Over the years, John Lauber has been approached by several firms and individuals interested in buying the successful Milwaukee company he built, LauberCFOs. Each time, he declined to sell.
“While there were things that were attractive about each of those opportunities, I felt I had the time to look and find the right fit,” Lauber said. “I wasn’t in any hurry to sell.”
Lauber, 66, founded the part-time chief financial officer placement firm in 1986. Recently, he found an interested buyer, Mark Wiesman, through a mutual colleague and knew it was the right fit.
“It was really kind of a vetting process, a dating process, if you will,” Lauber said. “I believe that he will carry on the same culture, care and concern for providing real value to our customers, a focus on providing a good work environment for our employees, and his interest in providing me a meaningful, ongoing role.”
Wiesman, who had looked at about 300 companies over a four-year period and made a dozen purchase offers, put together an initial term sheet. The two, both of whom have financial backgrounds, hashed out the final sale agreement together.
The vast majority of businesses are sold through these kind of negotiated sales, not as fully marketed businesses, said Vicki Fox, managing director at investment bank Eisen Fox & Co. LLC in Milwaukee. That could be because sellers already have an idea of who their buyers would be, such as a competitor, or they want to keep the sale private.
Many law firms in town make introductions among their clients, for example, if they think the companies would be a complementary fit, Fox said. Most of them bill those clients at an hourly rate.
“I think that’s great—if they can make an introduction and it’s going to be a solid price…that’s the way most deals get done,” she said. “Sellers always kind of know; they have an idea of what they think (their company is) worth or what they want for the business and as long as they get what they want…it is a hassle to go through the whole marketing process.”
The Milwaukee office of general practice law firm Husch Blackwell, which was formerly Whyte Hirschboeck Dudek S.C., frequently makes matches for its clients. And recently, it started offering a financial analytics model and providing investment banking resources to help complete the sales.
“There’s a constant drive from our clients to provide richer solutions and more value at the same or less cost,” said Eric Lenzen, who leads the financial services and capital markets team for the firm. “What we’re trying to do is make ourselves a better, more comprehensive resource to our clients.”
Clients generally have an idea of what they think their business is worth, and Husch Blackwell’s team can help them determine whether an unsolicited offer, for example, is in the range of reasonableness, he said. The firm recently brought on two investment banking professionals to offer this expertise.
“This is not a goal to replace our clients’ investment bank,” Lenzen said. “We think the evolution of the practice necessitates the addition of financial advising and investment banking capabilities and we’ve taken that leap. We constantly try to innovate and serve those clients better.”
Husch Blackwell regularly refers its clients to investment bankers or other professionals as needed in a transaction. But if a client is ready to sell and already has two strategic channel partners lined up, the marketing process is not always necessary, he said.
However, some experts advise business owners get an outside opinion – or several – before going through with a sale. Fox recommends business owners gather a team when they decide to sell the company: a tax advisor, a legal advisor, an investment banker and a wealth manager. In the end, the only way to be absolutely sure the business gets the best possible price is by marketing it to a wide national audience, as an investment banker would, she said.
Tammie Miller, managing director at Milwaukee investment bank TKO Miller LLC, agreed business owners should put together a team instead of using just one professional, so several perspectives and interests are represented. An investment banker is trying to find the best price, while an attorney is looking over the legal documents in the client’s best interest and doesn’t have an incentive to make sure the transaction is completed.
“(The practice of engaging only a law firm to sell a business) doesn’t happen anywhere else in the entire United States,” said Miller, who has been doing investment banking transactions across the country for 26 years. “What happens in Wisconsin, I think, is we’re frugal and this is not the place to be frugal. This is like being frugal with your heart surgery or your Lasik surgery. At best, you leave millions on the table. At worst you leave millions on the table and you’re at risk because of bad contract terms and conditions.”
Law firms need to be careful about completing an entire transaction, including a success fee, because it may present a conflict of interest, Miller said.
Husch Blackwell does not take a success fee, Lenzen said. It prices its cradle-to-grave M&A services with clients ahead of time, so it shares in the upside or the downside of a transaction. So if a transaction fails, Husch Blackwell would charge something like 75 percent of its costs. And if the sale goes through, it might charge 125 percent of costs.
“It’s up to the attorney and their client, but it should never be contingent on a transaction happening,” Miller said.
Under Wisconsin ethics rules, an attorney is allowed to practice law and another occupation as long as the two are clearly separated or the client is informed in writing of the terms of the transaction and the lawyer’s financial interest in the transaction up front, said Aviva Kaiser, assistant ethics counsel at the State Bar of Wisconsin.
“It is permitted. There’s no per se prohibition,” she said. “When lawyers start offering other services, it can confuse the client. If it’s in the same suite of offices, make really clear that it’s not part of the law practice. Either way, there’s a number of precautions lawyers need to take, but they can do it as long as they comply with the rules.”
Husch Blackwell added investment banking professionals to help it better meet the needs of its clients, Lenzen said.
“This is what our clients want. This is what our clients asked us for,” he said. “Innovation is nothing more than trying to modernize and evolve to serve the demands of your clients.”