What Buyers and Sellers Need To Know: An M&A Attorney’s View From Both Sides of the Table
Franci Fealk, J.D., an attorney at Boesen & Snow Law, has represented both buyers and sellers in business transactions for close to a decade, following an earlier career as a commercial litigator. We sat down with Fealk to talk through what the buying and selling process actually looks like, where deals tend to run into trouble, and how her litigation background changed the way she practices M&A law today.
From the Courtroom to the Deal Table
BSL: You started your career in litigation before moving into M&A work. What did that path look like?
Franci Fealk, J.D.: “I went to law school at Arizona State University’s Sandra Day O’Connor College of Law, where I got a Certificate in Law, Science, and Technology along with my Juris Doctorate, so I was able to combine my interest in science and law. After law school, I clerked at the Arizona Court of Appeals, and I was admitted to the bar in 2007. The economy wasn’t in the best shape shortly after I entered the legal field, but I was lucky to practice civil litigation at a national law firm. While the majority of my cases were breach of contract, I also did a wide variety of work, including employment law, torts, insurance law, employee benefits, and some regulatory work. I was able to represent clients in some trials early in my career, which gave me a broad base of business experience that became a strong foundation for my later work.”
BSL: How did that lead into M&A?
Franci Fealk, J.D.: “In 2016, I moved to Indianapolis and became licensed in Indiana in addition to Arizona. I had the opportunity to join a boutique firm in 2017, where I started doing M&A work, helping both buyers and sellers. I’ve been part of numerous deals since then, including transactions up to $45 million, and roughly half of those I’ve handled from start to finish, including due diligence, drafting or negotiating the purchase agreement, and drafting or reviewing the disclosure schedules, and drafting or preparing the ancillary documents.”
BSL: How did the litigation work shape the way you handle deals now?
Franci Fealk, J.D.: “For much of my career, I was litigating breach of contract cases, so as I moved into writing and negotiating purchase agreements, I was able to see firsthand where ambiguous language, or a failure to disclose something, can really come back to cause problems. While you can never pull all the risk out of a deal, you need to make sure that risk is clearly understood by all the parties involved, and the way you document items can help with that.”
How Deals Get Structured
BSL: Walk me through the buyer’s side of a deal. Where do things typically start, and where do you come in?
Franci Fealk, J.D.: “Many buyers don’t contact counsel until they have a letter of intent signed. I think that’s a mistake. I think buyers should contact counsel as soon as they have a target, and discuss what the target is, what the potential risks are, why they want that target, and work with counsel to figure out the best structure for the deal and drafting the letter of intent. A lot of buyers will put things in letters of intent that aren’t necessarily favorable to them, which is why I emphasize getting counsel involved before it’s signed rather than after.”
BSL: Once you’re involved, what shapes how the deal gets structured, and where do buyers tend to run into the most trouble?
Franci Fealk, J.D.: “Every deal is different, so you have to ask a lot of questions to make sure the client truly understands what they’re buying. Are the seller’s owners going to stay on, or are they consulting? Are the employees going to work for the Buyer? What states are you in? Different states may have different licensing requirements, and you need to think about what that means for the business. Are you buying inventory? Is it a leased premises, where you have to work with the landlord to get the lease assigned? Are you buying real estate, and does the seller own the property through a different entity? The more questions you ask, the clearer the picture becomes, and knowing exactly what’s going on in the transaction helps your counsel figure out what to do.”
“After the letter of intent is signed, you’re moving toward drafting the purchase agreement, but first you want to complete a lot of due diligence. Drafting an agreement can get costly when there are lots of revisions or changes, so you want counsel involved in that due diligence to make sure you’re asking the right questions.”
“That’s where I see buyers run into the most trouble. It’s better to spend some money doing careful due diligence and realize it’s a bad deal than to keep spending on legal fees and the purchase price for a company that has major issues. A lot of buyers also want to rush through, because sellers want to close as quickly as possible, and a letter of intent will often name a target closing date. In my experience, many deals don’t close by that date, and they take longer than you would expect. When a deal gets rushed, you’re more likely to end up with post-closing issues, and those generally end up being far more costly to fix.”
BSL: What are the basic ways a purchase agreement can be structured?
Franci Fealk, J.D.: “There are, generally speaking, two different kinds of purchase agreements. There’s an asset purchase agreement, where you’re buying substantially all the assets of a business, inventory, fixtures, equipment, goodwill, and the name. The benefit to an asset purchase agreement is that the buyer is not assuming the seller’s liabilities, unless any are specified. And there’s a stock or equity purchase agreement, where you’re buying the owner’s stock in the company, along with the liabilities that come with it. Which type of deal you want to do depends on your risk tolerance, tax implications, and on what you’re trying to accomplish with the purchase, and it’s one of the things I help my clients think through.”
