When it comes to buying or selling businesses, I’ve represented clients from a wide range of industries:
- Food and hospitality (Bars, Restaurants, Pizza Places, Delis)
- Salons
- Tech Companies
- Real Estate Developers
- Manufacturing/Distribution
- Fashion
- Film Production
- Laundromats
- Partnership Buyouts
Each industry comes with its unique challenges and areas of risk. The following are some cases of interest with some specific challenges.
Fashion
We represented the seller in sale of a $800,000 online based fashion business. As with all complex acquisitions, this transaction involved significant due diligence, an analysis of vendor and supplier relationships, intellectual property rights, and tax compliance issues. One of the issues that arose through the course of due diligence was addressing poorly drafted “do it yourself” contracts that the seller had in place from its early days. Those contracts pertained to the seller’s manufacturing and distribution relationships. In order to address the purchaser’s concerns we re-drafted each of those contracts and negotiated clear exclusivity and non-competition provisions. In addition to the contract issues, the purchaser didn’t want to pay the $800,000 purchase price for a variety of smoke screen reasons. In order to address the purchaser’s concerns as well as the seller’s needs, we negotiated a payment structure so that the seller’s principal owner would receive a guaranteed employment agreement, insurance coverage, and profit sharing rights. At the end of the day the seller was going to receive something well over the initial purchase price and the purchaser was going to have a seller that would continue to manage the business successfully for the next few years as the business transitioned.
Home Goods Manufacturing
We represented a buyer in the purchase of $5M New Jersey based home goods distribution company. The acquisition involved significant due diligence (financial, operational, legal), and drafting/negotiating the following: purchase agreement, secured promissory notes, transition services agreement, and consulting agreements. I worked closely with our in-house certified public accountant to conduct extensive financial, legal, and operational due diligence. The issue here wasn’t the transaction itself but instead ushering in a new culture once the transaction was completed. The purchaser wanted to change things up, make the processes in the existing business more efficient, and clean out/get rid of the things that weren’t working or that weren’t working efficiently. With that as our primary focus we changed the positions/titles of key employees, offered them new executive employment agreements and structured an employee profit sharing plan. The purchase of a business is not just about what it is, but more often what it could be. The purchaser transitioned the business successfully and we later represented the purchaser in acquiring the Mexico based manufacturing company.
Cloud Tech
I’ve represented multiple clients acquiring or selling all or even just their share of a technology company in a partnership buyout. The more significant of those transactions involved representing a buyer in a stock purchase of a New York based cloud technology business. The purchase price was approximately $4M which was financed through a combination of seller financing and an SBA loan. The transaction involved significant financial due diligence, operational, and legal due diligence; due diligence included reviewing employment agreements, consulting agreements with overseas tech companies, vendor agreements, receivables, and corporate governance contracts; drafting executive employment and consulting agreements; drafting and negotiating seller financing agreements; drafting board resolutions and corporate bylaws; drafting transaction specific indemnification agreements; responding to SBA information requests; preparing closing documents. The critical issue in this case was the transition consulting agreement. The purchaser wanted the seller’s principle to stay on board for a while to help transition key client relationships and help the purchaser understand the inner workings and intricacies of the business. A transition consulting agreement can be a tricky thing and in my experience very costly if not properly negotiated. In short it’s a source of potential litigation. We worked with the parties to draft a transition services consulting agreement that was fair and reasonable for all parties, and created room for the purchaser to hire the right management team once the transaction was completed.
Real Estate Development and Management
Family owned businesses are something of a speciality. This family owned business sought to expand on their real estate profile by acquiring a Staten Island, New York property that had several commercial tenants all of which were restaurants. In this $1.5M acquisition the purchaser/client needed an attorney with expertise in drafting complex commercial real estate contracts but also expertise in reviewing commercial leases and a keen understanding of restaurants. The purchaser was looking to acquire a property the value of which was largely if not significantly dependent upon the success of the restaurant tenants. We needed to conduct due diligence from two perspectives: first as a landlord to determine if the tenants were consistent with paying the rent and compliant with the commercial lease in all respects, and second as a restauranteur to determine if the restaurants would continue to be successful in the changing market. We obtained some financials from the tenants as well and did our own investigation of each of the restaurants which made way for a thorough due diligence process.
Restaurants
I’ve represented multiple buyers in both the asset and stock purchase of Westchester New York based restaurant chains, family-owned restaurants, bars, delis, and Edible Arrangements. Some of those client purchased business that have been existing for over 20 years. Some of those clients acquired restaurant chains with an established brand. One of those clients acquired a stand-alone restaurant with multiple employees. The acquisition involved vetting long-standing employment relationships, drafting employment contracts, creating employment protocols, conducting essential due diligence concerning the condition of the property and the condition of the kitchen equipment being acquired as part of the transaction. A significant part of the transaction involved negotiating the indemnification agreement in the event the condition of the property required the purchaser to pay over $5,000 to repair things such as existing sprinkler systems, ventilation systems, structural defects, or repairs to the roof (which in my opinion is perhaps the biggest wild card when it comes to potential repairs).
Salon
I represented a purchaser of a Westchester New York based salon. All aspects of the acquisition were solid on paper. There was an ironclad purchase agreement with multiple representations made by the seller and most critically, a non-competition agreement. The seller failed to disclose her dirty little secret that she conspired with one of the stylists to open a competing business down the road in the stylist’s name. Once the purchaser took over the salon, the stylists all quit and went down the street to the competing business. We ended up suing the seller and the conspiring stylists and reached a settlement on the $300,000 purchase. However the valuable lesson here was the importance of vetting the staff when you purchase a business and offering key employees incentives to stay such as profit sharing, equity, or bonuses. All of those incentives can be structured in a way so the risk to the business is minimal.
Laundromat
I represented a purchaser of a laundromat in an existing Manhattan based laundromat. We were not involved in the due diligence of this transaction because the purchaser felt comfortable on her own, contrary to our legal advice. The purchase agreement contained a strange but seemingly innocuous non competition provision because it required the purchaser not to compete with seller with respect to seller’s laundry service app. The purchaser ultimately (arguably) breached that provision of the contract by directing her customers to a competing laundry service app. The case went to Court and the parties ultimately settled but the key takeaway was (1) don’t get too creative when it comes to drafting contracts, (2) be sure to have a complete understanding of the purpose of creative contract provisions, and (3) be sure to outline in your purchase agreement in as much detail as possible, the intention of the parties with respect to creative contract provisions.
