Legal Briefing: What Integrators Must Do Before Selling Their ‘Baby’
Companies need legal advice and help when they decide it’s time to sell their business–or if they’re looking to buy one.
A reader writes: I am considering selling my company. I’m a small integrator with sales of several million dollars a year and all my work coming from commercial and industrial customers. What steps should I take to start this process?
There are many knowledgeable people in the “guidance” business of selling your company (“baby”). That includes most of the professionals writing in to or posting their services on The Alarm Exchange, which is curated by myself and my firm, K&K.
I am probably not going to add much more than you’d find there. However, for this integrator, it sounds like it’s time for real professional services, not self-help DIY legal, accounting and tax services.
I have clients who often tell me that they’ve been involved in more than 10, 20, 30, 50 deals in their time. Impressive for sure. But, for me, it’s not hundreds that I have been involved with, it’s many hundreds. And, as far as DIYing the deal, remember, “A lawyer who represents himself has a fool for a client.”
A non-attorney who tries to represent himself is more likely to end up with the short stick, or lose the deal, which might be the better outcome.
This is not to suggest that clients aren’t knowledgeable and helpful in the transaction, perhaps the most knowledgeable, but still an independent objective evaluation of the transaction is necessary for best results.
Steps to Take When You Sell Your Company
So, where do you start? With a Retainer Agreement whereby you engage a firm specializing in the security industry, such as K&K, to be your lawyer and you agree to pay legal fees. If you don’t already have a buyer (or seller if you’re the buyer), then you engage a law firm to find you a buyer/seller. The legal work is billable on the clock and the finder fee is contingent of finding another interested party with whom you consummate a transaction.
As an example, K&K’s finder’s fee is about one-third of what the alarm brokers charge, and that part of your relationship doesn’t have to be exclusive. In other words, it does not lock you into any time period. In fact, if I am involved and don’t find someone to strike a deal with within weeks, a reputable broker may instead be engaged.
The next step will be discussing what you can do to enhance the value of your security/fire alarm business; though honestly, unless you’ve contacted an attorney well in advance of your readiness to sell it’s probably a little too late to make changes.
However, you and your counsel could still look to make a transaction that will nevertheless provide the opportunity to “cure” some of your company’s prior bad habits and enhance its purchase price.
Anyone interested in finding out about your business will need to sign a nondisclosure agreement (NDA). These agreements are not all the same. I prefer the K&K standard nondisclosure agreement version.
Next will be due diligence. That will entail the prospective buyer seeking information and documentation from you; it will involve a lot of your time, especially if you haven’t maintained great records and business practices, but even so, a lot of time.
If so engaged, that is not something I would help with. So be ready to provide the information or find someone to assist. Newly named SSI Industry Hall of Famer Jim Wooster just started that service.
Next comes the letter of intent (sometimes called the letter of interest) and what I often call a waste of time, because the next step is the purchase agreement. If due diligence is done or almost done, then it’s time to start working on the purchase agreement, not a letter of intent that the slick buyer is going to try to turn into the purchase agreement.
After the purchase agreement, the documents for closing the transaction will be assembled. Then the deal will, hopefully, close, relieving your stress and allowing you to be semi- or fully retired — and semi- or fully richer!
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About the Author
Ken Kirschenbaum, SSI Contributor
Security Sales & Integration’s “Legal Briefing” columnist Ken Kirschenbaum has been a recognized counsel to the alarm industry for 35 years and is principal of Kirschenbaum & Kirschenbaum, P.C. His team of attorneys, which includes daughter Jennifer, specialize in transactional, defense litigation, regulatory compliance and collection matters.
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