planning turns to execution as people, process, and technology are combined once the deal is legally closed. The buyer will need to consider the purchased business or assets from the standpoint of employees, IT, customers, suppliers, and a multitude of other areas. In addition, numerous post-closing legal issues may arise, including purchase price adjustments, breaches of representations and warranties, enforcement of key negative employment-related covenants and restrictive covenants, collection of pre-closing accounts receivable, and true- ups of final financials. This episode guides listeners through the process, timing, and issues which most commonly arise after the closing of deals. 7
  8. 8. About This Series – Private Company M&A Boot Camp This series features leading M&A attorneys and other deal professionals speaking about private company M&A in roughly chronological order, guiding the audience through a conversation that spans from deal origination, the LOI (letter-of-intent) or term sheet, due diligence, document drafting and negotiation, closing, and post-closing. Issues addressed include tax planning and structure; corporate governance; negotiating deal points and common pitfalls and challenges; closing conditions; representations and warranties; indemnification provisions; earn-outs; restrictive covenants; antitrust; intellectual property; and employment. While many of the topics covered apply also to public company M&A, the focus of this webinar series is on M&A involving a privately owned company or business. Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and executives without much background in these areas, yet is of primary value to attorneys, accountants, and other seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that participants will enhance their knowledge of this area whether they attend one, some, or all episodes. 8
  9. 9. Episodes in this Series #1: Structuring and Planning the M&A Transaction Premiere date: 7/23/20 #2: Key Provisions in M&A Agreements Premiere date: 9/3/20 #3: The M&A Process Premiere date: 10/1/20 #4: Post-Closing Issues: Integration & Potential Buyer/Seller Disputes Premiere date: 11/5/20 #5: Negotiating an M&A Deal Premiere date: 12/3/20 9
  10. 10. Episode #4 Post-Closing Issues: Integration & Potential Buyer/Seller Disputes 10
  11. 11. Post-Acquisition Integration = Merging operations, finances, culture, etc. of acquired business with Buyer 11
  12. 12. Goal=Synergy 12
  13. 13. Asset or Equity Deal • Asset Deal  Does Buyer get Seller’s name?  Who collects Seller’s A/R?  Third party consents  Handling of any pandemic PPP loans 13
  14. 14. Asset or Equity Deal • Equity Deal (other than if merger)  Does Target entity remain? o If not, issues related to transferring Target’s employees to benefits plans, stock option plans, result  Third party consents  Handling of any pandemic PPP loans 14
  15. 15. General Principles • Direction from the top • Begins pre-close • Move fast before day-to-day business issues overshadow integration efforts • Integration Manager (role should ideally start during due diligence) • Role clarity • Don’t permit bad behavior • Consider when to inform target company employees of acquisition (adverse attrition and confidentiality concerns) 15
  16. 16. The “First 100 Days” • Make decisions & set priorities • Communication is key • What communications will Seller/Target permit prior to closing?  FAQs  What stays the same?  What changes? 16
  17. 17. The Next 18 Months • Implement decisions based on priorities • Integration teams 17
  18. 18. Substantive Areas • IT • Branding • Risk management/insurance • Legal/compliance 18
  19. 19. Measuring Success Short Term • Usable IT system • Motivation/engagement • Knowledge transfer 19
  20. 20. Measuring Success Longer Term • Retention of…  Employees  Customers  Suppliers  Physical facilities/workforce economies of scale 20
  21. 21. Imperatives for PMI Success According to the Boston Consulting Group • Define first principles- the objectives and philosophy of the merger- and design the PMI to reflect them • Manage the PMI as a discrete process, separate from the day-to-day running of the business • Organize PMI teams to mirror the value drivers of the merger- and staff with the best people • Insist on senior leadership that is active, committed, and highly visible 21
  22. 22. Imperatives for PMI Success According to the Boston Consulting Group • Maximize cost synergies but plan for revenue synergies as well • Define explicit cost and revenue targets and revisit them continually throughout the PMI • Retain current customers by making them an integral part of the PMI process • Manage talent- by selecting, retaining, and developing the best people for the new organization 22
  23. 23. Imperatives for PMI Success According to the Boston Consulting Group • Design a workable organization structure for the combined company • Recognize that PMI is an exercise in change management • Assume that it is better to have “too much” communication than too little • Manage the integration of organization culture with the same discipline and rigor as the operational and financial integration 23
  24. 24. Earn-Out Issues? • Is there an earn-out in place, and if so, does it put any constraints on buyer in terms of hiring and firing employees, amount of CapEx, etc.? • Does the main acquisition agreement provide for any Buyer covenants with respect to the earn-out (good faith and fair dealing; seller consent rights; limitations/adjustments based on post-closing for other acquisitions or dispositions) 24
  25. 25. Collection of Accounts Receivable (Generally Only Applicable in an Asset Purchase) • Who collects outstanding A/R as between Buyer and Seller? • Are there restrictions in how collected A/R is to be accounted for? • Additional payment to Seller as opposed to indemnification right for Buyer (and if so, subject to cap and basket)? 25
  26. 26. Post-Closing True-Up / Balance Sheet Adjustment • Who does it and when? • Right to contest; dispute resolution • Additional payment to Seller as opposed to indemnification right for Buyer (and if so, subject to cap and basket)? 26
  27. 27. “Positive” Employment – and Consulting-Related Responsibilities • Employment and consulting agreements • Difficulty of getting primary shareholders to remain engaged post-transaction? • Non-employment and consulting transition services, such as any assignments, customer and supplier introductions not done pre-closing, etc. 27