The Seller’s Side
BSL: What does the process look like for a seller, and when should they bring in counsel?
Franci Fealk, J.D.: “As soon as they’re being approached by a buyer or receiving a letter of intent, it makes sense to engage counsel, because most of the clauses in a letter of intent are non-binding, but if you agree to something you shouldn’t have, the other side can say, well, you signed it, and it makes it much harder to argue later on. The sooner you get somebody involved, even before you’re approaching a sale, honestly, to make sure your records are organized and you have everything you’re going to need for due diligence, the better. I’d say it’s better before you’re even approaching a sale, but definitely at the letter of intent stage.”
BSL: What does that work actually involve for a seller?
Franci Fealk, J.D.: “A lot of sellers decide they don’t want to spend the money and try to do due diligence themselves. But a lot of that work is also going to be necessary to help prepare the disclosure schedules, and it matters that they’re right, because if things are excluded or misrepresented, you’re held accountable for those representations. You want to make sure your responses in both due diligence and the disclosure schedules are as accurate as possible, and it takes a lot of work. A lot of sellers underestimate that; they’re trying to run their business and sell it at the same time, and a lot of them don’t have employees they can count on to help with the process. Having counsel that’s gone through it before can help organize you and tell you what you need to do to be successful. Disclosure schedules are the exhibits attached to the purchase agreement that spell out exactly what you’re representing about the business, from contracts and licenses to pending claims and outstanding liabilities, and they become the reference point if a dispute comes up after closing. That’s part of why I treat them as one of the most important, and most time-consuming, parts of representing a seller.”
BSL: Is there anything sellers tend to overlook once the main agreement is done?
Franci Fealk, J.D.: “Once you get through negotiating the purchase agreement and the disclosure schedules, there are usually smaller agreements, an employment agreement if the seller’s owner is going to keep working for the buyer, or a lease agreement. Some of those are very important, because a lot of sellers are counting on being able to keep working for the buyer down the road, and for some deals this can help ensure a smoother transition, especially if the buyer hasn’t been in the industry before.”
The Biggest Misconception
BSL: If you could get every buyer and seller to understand one thing before starting a deal, what would it be?
Franci Fealk, J.D.: “A lot of buyers try to get a template from online, or use somebody else’s purchase agreement, and every deal is different. Doing that can raise the chances of ending up in litigation because it won’t be tailored to the type of business you’re buying. It won’t necessarily include industry-specific requirements, and it won’t protect you as effectively. A lot of people think they’re saving money by not involving counsel, and in fact, you’re probably going to cost yourself a lot more money, because you’re going to cost yourself more dealing with the closing issues of not having proper counsel draft the purchase agreement to begin with.”
When a Deal Gets Complicated
BSL: When a deal doesn’t go entirely smoothly, what protections come into play?
Franci Fealk, J.D.: “Whether I’m representing the buyer or the seller, the goal is always to get my client the best outcome possible, and a couple of tools come up again and again: holdbacks and earn-outs. A holdback is where a portion of the purchase price is set aside, usually for two years or less, to protect the buyer in case an issue comes up after closing. It’s a lot harder to go after a seller for money once it’s already been transferred to the shareholders or spent, so a holdback gives the buyer a ready source of funds to satisfy an indemnification claim, and the finite timeframe means you don’t have issues hanging over either side’s head for a long time. The basket and cap are important provisions for the buyer and the seller. The basket sets a threshold that claims have to exceed before the buyer can recover, which keeps the seller from facing nuisance claims, and the cap limits the seller’s total exposure. Both are heavily negotiated.”
“An earn-out works a little differently. It’s a portion of the profit a seller can receive if the business hits certain targets over a certain amount of time. The key is to understand that none of this is guaranteed; some do pay out, but depending on the structure, some targets are very difficult to meet, and sometimes something completely unexpected happens, like COVID, that materially changes how the business operates. If I’m representing a seller, I want them to understand they might not see that money, so if it does come through, it’s a pleasant surprise rather than something they were counting on.”
Looking Ahead
Fealk’s practice at Boesen & Snow continues to focus on guiding buyers and sellers through the full lifecycle of a business transaction. By pairing her mergers and acquisitions background with the firm’s experience serving pharmacy and healthcare clients, she helps buyers and sellers on both sides of a deal move through the process with an eye toward the industry-specific issues that come up along the way. We’re excited to have her as part of the Boesen & Snow team.
