Dear Insider,

It's the end of the calendar year and as so many deals hustle to a close, PSMJ's M&A Advisory practice brings you a fresh observation directly from the deal table. 

Whether you are considering selling your business, or you are considering acquiring a firm, the stakes are high. The decisions you make during this process will have lasting financial and professional implications for you and your team.

The most important takeaway we can give you is you cannot do it alone. You need the right team, with the right expertise. Selling or buying a firm requires the combined expertise of three essential advisors: an M&A advisor, a tax advisor, and a legal advisor. This "three-legged stool" forms the foundation for a smooth and successful transaction process. Let’s explore why each of these professionals is vital and how they contribute to achieving your goals.

1. The M&A Advisor: Defining the Deal’s Key Points

Your M&A advisor is the quarterback of the transaction. They are the expert who understands the unique dynamics of the industry, your firm’s value drivers, and the nuances of deal-making. They know what’s fair practice in a deal, because they do this everyday. Here’s why they are indispensable:

• Defining Your Value: An experienced M&A advisor specializes in assessing your firm’s market value, not just through financial metrics but by understanding intangible assets like your client relationships, key personnel, niche expertise, and market reputation.

• Executing Your Goals: The right advisor will ask you questions about what you want to achieve with a transaction. With an understanding of your goals, they will give you honest feedback and insight about how your value and positioning will help you achieve them. Be wary of anyone who pushes you into a deal, whether that’s an M&A advisor, the buyer, or anyone else.

• Strategic Negotiation: The right advisor ensures that key deal points—such as price, earnout structures, and post-sale roles—align with your financial and personal objectives. They know how to protect these priorities during negotiations.

• Managing the Process: M&A transactions are intricate and time-consuming. Your advisor will manage buyer outreach, due diligence, and timeline coordination, allowing you to stay focused on running your business.

Without an M&A advisor backed up by decades of industry-specific expertise and research, you risk undervaluing your firm or agreeing to terms that could compromise your financial or professional future. The transaction process is time-intensive for both parties, especially as you enter due diligence, it is critical that you do not take your foot off the gas at your firm before selling. Their role is to be your advocate and ensure you’re positioned for the best possible outcome.

Beyond these points, the best M&A advisors will work closely with you to understand and refine your goals in a given transaction. They will know how to screen prospective partners to ensure those goals are met. 

2. The Legal Advisor: Understanding the Deal Fairway

Not all attorneys are created equal, especially when it comes to M&A. While your long-time corporate counsel may excel at day-to-day legal matters, an M&A-experienced legal advisor is essential for navigating the complexities of a transaction. Here’s why:

• Expertise in Deal Structures: M&A deals involve intricate contracts, representations, warranties, and indemnities. An experienced legal advisor knows what’s standard and what’s not in a transaction, ensuring your interests are protected.

• Efficient Negotiation: M&A-savvy attorneys understand where the “middle of the fairway” is for a deal—the range of terms that are reasonable and achievable for both parties. This knowledge prevents unnecessary disputes and keeps the deal on track.

• Avoiding Pitfalls: They’ll spot and address hidden risks in the transaction, such as non-compete clauses, liability allocations, and earnout terms that could jeopardize your future.

Choosing a legal advisor with M&A experience ensures you’re not blindsided by the complexities of deal documentation. Their expertise provides the peace of mind that every clause in your agreement has been carefully vetted. PSMJ has worked with a variety of legal advisors on both sides of the table. 

The right M&A attorney will know that you can’t die on every hill in M&A. The wrong attorney for your transaction will kill even the best deal and flush a fortune down the drain for their client. Do not let this happen to you.

Watch out for a litigation specialist that is not experienced in M&A. Litigation attorneys want to win at all costs, even if it means destroying the other party and your relationship with them. M&A is a transaction, but it is also the start of a long-term partnership between you and the other team. It is not a good idea to burn bridges in the negotiating process.

3. The Tax Advisor: Avoiding Million-Dollar Mistakes

Taxes can be one of the most significant costs of selling your firm. An M&A-experienced tax advisor is crucial for structuring the deal in a way that minimizes your tax liability and maximizes your net proceeds. Here’s how they help:

• Deal Structuring: The way a deal is structured—asset sale versus stock sale, allocation of purchase price, and timing of payments—can have massive tax implications. A tax advisor ensures the structure works in your favor.

• Maximizing After-Tax Proceeds: They analyze your personal financial situation and develop strategies to optimize your after-tax return, such as utilizing tax deferrals, deductions, or credits.

• Avoiding Costly Mistakes: M&A transactions often involve unfamiliar tax issues, such as depreciation recapture, goodwill allocation, and earnout taxation. Missteps in these areas can result in unnecessary six- or seven-figure tax bills.

• Different deal structures with different structures will have different tax implications. The difference between the net after tax proceeds when comparing the financial merits of different deals can mean millions of dollars for you or your shareholders lost or gained after the deal closes.

Without a tax advisor who understands M&A, even a lucrative deal can turn sour when the tax bill arrives. Their guidance ensures you keep as much of your hard-earned proceeds as possible.

Balancing the Stool for Success

The beauty of the three-legged stool is that each advisor—M&A, legal, and tax—supports the others. Together, they provide a balanced foundation for a successful transaction:

• Your M&A advisor identifies and preserves the key deal points.

• Your legal advisor ensures the documented agreement reflects and protects those points.

• Your tax advisor ensures the structure delivers the maximum financial benefit.

Without one leg of the stool, the entire process can become unstable, leading to missteps that cost time, money, and peace of mind.

What’s Next?

If you’re considering selling your firm, start by assembling your three-legged stool. Engage professionals with proven M&A experience who understand the nuances of the architecture, engineering, and construction industries. PSMJ's M&A advisory practice can suggest experienced legal and tax support resources if you are pursuing a deal, and our expert M&A advisors each have dozens of deals completed in the A/E/C industry with an unparalleled success rate.

You can also meet these professionals at PSMJ’s next M&A Summit on Paradise Island in the Bahamas in February, where buyers, sellers, and professionals from across the industry gather to share insights, network, and enjoy the beautiful weather in February. You can find more information on the summit here.

The collective expertise of the right team will not only help you navigate the process but also ensure you achieve the best possible outcome for yourself, your team, and your legacy.

Our next edition will explore a critical issue around valuation for buyers as they explore the implications of their firm value in M&A, and what this means for sellers thinking about rolling equity with a buyer.

Need help getting started? Reach out to us today to discuss your goals and ambitions for M&A.