Anatomy of a Deal: A Lawyer's View of the M&A Life Cycle

Good morning, everyone — and thank you for joining us for our bi-monthly construction webinar series. This session was themed around mergers and acquisitions: what you can expect as part of an M&A transaction, what's part of the deal, and what can go wrong along the way. I wanted to capture the highlights here for those who want to revisit the material.

For this portion, we were fortunate to have Jon Puvak, an attorney with Gentry Locke who spends a significant amount of his time on corporate M&A transactions. We have worked with Jon for a very long time on a number of deals with our clients, and there are few people better positioned to explain what to expect and what can go wrong. Jon walked us through the life cycle of a typical deal from both the buyer side and the seller side, and what follows is the high-level tour he gave us.

Anatomy of a Deal: A Lawyer's View of the M&A Life Cycle

Featuring Jon Puvak, Partner, Gentry Locke

Jon opened by reminding us that while every transaction is unique, deals tend to follow the same rhythm — the same stages, in roughly the same order. His goal was to give a broad overview from both the buyer side and the seller side, since he handles transactions on both ends with great frequency. As he put it, you could spend an hour on each one of his slides, because there are so many details in each.

Deal Structures: The Main Ways to Transact

Jon started with the menu of structures. This isn't an exhaustive list, but it covers the most typical transactions an owner will encounter:

• Asset purchase. The buyer acquires the tangible and intangible assets of a company — sticks, bricks, equipment, real estate, plus intangibles like goodwill and IP. Buyers typically prefer this structure, mostly for liability reasons (you can exclude liabilities and say anything before closing is the seller's responsibility), and because favorable tax treatment is available when purchasing assets.
• Stock or equity purchase. The ownership interest in the company is acquired rather than the assets. This is often preferred when there are recurring or ongoing contracts and you want continuity — you keep the same tax ID number, but ownership changes. Sellers typically prefer this for tax reasons, but buyers can be hesitant because they're still buying the company, and therefore its liabilities.
• Redemption. An internal mechanism where the company itself buys back shares — useful for internal reshuffling or when a shareholder agreement gives other shareholders the chance to be bought out. There may be less tension than in a third-party sale, but you still want to document the formalities.
• Merger. Two entities come together, with either a surviving entity or a brand-new one. Jon noted it's not as common anymore, but it's still used. The merger agreement carries the same kinds of provisions on obligations, responsibilities, and liabilities as an asset or stock deal.
• Transfers to family or key employees / management buyouts. These can be structured as equity, stock, asset, or redemption deals. A common fact pattern: key employees are minority shareholders today, and the controlling shareholder wants to step back.
• Sale to an Employee Stock Ownership Plan (ESOP). A succession tool Jon's firm works with frequently. It typically starts with founding shareholders who want continuity of the business to stay with the employees.

Who's at the Table

A transaction pulls in a lot of people. Jon walked through the key participants: owners, shareholders, and family members (usually the clients); management, some of whom inevitably have to be "in the know" because so many questions concern day-to-day operations; lawyers, who bring market trends and try to add value rather than just expense; accountants, who Jon strongly recommends bringing "under the tent" early so they understand what's coming, especially around short-year tax returns; lenders, who appear on either side unless the buyer is paying cash; and investment bankers, who may run an auction, prepare a confidential information memorandum, and manage data rooms.

Before the Deal: Planning, Alternatives, and Knowing Your Value

Jon's central message on timing was simple: don't wait until you're ready to retire to start planning. He encouraged owners to think about succession strategies early — do you have key management in place? Is this a business you expect to continue? A sale is just one of many succession strategies.

He also urged owners to understand their alternatives and to have a real understanding of value before a deal appears. Sometimes a transaction arises almost by accident — he described owners who struck up a conversation with someone at an airport and soon had a letter of intent in hand. Knowing your range of value ahead of time, whether through an investment banker or through Brown Edwards' in-house valuation capabilities, puts you in a much better position to evaluate an unsolicited offer.

What Sellers Want

On the seller's side, Jon identified several recurring objectives: a favorable tax structure (driven by whether you're a C corp, S corp, LLC, or something else); protection in the event of death or disability, which may mean funding buyouts among shareholders; continuity of the business through ownership and management; and incentives for key employees to remain, often through employment agreements or equity plans. Buyers, for their part, want to know who's going to stick around — they're buying a company to extract value from it, not to re-hire an entire workforce.

NDAs and Confidentiality

Before sharing much, you want protections in place. Confidentiality agreements and NDAs are now commonplace — as Jon put it, no one will do anything now without an NDA. He prefers a mutual NDA, where both sides sign up for the same obligations, over a one-way agreement. A key point he stressed: signing an NDA doesn't obligate you to disclose anything. You can still be smart about what you share. If a buyer asks early for your top 20 customers and suppliers, it's reasonable to hold off until you see the letter of intent. And if someone breaches, your recourse is to sue — there's well-developed case law enforcing these agreements, but you have to have one in place first.

In response to a question, Jon clarified that a typical NDA does permit disclosure to others who need to know, but the receiving party remains responsible for that disclosure. His recommendation is to keep the circle small.