  28. 28. “Negative” Employment and Consulting Restrictions • Covenants not to compete • Restrictions on soliciting employees, customers and business relations • Enforceability concerns? 28
  29. 29. Breaches of Representations and Warranties • Anything in breach at the closing, and if so, is a suit cut off? • How long do the representations and warranties survive after closing? • Are there non-monetary limitations on indemnification claims (for example, obligation to mitigate damages or pursue insurance)? • Monetary limits (cap and basket) 29
  30. 30. Breaches of Representations and Warranties • Offset rights for Seller for Buyer’s insurance and tax recoveries • Existing insurance (“occurrence”), tail or express M&A insurance? • Analysis of tax benefit (loss) to otherwise indemnifiable losses • Any reason Buyer might want to not seek indemnification even if it was or might be so entitled? 30
  31. 31. About the Faculty 31
  32. 32. About The Faculty Robert Londin - rlondin@jaspanllp.com A partner in his firm’s Corporate and Commercial Transactions Group, Mr. Londin counsels numerous companies in connection with their mergers and acquisitions (both strategic and financial), financing needs and the execution of their business plans; financial concerns in capital markets transactions; emerging-growth companies; seed and venture capital clients in connection with the formation of their investment vehicles and making of their portfolio company investments; borrowers and lenders in secured financings; and companies and highly compensated executives in connection with their compensation and separation arrangements. Rob serves as general counsel to many clients and their senior executives and advisory boards. This general corporate representation covers day-to-day legal issues as well as strategic planning and business development extending to acquisition and financing concerns. He also represents technology and emerging-growth clients in connection with their strategic alliances, technology licensing, mergers and acquisitions, corporate finance, venture capital, banking transactions and general corporate needs. 32
  33. 33. About The Faculty Jonathan Friedland - jfriedland@sfgh.com Jonathan Friedland, a senior partner with Sugar Felsenthal Grais & Helsinger, LLP, views his job simply: to make money for clients whenever possible and to protect their interests at every turn. Licensed in four states, Jonathan’s transactional work focuses on representing private funds and other owners of private businesses, and the businesses they own. He regularly advises on M&A activities, structuring new ventures and restructuring old ones, and on other commercial relationships. Jonathan is rated AV® Preeminent™ by Martindale-Hubbell, 10/10 by AVVO, and enjoys several other similar distinctions. Jonathan graduated from the State University of New York at Albany, magna cum laude (in three years) and from the University of Pennsylvania Law School. He clerked for a federal judge before entering private practice and served for several years as an Adjunct Professor of Strategic Management at the University of Chicago’s Graduate School of Business. Jonathan is lead author and editor of several significant treatises, several chapters in other treatises, and scores of articles on law and business. 33
  34. 34. About The Faculty Phil Buffington – Phil.Buffington@arlaw.com Phil Buffington joined Adams and Reese in 2011 and serves as Leader of the Financial Services Team, and is a Partner in the Transactions Practice Group. For more than 30 years, Phil has served as a trusted advisor to community, regional and national financial institutions, and he routinely helps these institutions assess and analyze regulatory and litigation risks. His practice is focused primarily on the representation of financial institutions in corporate governance, transactional and bankruptcy matters. He serves on the Adjunct Faculty Staff of Mississippi College School of Law (Banking Law and Business Planning) and also serves as a Faculty Member at the Mississippi School of Banking (Commercial Lending I and II). He is a frequent speaker and presenter for CLE and other courses on topics related bank regulatory matters, commercial lending, secured transactions and other banking topics. 34
  35. 35. About The Faculty Swata Gandhi – swata.gandhi@saul.com Swata Gandhi concentrates her practice in general business and commercial law. Swata assists businesses with significant transactions that help them adapt to the marketplace and support their daily operations. This includes mergers and acquisitions, the purchase and sale of assets and businesses, and commercial finance. She is experienced in counseling and assisting clients on a range of matters, from protection and commercialization of intellectual property and licensing agreements to entity formation and restructuring. She also handles employment issues and commercial contract drafting and negotiations, including vendor agreements, distribution agreements, independent contractor agreements, statements of work, and service agreements. She advises on compliance with various government regulations at both the state and federal level, as well, and assists in the creation, development and implementation of compliance programs. Prior to joining Saul Ewing Arnstein & Lehr, she was Vice President, General Counsel and Chief Compliance Officer for a leading manufacturer of home repair products. Her roles included leading legal, environmental and regulatory functions, and she re-imagined and modernized the company's in-house legal department. Swata also worked as an associate at Ballard Spahr LLP and Venable LLP before joining the in-house team at US Foods. Swata speaks Gujurati. 35
  36. 36. Questions or Comments? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 36
  37. 37. About Financial Poise 37 Financial Poise™ has one mission: to provide reliable plain English business, financial, and legal education to individual investors, entrepreneurs, business owners and executives. Visit us at www.financialpoise.com Our free weekly newsletter, Financial Poise Weekly, updates you on new articles published on our website and Upcoming Webinars you may be interested in. To join our email list, please visit: https://www.financialpoise.com/subscribe/

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