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Part of How deal structures shift risk in a business sale
What transaction lawyers, accountants and brokers handle in deal structures, and who to engage first
What transaction lawyers, accountants and brokers each handle in a deal structure, the order to engage them, what to verify, and warning signs to watch.
Call the accountant first. A small group of professionals each hold one part of the answer, and deals go wrong when they are engaged in the wrong order. This page names who does what, the order to engage them, and how to tell a useful adviser from one selling a favorite shape.
What to take away
- Engage the accountant before the shape is agreed. After it is agreed, they are pricing a decision rather than informing it.
- The lawyer drafts what the documents oblige you to do; the accountant costs each shape; you decide which risks you carry.
- The broker owns market context and is usually paid on completion, which colors the shapes they favor.
- An adviser who recommends the same structure to every client is describing their practice, not your transaction.
- Ask any firm who does the work, what the engagement excludes, and whether their fee depends on closing.
The three roles, and firms that do each
Transaction lawyers. They own the warranties and their cap, the indemnities, the security behind deferred payment, escrow conditions and restrictive covenants. They are the only person in the room liable for the drafting.
The firms are the corporate and M&A groups at national firms and the regional business law practices under them. They bill hourly, typically $400 to over $1,000 an hour.
Who owns which deal piece
Lawyers
- Owns
- Warranties, indemnities, escrow
- Liable for
- The drafting
- Larger firms
- Kirkland & Ellis, Latham
- Mid-market firms
- Honigman, Taft, Bass Berry
- Paid on
- Engagement terms
Accountants
- Owns
- Cost per shape, tax
- Liable for
- The tax answer
- Larger firms
- Deloitte, PwC, KPMG, EY
- Mid-market firms
- RSM, Grant Thornton, BDO
- Paid on
- Engagement terms
Brokers
- Owns
- Market context, accepted shapes
- Liable for
- The market view
- Larger firms
- Generational, Berkery Noyes
- Mid-market firms
- Sunbelt, Murphy Business
- Paid on
- Completion, mostly
Transaction accountants. A certified public accountant or the equivalent in your jurisdiction owns what each shape costs each side, which moves by entity, jurisdiction and price allocation.
Big Four transaction teams (Deloitte, PwC, EY, KPMG) take larger deals; RSM, BDO, Grant Thornton and CBIZ cover the middle market and below. Modeling the shapes is usually a flat fee or a capped hourly engagement, typically $10,000 to $30,000 for a small business sale.
Business brokers and M&A advisers. They own market context: what shapes buyers of this kind of business have accepted recently. Brokerage networks such as Sunbelt, Transworld and Murphy Business & Financial cover Main Street and the lower middle market. Investment banks such as Houlihan Lokey, Harris Williams and Piper Sandler work above that.
Most are paid on completion, which is worth remembering when they urge a shape that closes quickly. Broker commissions are typically a percentage of the sale price, tiered in many cases from about 8 to 12 percent on smaller businesses down to 2 to 5 percent on larger ones.
M&A advisers typically charge a retainer plus a success fee.
US and Canada. A US transaction accountant is a CPA. A Canadian one is also a CPA, since the CA, CMA and CGA bodies merged into a single CPA designation, often with a Chartered Business Valuator on the pricing.
US deals turn on asset purchase versus stock purchase, with a 338(h)(10) election that has no Canadian equivalent. Canadian deals turn on share sale versus asset sale, with section 85 rollovers and the lifetime capital gains exemption.
Cross-border deals add withholding tax on interest and dividends paid to a non-resident, reduced under the US-Canada treaty, and GST/HST in place of state sales tax.
The lender, if there is one. They do not advise you and still constrain you. What they will accept on ranking and security decides what a seller note can look like, as the acquisition financing page explains.
The order that works
- Establish what the business can support on the earnings basis in the valuation methods guide, and what a buyer can fund.
- Have your accountant model the plausible shapes for your position, before any is conceded.
- Decide which risks you will carry and which you want covered by structure.
- Negotiate the shape with the tax answer already in hand.
- Have the lawyer draft, with contingent terms and security specified rather than described.
- Confirm with the lender that the agreed terms are acceptable, before signing.
Steps two and six get skipped most often, and each causes a renegotiation when it is.
Order to engage advisers
- 1. Establish what the business supports
- 2. Model plausible shapes with accountant
- 3. Decide which risks you carry
- 4. Negotiate shape with tax answer
- 5. Lawyer drafts with security specified
- 6. Confirm terms with lender before signing
What to verify before engaging anyone
- Whether they have closed this kind of transaction, at this size, in the last two years. Large-cap experience does not transfer down as neatly as firms suggest.
- Who does the work, and how many other matters that person carries.
- What the engagement excludes, read before what it includes.
- Whether the fee depends on completion. A contingent fee is not disqualifying, and it is worth knowing when advice arrives urging you to accept.
- Whether they will put the analysis in writing in a form you could show the other side's adviser.
- What they would say if the right answer were not to proceed on these terms.
The warning signs
One shape for every client, and tax raised once the shape is set. Some advisers recommend an asset purchase always, or an earn-out always.
If the tax answer arrives after the shape is fixed, you are being told the cost of a decision rather than helped to make it. The right answer turns on consents, tax, lender appetite and which risks each side will carry.
Structure discussed before the consents are known. Whether a lease or license can move decides which shapes exist. An adviser who proposes a shape first is guessing.
A template that has closed many deals. It has closed them on somebody's terms, and the question is whose. The deal structures page sets out what the pieces do; the drafting decides whether they protect you.
One person offering to cover two roles at once. The lawyer is not the accountant, and neither is the broker. Where one firm offers all three, ask who carries liability for each opinion.
