Mark Pestronk
Q: At the end of 2013, you noted that you had been involved in a large number of acquisitions and had drawn some interesting lessons from those transactions. What about the end of 2014? Were there more acquisition deals than last year? Why do they cluster at the end of the year? Do you have any more observations about the process of buying and selling?
A: The end of 2014 and the early days of 2015 saw a record number of acquisitions. I believe that there were more than last year because more baby boomers are wanting to retire every year, and more outside investors seem to be interested in backing serial buyers of travel agencies.
The first of the post-World War II baby boomers turned 68 this past year -- old enough to retire, or at least think seriously about it. Fortunately, there seems to be no dearth of potential buyers for their businesses.
Acquisitions tend to cluster at the end of the year for fiscal and psychological reasons. Sellers tend to think that, if they can close without doing business in the new year, taxes and bookkeeping will be simpler, and buyers look for a fresh start at the beginning of the year.
However, acquisitions can really be done at any time of the year. The only truly important dividing line is probably that the closing should be effective at the start of an ARC report period, as you cannot easily split a period between buyer and seller.
In all the latest deals, while both sides were represented by counsel, the attorneys did not negotiate the price, and in most cases, a letter of intent or the like was signed before the attorneys became involved. The attorneys' job was then to make sure that their client was adequately protected and that the agreements met the parties' expectations.
Therefore, if you are thinking of selling, you should probably have a good idea of the price and terms that you want, as the buyer will probably want to deal directly with you and not through middlemen. If you don't know what to ask for, you should consider retaining an expert, such as a broker, accountant or attorney to advise you before you negotiate with the buyer.
If the other party is represented by a mid-to-large law firm, you probably should be prepared for a shockingly large amount of paperwork and associated time and legal fees in handling it all. In two acquisitions, the agreement was more than 70 pages, and the various exhibits and ancillary agreements brought the total to well over 150 pages.
Most of this paperwork is unnecessary, but it must be done because that is the way larger law firms handle acquisitions of all kinds. So you have to go along with the busywork in order to get to your goal.
Incidentally, by "paperwork" I mean Word, Excel and PDF documents, as nothing is done in hard copy anymore.
When the buyer is backed by bankers or private equity firms, you need to be prepared to wait for their sign-offs, which can delay closing.
In short, acquisitions today are taking a lot more time and work than they used to. The good news is that prices are higher than ever.