Major Topics: M&A market overview Corporate and shareholder readiness Assembling the deal team Legal issues Investment banking process Types of buyers Deal structures Due diligence Capitalizing on “hidden” assets – life insurance Tax and other incentives available M&A insurance

1. Moderator: Alexander B. Kasdan, Senior Managing Director, DelMorgan & Co.
Panel:
• C. Craig Lilly, Partner, Baker & McKenzie LLP
• Patrick S. Zimmer, CEO, Development Advisors
• Doug Himmel, Co-Founder and Managing Director, Melville Capital
© Copyright 2018 Expert Webcast – All Rights Reserved
UNDERSTANDING THE SELL-SIDE M&A PROCESS
FOR A PRIVATE COMPANY
July 19, 2018

2. 1
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3. 2
MODERATOR: Alexander B. Kasdan, Senior Managing Director,
DelMorgan & Co., brings more than twenty-five years of senior-level Wall
Street advice to middle market companies, entrepreneurs and institutional
investors. He has extensive experience in investment banking, corporate law
and restructuring at world’s leading firms, including Credit Suisse First Boston,
O’Sullivan Graev & Karabell LLP (now O'Melveny & Myers LLP), Battle
Fowler LLP (now Paul Hastings LLP) and Schlumberger Ltd., and as a
founding partner of Convergence Capital Partners. Alex has worked on more
than 100 domestic and cross-border transactions in North America, Europe and
Africa.
Alex is a Senior Advisor to Governance and Transactions LLC, an advisory firm
established in 2003 by Mr. James L. Gunderson, former Secretary and General
Counsel of Schlumberger Limited, to assist boards, management and owners
with corporate governance, compliance, structuring and strategic transactions.
Alex is a frequent moderator and an interviewer at Expert Webcast roundtable
discussions attracting business leaders and leading professionals from around
the world.
Alex graduated magna cum laude from Middlebury College with a B.A. degree
in Economics and Italian and was elected to Phi Beta Kappa during his junior
year. In addition, he holds a J.D. degree from Columbia University Law School
and has studied at the University of Florence in Italy.
100 Wilshire Blvd.
Suite 750
Santa Monica, CA 90401
+1 310 980 1718 mobile
+1 310 935 3826 office
ak@delmorganco.com
www.delmorganco.com

4. 3
Panelist: Craig Lilly is a M&A partner in Baker
McKenzie’s Palo Alto and San Francisco offices. His
practice focuses on complex cross-border and domestic
acquisitions, divestitures and joint ventures. Mr. Lilly has
wide ranging experience in advising strategic and private
equity clients on a wide variety of transactions including stock
and asset acquisitions, divestitures, recapitalizations, auctions,
leveraged buyouts and equity/venture financings. Mr. Lilly
also represents fund sponsors in connection with the
structuring and private placement of investment funds.
Mr. Lilly is a frequent author and lecturer on legal and
business issues regarding mergers and acquisitions, private
equity investments and corporate finance. He has been quoted
in, or contributed to, articles and features in Bloomberg, The
Wall Street Journal, Dow Jones events, The Deal Magazine
and CFO.com. He is the former California reporter for the
American Bar Association Committee on State Regulation of
Securities (2006 to 2010).
660 Hansen Way
Palo Alto, CA 94304-1044
USA
Tel: +1 650 251 5947
Fax: +1 650 856 9299
craig.lilly@bakermckenzie.com

5. 4
Panelist: Patric S. Zimmer is President of Development Advisors.
He has a successful 19-year background in location consulting and real
estate development throughout the United States. He has performed site
selection consulting, incentive negotiations and industrial brokerage
services on behalf of numerous corporate clients which have resulted in
approximately $8 billion in investment and the creation of over 6500
jobs. His primary focus involves comprehensive cost analysis between
locations and the negotiation of incentive packages with local, state and
private agencies.
Patric’s consulting career is preceded by a variety of successful
leadership roles in public sector economic development programs;
earning the Certified Economic Developer designation during his
tenure. He has had extensive involvement in commercial real estate
including management of a successful real estate investment fund active
primarily in the Southeast. He speaks regularly on the subjects of
entrepreneurship and business leadership.
Patric holds an MBA from University of North Carolina at Greensboro
and a BS in Business Administration from Methodist College.
6525 Morrison Boulevard
Suite 402
Charlotte, NC 28211
(704) 521-5240
PZimmer@dai-locates.com
www.dai-locates.com
DevelopmentAdvisors

