Legal Due Diligence: Protecting Your Business's Value

Whitney Harper (0:01)

Sellers very often think in terms of absolutes, like, oh, this is an asset deal, so they are not taking those liabilities, so why do they care?

And it's far more gray than that, because of exactly what Gwen just said, people can still follow assets. And the fact that they may be better protected from the ultimate liability related to those assets, because it's an asset deal and not a stock deal, doesn't mean they're not going to have to deal with the expense and distraction of defending against somebody suing them.

Jacob Oros (0:34)

Welcome to M&A Talk, the number one podcast on selling a business brought to you by Morgan & Westfield, a boutique M&A firm specializing in the sale of small to mid-sized companies. I'm your host and president of Morgan & Westfield, Jacob Oros. If you're considering selling your business and you'd like to work with me throughout the process, you can schedule a free consultation at morganandwestfield.com. Or if you'd like my team and I to perform evaluation of your company for a one-time fee of $1,500, visit morganandwestfield.com or see the link in the show notes.

Today, we're going to talk with Gwen Griggs and Whitney Harper. They're both M&A attorneys, and we're going to talk about getting your business deal ready from a risk and legal perspective. This is a unique show because we have not discussed legal diligence. We haven't done a show on that specifically.

Say it's a new thing in the M&A world. Of course, you have the quality of earnings analysis to help prepare your business for sell from a financial diligence perspective, and there really is not a tool or a defined process for doing that from a legal or risk perspective. Gwen and Whitney have created a tool that can do that for a what I think is a very reasonable cost, and we're going to discuss that process, what it looks like, some of the documents they request, and the impact on the process, the purchase agreement, the purchase price, and the speed of the transaction. Gwen and Whitney, welcome to the show.

Gwen Griggs (2:15)

Thank you, Jacob.

Jacob Oros (2:16)

We're going to talk about preparing your company for sale from a, not just a legal, but some other perspectives as well, but primarily from a legal perspective. Why a show on this, by the way? We've done lots of shows on generally preparing your company for sale or financial diligence, but there's not a lot of conversations about there about legal preparation.

Whitney Harper (2:39)

Yeah, nobody really gets excited about talking about legal. I think that's part of it, is you're not thrilled to talk about it. And frankly, I think a lot of business owners would rather kind of ignore it until it's ready to bite them.

Jacob Oros (2:53)

How straightforward is it? Because to me, I think a lot of people probably think it's a get a list and take off the checkboxes. How straightforward is it versus to what extent might you need to involve your council?

Gwen Griggs (3:08)

Our experience and the reason we do what we do is we have seen too many deals die after the LOI because of something that was completely discoverable early on.

Or the company thinks that they're going to be able to very easily pull this piece of IP out of the company and sell some other part, but it's all owned by one entity. So there's just, there's dozens of things that make the deal either die altogether or get retraded. And so that value, that number that they saw on the LOI, they realize if they want to close, that's not the number they're going to put in the pocket.

Jacob Oros (3:49)

It's very interesting because we recorded a show yesterday about the five C's of value creation. And that was the general premise of the show is, yeah, you can still sell your business if you don't tick all the boxes, but 100% you're going to leave some money on the table. There's no doubt about that. Because from a buyer, and this is, I think, a very important point. From a buyer's standpoint, the value is really, there's two components of value, risk and return.

And today, it sounds like we're going to primarily talk about risk. Give us a little bit of your background. Whitney, what about you? What's your background been when it comes to M&A?

Whitney Harper (4:22)

I sort of got to M&A by accident. I was in a law firm doing employer defense, employment law, and some commercial litigation. And then pretty quickly went in-house. And so I was in-house counsel for a private equity-backed company.