The Letter of Intent — Don't Just Sign It

The letter of intent is like a term sheet: it outlines the parties, the anticipated structure, the anticipated value, and whether it's a cash deal. Most provisions are non-binding, but some — confidentiality, exclusivity — should be binding. The exclusivity period (often 60 to 90 days) is, as Jon described it, the agreement to "dance together" while you decide whether to take the next step. Because so many of these deals are done as a simultaneous sign-and-close, the LOI is frequently the only document negotiated before the purchase agreement itself.

Asked about common LOI mistakes, Jon's answer was clear: treating the LOI as unimportant because it's "non-binding." That document gets pulled back out later when someone says, "but the letter of intent said X." He also noted that if you're not willing to read a three- or four-page LOI carefully, a 60-to-80-page purchase agreement will be even less appealing — and that nailing down the tax structure at the LOI stage is essential to evaluating whether the deal is one you want to do.

Due Diligence — The Bane of Everyone's Existence

Once the LOI is signed, due diligence begins — and as Jon put it, this is where management feels the strain. Buyers send a due diligence request log, often a lawyer-prepared spreadsheet, and examine everything "with a miner's light." On the financial side, a private equity buyer will typically run a quality-of-earnings analysis to validate EBITDA, look at working capital, and assess debt. Most deals are structured cash-free, debt-free: sellers retain their cash, and debt gets paid off so the buyer acquires the company without it.

The other half of due diligence is everything else — legal structure, vendors, suppliers, litigation, employment issues, IP, trademarks, and copyrights. Jon reminded the audience that even owners who insist they "don't have any contracts" almost always do; a purchase order or an unwritten credit agreement is still a contract, and those can carry change-of-control or notice provisions. Real estate brings environmental considerations, and some environmental liabilities transfer to a successor regardless of the contract unless proper diligence steps are taken. On the buyer side, counsel compiles a due diligence memo flagging red flags and items to address in the purchase agreement.

A Word on ESOPs

Because his firm does so much ESOP work, Jon spent a moment on them. Implementing an ESOP creates a retirement plan for employees who come to own the company, with the investment value tied to the company's future growth. There are meaningful tax considerations — including the 1042 rollover you often read about — and companies don't have to be 100% ESOP-owned from day one. A minority ESOP transaction with seller financing can transition the business gradually over a period of years.

Key Deal Terms in the Definitive Agreement

Jon then turned to the big pieces inside that 60-to-80-page definitive agreement:

• Purchase price adjustments and working capital. Buyers want the company delivered with an agreed level of working capital, and arriving at that target is a negotiation.
• Escrows and holdbacks. Security for the buyer if a promise turns out not to be true. An escrow parks the seller's money with a third party; a holdback simply withholds part of the price. Jon noted the market is usually somewhere between 12 and 24 months, occasionally up to 36 for known, longer-tail liabilities. In response to a poll, he noted a typical escrow is around 10% of the purchase price.
• Representations and warranties. The promises the seller makes about the company — ownership, no undisclosed litigation, contract compliance, no known environmental issues. These are what the lawyers tend to fight about, though reps-and-warranties insurance has increasingly become an option that shifts the risk to a third-party insurer and leaves less to argue over.
• Restrictive covenants. Non-competes and non-solicitation agreements — and in Virginia, Jon cautioned, the enforceability of these is changing rapidly in the General Assembly, so existing non-competes need to be checked for whether they're even effective.
• Closing conditions and disclosure schedules. The remaining items to complete, plus schedules listing contracts, litigation, and IP.

Financing, Approvals, and Getting to Closing

Financing introduces yet another party — a lender with its own counsel and its own due diligence. Jon noted that when closings get delayed, it's often because the lender needs something else. Before closing, you also have to secure other approvals: an HSR antitrust filing for large enough deals, industry-specific approvals (in construction, notifying DPOR of a change of control), third-party consents on contracts, and proper corporate authorization through board and shareholder action. Finally, at closing, a funds-flow or closing statement shows where the money goes, documents get signed, stock certificates and proof of ownership get delivered, and — because so many deals are simultaneous sign-and-close — you cross the finish line having worked the whole way with only an LOI in place.

After Closing

The work doesn't end at closing. There's integration, plus provisions governing confidentiality and public announcements. Company-wide meetings often follow if employees haven't yet been told. For ESOP companies being sold, there are pass-through votes to consider, and standing up a new ESOP brings a whole new compliance and reporting regime.

What Blows Up Deals

I asked Jon the question I think is on everyone's mind, especially for first-timers: what's the number one thing that blows up deals? His answer was that issues can surface during due diligence — financial reporting that wasn't as strong as represented, for instance, leading a buyer to walk away. But more often, it comes down to expectations not being set early. People reach the eleventh hour and realize the $45 million they had in mind was actually $45 million minus debt, minus third-party payments, minus a rollover piece they didn't understand. Financing can also fall through on the buyer's side. And — memorably — he's seen deals blow up over something as small as a post-employment automobile allowance. The throughline: spend the time up front on expectation-setting.

My thanks to Jon Puvak and the Gentry Locke team for a genuinely valuable presentation. This was one of two sessions from our M&A webinar; the companion piece covers the tax and wealth-planning side of a sale, with Ryan McEntire of Brown Edwards Wealth Strategies. The recording and CPE certificates were sent out through our webinar system, and we'll have more sessions in this series in August, October, November, and December — so keep an eye on your email. We appreciate your time, and we wish you the best and a great summer.