March 16, 2021
by Max Beairsto and Mike Jaczko
A good lawyer is a vital part of your transition team because selling your business is not just a financial transaction but also a legal one. Letters of intent, non-disclosure and non-compete agreements, terms and conditions, and definitive agreements – all of these are part of the legal mix that can make or break negotiations and closing. In our view, you should enlist the services of a lawyer early in the process. Their advice will prove invaluable in putting together your preferred deal structure, which will go into your marketing materials and provide important information to potential buyers.
Further along, they will review any confidentiality and competition agreements, letters of intent, and, once an offer comes in, the enormously important terms and conditions of the definitive agreement. You should assume that the other side in your transaction will have experienced, capable legal counsel on their side. So, should you.
What should you look for in your team’s lawyer? Here are a few thoughts:
Not all lawyers are created equal. For one thing, you have to distinguish between the various specializations: there are tax lawyers, estate lawyers, litigators, corporate lawyers, and generalists. Typically, we prefer clients enlist the services of a corporate lawyer. While a generalist might work out just fine, the very least they should have significant experience in business sale transactions. You do not want yours to be their first. So do your due diligence before you hire, asking about their experience and checking references. Your team lead and accountant might be able to provide recommendations.
The healthcare industry is not quite like any other, and valuations and operations are complex. If you have a choice, you would rather not have to train your lawyer – or pay someone to teach them – about what your business is all about.
Understanding the laws of your province and municipality governing healthcare is important, as is a solid working knowledge of banner, supplier, and wholesale agreements, specifically around business exits and rights of first refusal. Your lawyer should also be experienced in options regarding the divestment of current leases – often a vital consideration when selling a business.
Your lawyer should be able to play well with other lawyers; they will be leading much of the conversation and document development with the other side’s legal team. A business sale involves more than just negotiating the price; there are also a host of legal considerations, such as terms and conditions of a definitive agreement, that will have to be mediated by your lawyer.
In case you had not heard already, lawyers can be expensive. You want yours to guide you through the process and provide sound advice, but you also want them to do so efficiently as possible. That means keeping their eye on the point of the whole thing, which is to close a deal – not run up the billable hours. Be sure you ask for an estimate of what the final bill will be.
Has the lawyer you are thinking of hiring taken any creative approaches in previous transactions? Ask – there is always plenty of room for fresh thinking. While you are at it, ask about what risks they have encountered in previous transactions and their approach to mitigating them. You need to be confident that your lawyer will be able to capably inform you of risks and give you a chance to make informed decisions.
This is a bonus but having a lawyer who understands tax law will better your chances of reducing the adverse tax impact of liquidating your pharmacy ownership.
In short, your transition team’s lawyer will be involved throughout the process. Take the time to find the right one.
In our next edition of the EVCOR advisor: How to choose your accountant.
Max Beairsto, B.Sc. Pharm., MBA, CVA is an intermediary and valuation analyst with EVCOR (Enterprise Valuators Corporation), a Canadian business advisory firm that focuses on valuations and the sale of healthcare-related companies.
Mike Jaczko, BSc. Phm, RPh, CIM®, FEA, a pharmacist by background, is a portfolio manager, partner, and member of KJ Harrison Investors, a Toronto-based private investment management firm servicing individuals and families across Canada.
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