6. 5
Panelist: Doug Himmel is a Co-Founder and Managing Director of
Melville Capital in Los Angeles and President of Melville Capital
Structured Products Group, LLC (“MCSPG”) overseeing the
Firm’s Business Development, Marketing, Brand Building and PR
focus.
For almost 25 years, Doug has been involved in the financial services,
lending and life insurance. An active member of several professional
organizations including the American Bankruptcy Institute, Turnaround
Management Association, Association for Corporate Growth and the
Financial Planners Association, National Association of Insurance and
Financial Advisors, he is sought out as a contributor, speaking at
conferences, writing articles or for market related quotes.
Through overseeing Melville Capital’s marketing efforts to individuals,
companies and their advisors, Doug has focused on helping to change
policy owners’ view of life insurance as a saleable asset and not just an
expense.
Doug earned a B.A. in Political Science and Finance from the
University of Arizona.
310.943.5370
dhimmel@melvillecapital.com
www.melvillecapital.com
The Life Settlement Advisors

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MAJOR TOPICS
• M&A market overview
• Corporate and shareholder readiness
• Assembling the deal team
• Legal issues
• Investment banking process
• Types of buyers
• Deal structures
• Due diligence
• Capitalizing on “hidden” assets – life insurance
• Tax and other incentives available
• M&A insurance

8. 7
©2017 Baker & McKenzie
Understanding the Sell-Side M&A
Process for a Private Company
July 19, 2018
C. Craig Lilly, Partner, Baker & McKenzie LLP

9. 8
2BAKER & MCKENZIE |
Leaders in
Cross-Border M&A
*2016 Thomson Reuters data
77 offices 47 countries 4,200+ lawyers
K E Y F A C T S A N D F I G U R E S
Baker & McKenzie has done more cross-border deals than any other law firm in the world*. (2012 - 2016)
M&A
in Cross-Border
#1
by volume in
US$100M-1BN CROSS-BORDER DEALS*
by volume
FOR ALL CROSS-BORDER DEALS*
by volume in
M&A INVOLVING EMERGING MARKETS*
Also #1…

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3BAKER & MCKENZIE |
A Record $2.5 Trillion Announced for
Global M&A in First Half 2018;
PE Slows Down in Q1

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4BAKER & MCKENZIE |
Median PE Deal Sizes Fall; However
A Healthy M&A Environment Continues…

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5BAKER & MCKENZIE |
Add-ons Flourish in 2018

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6BAKER & MCKENZIE |
PE Platforms with Add-ons Take Longer to Exit

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7BAKER & MCKENZIE |
IT & Healthcare Exits See Growth

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8BAKER & MCKENZIE |
EBITDA Multiples Increase: Will Pricing Pressures Take
Toll On Market?

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9BAKER & MCKENZIE |
Global M&A Transactions From 1990 Projected Through
2020 (Domestic And Inbound)1
1 Source:Baker McKenzie-Oxford Economics Global Transaction Forecast, January 2017-2018.

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10BAKER & MCKENZIE |
CURRENT ECONOMIC TRENDS FAVOR M&A
• LOW INTEREST RATES - Even after modest increases by the Fed, U.S. interest rates will
remain historically low, alongside cheap financing in the Eurozone, UK, and Japan.
• SOLID U.S. CONSUMER SPENDING - Low unemployment, growing wages, a stronger dollar
and low energy prices are boosting household spending power in the U.S.
• A RELATIVELY SMOOTH ECONOMIC TRANSITION IN CHINA - With service sectors
leading growth, growth should gradually slow to 6% - 6.5% per year, avoiding a sharp decline
in industrial activity.
• A EUROZONE RECOVERY DESPITE BREXIT - Business investment and job creation in the
Eurozone have remained steady despite the Brexit vote in June. Euro zone growth in 2016
outpaces the US for the first time since the 2008 crash!

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11BAKER & MCKENZIE |
CURRENT ECONOMIC TRENDS FAVOR M&A
• U.S. GOVERNMENT POLICIES - Increased infrastructure spending, tax reform and
repatriation of offshore cash will help U.S. economy and provide a further boost to domestic
M&A
• HISTORICALLY HIGH CORPORATE CASH BALANCES - Assuming that attitudes do not
harden against free global trade and investment, corporate leaders in advanced economies are
likely to regain confidence in the market and start investing their reserves.
• CAVEAT – Any political turmoil or trade war will provide a material roadblock to M&A.

