A Chat With Ira Halperin on Cash Flow, the Role of In-House Counsel in the M&A process, and the 2019 M&A Outlook

By Ira R. Halperin

Question: You have stated to us that understanding cash flow and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) in a business is an essential skillset for a successful M&A lawyer. Why is this so?

Ira Halperin: Let me take you back a little bit. I started my career as a CPA and, in fact, I still am.  I originally working for Peat Marwick Mitchell, which at the time was one of the “big eight” accounting firms, and later, as a CFO or Vice President/Finance for a number of companies before I became a corporate attorney.  That knowledge is used in every transaction I work on.

I recall that when I was CFO of a company that was doing some acquisitions, I sent the financial statements to our lawyer – a good business lawyer who, unfortunately was experienced in M&A but not with business accounting practices. The lawyer looked at the financials and said “I don’t understand why you’re paying this amount of money for this company, because I looked at the income statement, and they’re not making a lot of money.” I responded that “you’ve got to turn the page to the cash flow statement, because cash flow is huge in this company.”  The lawyer then answered that the cash flow section of the financial statement was “above his pay grade.” I found this statement amazing, because as a CPA I knew very well that cash flow is the heart of how many businesses operate and drives many business transactions.

Being able to understand financial statements and terms such as cash flow and EBITDA is imperative to most sale transactions.  We lawyers should understand these and how they relate to a merger, sale, or acquisition.

Question:  Is there a reason to use an attorney that specializes in buying and selling businesses when considering such a transaction?

Ira Halperin: Unfortunately, many clients look to the same attorney used in general day-to-day operations to handle an M&A transaction. This attorney may be great at doing real estate closings, reviewing contracts, or handling employment issues, but lacks any significant M&A experience.  

There’s a saying in corporate law that “nothing’s ever happened for the first time;” whatever the issue is, it’s happened before, perhaps many times.  Thus, having handled many buy or sell transactions allows you to rely on your previous experiences to quickly come up with a number of different solutions that have been used successfully in other deals.  Invariably, one of those solutions will work in this situation as well or you can use that experience to fashion a new approach.

One important consideration executives contemplating a transaction is whether their attorney has all the resources to successfully complete the deal.  Our firm has a whole corporate practice department with all the attorneys and administrative backup behind it, as well as all of the other practice groups required to do complex transactions on a regular basis – such as tax, employment, real estate or litigation.

Question: How important is industry sector experience when selecting an M&A attorney?

Ira Halperin: I’ve worked on transactions in a many different industries – from technology to manufacturing to service, etc.  It’s often the case that when I start the transaction, I know very little about the industry or about the client’s business.  But there are certain principles and methods in buying or selling a business that don’t change much from one industry to the next.   By the time a transaction is completed, I’ve usually learned a great deal about the client and the client’s industry. So I would say an experienced M&A lawyer is going to be able to handle a transaction without having a significant knowledge of the industry or the client’s business before they walk in the door.

Question: What does the M&A climate look like in 2019 and beyond?

Ira Halperin: I wish I could forecast what is going to happen because then I’d go to Las Vegas.  However, there is currently lots of money out there, particularly private equity money, and that money has to be invested somewhere.  I will tell you that activity continues to be robust and we continue to see lots of transactions. Well-run companies that are successful in their industries know what they’re doing and do it well will always be in demand.

Whether the economy is good or bad will affect the overall volume of M&A transactions.  However, there will always be opportunities both on the sell and acquisition side. Even in a down market, quality companies will still be sold and they will be sold for a lot of money.

This blog posting is for informational and educational purposes only. It is general in nature and not person or circumstance specific. This blog posting is not intended nor should it be construed as rendering independent investment, legal or tax advice. It may but does not necessarily constitute attorney advertising.

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