Manufacturing Today - August 2017 - 17

BILL ROSIN | COLUMN BY

Dollars and Sense

One of the advantages of working
with large/established private equity
firms is that they almost always have
an experienced team of professionals
(including legal, accounting and investment advisory experts) in place.
This is not their first rodeo, and the
negotiation and sales process subsequently tends to be fairly efficient
and straightforward. Sellers would be
wise to bring in experience and expertise on their side of the deal, as well,
in the form of trusted legal counsel
(ideally with Mergers & Acquisitions
and private equity transactions experience). An experienced legal representative can not only help establish

Bill Rosin, managing member of Dawda, Mann, Mulcahy & Sadler,
PLC, concentrates his practice in corporate mergers and acquisitions. Bill can be reached at 248-642-3685 or wrosin@dmms.com.
The foregoing is general information and not legal advice. Because
it is necessary to apply legal principles to specific facts, always
consult your legal advisor before using this discussion as a basis for
a specific action. DMMS All Rights Reserved 2017.

AUGUST 2017 manufacturing-today.com

17

L EGAL

Among the most complicated sets of
issues that manufacturing professionals face when entering into a potential
private-equity sale are those industry-specific complications that can potentially throw a wrench in the works
of a transaction. Due diligence obligations are important in any industry,
but can be a particularly urgent priority in the manufacturing world.
A private-equity firm buying a consulting company, for example, is a
fairly straightforward transaction. A

Expectations and Experience

realistic expectations, but should be
able to provide insight gleaned from
industry-specific experience and the
perspective that comes with extensive transactional market knowledge.
The earlier in the sale process that
you engage legal counsel, the better,
and the more likely your objectives
will be achieved. Make sure to communicate clearly with your legal representative about what you hope to
get out of the transaction. To be an
effective advocate for your interests,
and to guide you efficiently through
the sale process, your lawyer(s) will
need to understand your goals and
objectives. That process may include
providing counsel in the selection
and hiring of an experienced investment banker to assist with transactional details like pricing, marketing
and identifying bidders. It will almost
certainly include helping with deal
structure, negotiating with the buyer's legal counsel and performing/
coordinating the due diligence, particularly the initial due diligence incident to getting the company ready for
sale. Completing appropriate internal
audits (including legal, corporate and
financial due diligence) early in the
process is critical to avoiding late inning surprises that will compromise
leverage and value.
Ultimately, that's the name of the
game: the lawyer should endeavor to
maintain deal leverage while counseling the manufacturing decision-makers through the sale process to maximize value and accomplish the seller's
goals and objectives. mt

A LFAB INC.

Manufacturing Dynamics

manufacturing operation, on the other hand, could have a host of complex
environmental and regulatory liabilities that need to be disclosed and the
volume of due diligence information is
substantial, typically requiring the use
of a virtual data room. Private-equity
buyers are making initial valuations
and extending offers based on a "snapshot" of the business and its operations as presented in the seller's materials. If it is discovered that a storage
facility is leeching hazardous materials
into the ground, or if a permitting issue
arises because of emissions violations,
the terms of the sale could be radically
altered in a moment.
With that in mind, it is paramount
that the seller know and understand
the business, warts and all, and that
the information provided to the buyer is accurate and complete. The seller will suffer a credibility hit and will
almost certainly lose deal leverage if
any undisclosed issues arise during
the buyer's comprehensive due diligence process, and that can have a
significant adverse impact on the final
sale price or even kill the deal itself.

B UY AMERICAN

Strategic considerations aside, money talks - and oftentimes speaks
louder than anything else. For many
sellers and buyers alike, the single
most important issue is the price tag.
Here again, there are key distinctions
to be made between a private-equity
transaction and a more traditional
sale to a strategic buyer. The latter
are more likely to offer more money
up front. Every prospective purchaser and every transaction is different,
but in general, strategic buyers are
more willing to pay a premium price
for intangibles such as expanded
market share or other proprietary/
competitive advantages. In contrast,
private equity buyers tend to adhere
to a specific formula that accounts
primarily for tangible assets, earnings and cash flow.
For sellers that have the freedom
and flexibility to be selective about
their buyer (and not all do, of course),
the bottom line might be just that:
the bottom line. The highest and
best-possible valuation they can realize for selling their company might be
the single biggest consideration. Other sellers may want or need to weigh
other factors when determining buyers or considering offers.


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