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12BAKER & MCKENZIE |
Why Prepare for Sale and Conduct Internal Diligence?
§ Reduces or eliminates risks and surprises (that may kill deal).
§ Improves the speed to close.
§ Provides more deal and price certainty: internal diligence reduces the risk
of the deal being renegotiated due to a Buyer’s diligence findings, and
maximizes the price.
§ Allows the Seller to understand and proactively address the potential
concerns a Buyer may have (and reduces burdens, redundant inquiries,
etc.).
§ Allows management to spend more time focused on operations/goals during
the sale process (which can take 6 – 12 months).

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13BAKER & MCKENZIE |
Identify High Risk Areas or Potential for Claims or
Disputes Post-Closing
§ The Seller's main concern is to maximize its net sales proceeds. The
Seller should identify all areas where there are potential issues and attempt
to resolve these issues before the negotiation and due diligence
commences. It is helpful to have outside legal counsel and auditors to
assist with this process.
§ Current areas of high concern are cybersecurity and compliance with anti-
corruption laws.

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14BAKER & MCKENZIE |
Prepare for the Diligence Process
A selling company is not typically prepared internally to engage in a smooth M&A
transaction. Mistakes in diligence can be costly! Plan early! The common issues seen
are as follows:
§ The financial projections must be reasonable and defensible with realistic assumptions
to obtain the highest price.
§ The company must be prepared for the diligence process by setting up an online data
room to house all company information. Companies often have incomplete files. A
Buyer will insist on seeing all material contracts, minutes, resolutions, etc.
§ Start preparing Disclosure Schedule to the acquisition agreement early in the process.
A Disclosure Schedule identifies material agreements, employees, equity holders and
options, litigation, intellectual property, exceptions to representations and warranties,
etc. Preparation of such a schedule is difficult and time consuming.
§ To the extent that key contracts or leases require consents for a change of control
transaction, those consents should be identified early and a plan should be developed.

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15BAKER & MCKENZIE |
Common Challenges for Sellers of a Private Company
Common challeges for Sellers of a private company include:
§ Poor financial projections and forecasts: no audited or CPA reviewed FS, and poor forecasting
can impact price.
§ Lack of sale commitment: involve key management early and consider all buyers (e.g.,
competitors).
§ Customer/ revenue concentration
§ Balance sheet issues – reluctance to raise capital, overvalued inventory, affilliate loans etc.
§ Lack of management depth
§ Affiliate transactions (e.g., kids in the management)
§ Buried or ignored legal issues (e.g., IP issues, poor documentation, disputes, cap table, tax,
employee, regulatory etc.)
§ Unrealistic valuation expectations

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16BAKER & MCKENZIE |
Non-Disclosure Agreements
Confidentiality Agreements, or Non-Disclosure Agreements (or "NDAs"), are necessary
legal documents used in M&A to protect both the Buyer and Seller.
§ A Seller needs to protect its confidential information so that its proprietary information
is not leaked to the market, competitors, customers or employees.
§ A NDA may also prevent the solicitation or poaching of its employees (and its
customers or suppliers) depending on the language.
§ A Buyer needs to know all material information about the business before it can make a
reasonable judgment as to whether or not they want to pursue further discussions with
the Seller, to value the company and reduce risks.
§ A Seller should generally resist an exclusivity provision at this stage in the process.

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17BAKER & MCKENZIE |
Hire a Seasoned Investment Banker
The company should consider hiring an experienced investment banker to assist it in the
process, finding prospective buyers and acting as an intermediary in negotiations.
§ Make sure the banker has a thorough understanding of the company, its industry,
valuations, and potential buyers (and the benefits/risks of each buyer).
§ Key questions for bankers: How many M&A assignments have you worked on in the
last three years that didn’t close and why? What comparable transactions have you
completed in the past 4-5 years? What valuation range should I expect? Tell me about
your fee structure.
§ Check references from clients - How much time did the senior people spend on the
deal? Were they there for you? How much of the work did you need to do on your
own? How often did your banker take the lead in things?
§ Carefully scrutinize and negotiate their “standard” form of engagement letter.

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18BAKER & MCKENZIE |
Hire Full-Time M&A Lawyers
§ It is imperative that knowledgeable, experienced M&A counsel be hired for the selling
company.
§ Make sure the legal team is familiar with your industry, laws of your geographic
footprint, and market terms and conditions; and follow your seasoned advisors’
recommendations.
§ Key questions: how many deals have you worked on during the last 3 years? In your
industry? What are common obstacles? Tell me how about the M&A market in our
sector? Why have deals failed to close? What types of material issues have delayed
or impaired deals? Tell me about how you have solved these issues and protected
your clients?

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19BAKER & MCKENZIE |
Structure - Agree on a Structure that Maximizes Value
§ Identify early the potential structures (e.g., asset v. share v. mixed transactions).
§ Understand the effect of the structures on the commercial, tax, legal, personnel and IT
aspects of the transaction across all jurisdictions
§ Allocate very carefully all tax burdens and liabilities between the parties.
§ Identify key risk areas.
§ Conduct preliminary antitrust/regulatory analysis very early in transaction process
§ Avoid regulatory or third-party approvals (if possible) that could affect closing or timing.
§ Keys for value include: IP, customers, recurring/ diversified revenue, incentivized
management team, repeatable products/ service, and controlled risks.

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20BAKER & MCKENZIE |
The Negotiation Process
Negotiations should typically be undertaken by an M&A Committee of the Board.
Negotiation tips include:
§ Strategize on potential concessions; price may not be everything (consider terms,
contingencies, adjustments, indemnities/ recourse, financing, rollover equity, control
etc.).
§ Know your limits (e.g., minimum price), alternatives, sunk costs and opposition.
§ The influence of first offer: the first named price in a negotiation significantly influences
subsequent prices.
§ Research prior to negotiation: understanding what’s driving Buyer; this will increase
your bargaining power.
§ Back up your price with precision such as data/analysis.
§ Negotiate governing law early in process.

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21BAKER & MCKENZIE |
Letter of Intent
§ A Buyer will typically want to “lock up” a deal via a letter of intent (“LOI”) with an
exclusivity period (such as 30–60 days).
§ A LOI may not be in the Seller's best interests unless there are very detailed terms
regarding the proposed sale (e.g., price, structure, contingent consideration or escrow
(if any), scope of representations and warranties, indemnification provisions including
deductible, basket, cap and term, noncompetes, closing conditions etc.).
§ Plan ahead and conduct preliminary antitrust/regulatory or third party analysis very
early in transaction process
§ A LOI is a signal that Buyer is serious in their intentions to purchase the company (but
may not be 100% committed)!

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22BAKER & MCKENZIE |
Employee Transfer and Issues
Drill down on all employee benefits and employee expectations - what is the acquirer’s
plan for retention and motivation of the company’s employees?
§ Confirm compliance with local laws and HR termination liabilities.
§ How will the company’s stock options be dealt with? Confirm acceleration and single/
double trigger issues in options.
§ Is there a carve-out or bonus for management to sell company? Is departing CEO
motivated?
§ Confirm Buyer’s incentive plan for management team does not adversely affect the
sale price.
§ Assess applicability and impact of privacy and data protection laws.

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23BAKER & MCKENZIE |
Key Deal Terms
§ Price
§ Payment contigencies including purchase price/ working capital adjustments, escrows
and holdbacks
§ Analyze all deal structure to maximize tax efficiency
§ Representations and warranties
§ Closing conditions and third party approvals
§ Non-competes
§ Indemnities: scope, exclusions, baskets/ deductibles, caps, carveouts and term
§ Employee transfers and management incentives
§ Governing law
§ Consider most likely disputes (and party initiating claims) and choose forum

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24BAKER & MCKENZIE |
Best Practices – Resources
The following are available upon request:
§ Baker & McKenzie LLP’s Customary Issues in Negotiating Cross-Border
Acquisition Agreements is a searchable microsite summarizing Key
acquisition terms across 44 countries.
§ Baker & McKenzie LLP’s Global M&A Handbook.
§ Baker & McKenzie LLP’s Cross-Border M&A Institute – a CLE-accredited,
in-house training program that draws upon our decades of experience
developing strategies, processes and precedents to facilitate successful
deals across multiple jurisdictions.

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25BAKER & MCKENZIE |
Suite of Baker McKenzie
Resources
Global
Transactions
Forecast – with
Oxford Economics
Global Private
M&A Handbook
International
Joint Ventures
Handbook
Global Public
M&A Handbook
Post-Acquisitions
Integration
Handbook
M&A By Design:
Timing and
Complexity of
Cross-Border
Acquisitions

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26BAKER & MCKENZIE |
Thank you for attending our webinar!
C. Craig Lilly
Baker & McKenzie LLP
660 Hansen Way
Palo Alto, CA 94304
(650) 251-5947
craig.lilly@bakermckenzie.com
PALDMS-766195-v2