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for today's webinar on merging and acquiring professional practices my name is Mike McLain the marketing and business development manager from acclaim law firm and I'll be your moderator today our presenters for today's session are John Gucci and Steven Ferran john is a director in the corporate department at mclane which is a full-service law firm with an Austin moon burn as well as three offices in New Hampshire John has a dual background at both an attorney and a CPA this unique skill set gives them a differentiating perspective and depth of understanding of the legal issues necessary for protecting a growing business as well as the financial drivers of operating and sustaining a successful company Stevens the president and a partner at Johnson O'Connor Ferran and Karrueche LLP he has over 15 years of public accounting experience working extensively with owner-managed entrepreneurial and family-run businesses in a variety of industries if you do have a question during the presentation you can use the question feature on your control panel to submit a question and I will for that along with John and Stephen we will also have some time at the end of the webinar today for a Q&A session as well so without further ado John and Stephen I will turn it over to you great thank you Michael morning or good afternoon everyone I thought I would start out with just talking a little bit about why we're having the seminar today you know all of us are pretty familiar with the demographics that are facing all of us and I just thought I would run through a few of them a couple that aren't on the slide one person turns 65 years old every 8 seconds in the US more than sixty percent of all equity partners in cpa firms are over 50 years old and it's very similar ages for for the law for law firms as well seventy-five percent of the mat of the membership of the American Institute of Certified Public Accountants will be eligible to retire in five years as you can see on that on the slide by 2024 the 50 and older population will be more than six book be will grow by 19 million people 65 plus our expect to be nineteen percent of the population and by 2030 one out of every five people in the US will be 65 plus you know look at it attorneys you know another of the professional practices you can see on the slide the aging of the of the law firm partners and I show myself in that category the only the only factor that counters this this trend of aging professionals and it's in all practices doctors veterinarians you know dentists of the of your typical possession you know I can counter against this is if people are retiring later so they are working longer and not retiring right at 65 but working to 68 70 75 I'm working right now on a CPA firm transactional one of the partners is 76 and is going to continue on with the practice after the transaction so there is there is a trend of working longer but but still the demographics are definitely show that there's going to be a transition among a lot of professional practices over the next few years I absolutely agree with that I just want to first say thank you to John and McLean law firm for hosting me down here and John how clean your desk is so nice I mean look how organized you are um so just picking up a little bit on what you said there John in terms of the reasons to consider a transaction this was one two three four fifth one down succession planning I think is a huge one and it picks up on all the demographics that you were just talking about i can tell you that in me in the accounting industry CPA firms out in the last 12 to 18 months there's been quite a bit of M&A activity and from what i'm reading that's expected to continue again based upon the information you were providing you know in terms of succession planning if folks have you will a weak bench or not enough strength for the entity itself to carry on then you get your force to look at other options so anyway you can see here are some different reasons to consider a transaction a couple other ones i would add there would be complimentary services or industry verticals and and also a crisis you know something dramatic happens that could lead you into the need for a transaction but really what I want to talk about in this slide is a few reasons not to do a transaction and I think that's pretty much you know connections can be gogo and sexy and appealing but for instance you don't want to do a transaction regardless of the industry to get bigger just for getting bigger because it's really not about getting bigger it should be about getting better I think the questions always what can I do to make my entity my company a better company are you trying to get bigger because you don't know how to get better and so you know remember the old adage which is volume is vanity profits or sandy right jonatha make sense does it make sense and you know and as uh he's mentioned you know particularly in the law firm arena I think we've all seen recently in Boston well I'm located you know firms that have emerged and merged and merged again just to become larger and to expand geographically only to eventually collapse and be you know some submerge into another firm or scattered to the four winds so you know just you know having a transaction to expand you know doesn't always work out it seems so obvious and I don't mean to come across preachy but I think it's important just to sort of state the basics secondly in this goes contrary to one of the ones i added on but if if you're going to expand service offerings i mean if that's a motivation to do a transaction again regardless of industry I think you want to just pause for a second and reflect on how have you done in your entity with your track record with cross selling so you know don't just take it as a given that because you'll have no additional services or you know different industry verticals that that will be a home run additionally frankly your clients may not care you may think that adding bolting something on is going to be a tremendous asset but not necessarily in the eyes of clients so you may want to consider some sort of survey or reaching out to them in some regard another either reason not to do a transaction excuse me our caution would be if all the merger related benefits are marketing related but you need to be wary since that you could be missing the really absolutely critical element of enhanced capabilities I mean ultimately the new organization needs to service clients better all right so if enhanced capabilities are truly realistic then the marketing will follow not vice versa I mean you'll be easily able to get all the confidence and the capabilities to market if the capabilities are there and finally another word of caution would be if either of the entities has a lot of internal issues I think you want to be very wary about a merger because they don't go away in a merger so you know to fix an internal problem ahead of time is advisable that's not necessarily the easiest thing to do but again if both houses are not in good order that's going to probably persist I I think that's not always on something folks want to engage in I think people want to do a transaction so that they don't have to i'm thinking particularly maybe of the seller if you will so maybe the buyer in this case would just really need to you know do some some really good due diligence i guess and this can be a little bit tricky because a lot of times it's going to be personnel issues but anyway it's just it was everyone to try to make their house and best order as possible before something happens you're right i will tell you a couple of the areas that I've seen in the health care area that work you know some reasons that make sense you know there's tremendous economic pressures as you know and that in the health care industry which includes dental practices there's also you know a number of technical gical changes including medical records and billing as well as regulatory changes just the web of regulations that a practice has to have to comply with now makes it almost impossible for a small practice to deal with technology you know adhere to all the regulatory changes and all the regulatory requirements and meet all the economic pressures that are being brought on by a new healthcare system um you know to go it alone and that that is a good reason I've been a you know working on a number of good health you know good murders in the health care industry and you know many times they work out very well in the law you know I think just to pick up on a one quick second job for a move on I think also you see that in banking I think a lot of the banking regulations that have come up forced some mergers of us within the smaller banks and then just one more thing I want to point out in this slide before we move on because it'll come up Billy broke important later the increased ability no I'm sorry the the decrees ability to uh to recruit is it's going to be going to all of us that people at some level so types of transactions use a real big buckets obviously there's lots of different varieties and flavors in each one and i'll just briefly highlight a few different concepts in each of these larger category so employee purchase you know it's an internal transaction where existing shareholders sell to an existing employee typically it's an existing employee this is usually preceded by a period of time where the employee works at the company so that both sides get to know each other professionally and personally i think we've all probably seen this frankly this happened to me personally some years ago as times go as time goes on conversations become more serious and ultimately partnership conversations come about sometimes there's an outsider who's brought in with an expectation that transition will happen soon I think this typically happens because there's an older partner that's ready to exit so it's the same as the piece I just described but this requires a little more attention because the runway is a little narrower and so does not it may be as much time because again you have some some out valiant shareholders so you think everything just has to be a little bit tighter there and the focus needs to be tighter alice is for the convention of giving a chance for emerging leaders to learn about running a professional practice regardless of industry or before they're actually asked to do it get me someone use an example of you know acquiring a brand new sports car than giving a youngster the keys to em you wouldn't do that so you know you do want to have a migration it would be best if it could be a migration you have sort of an evolution not revolution in this regard so that when the person is ultimately asked to do practice management matters that he or she has had some exposure to it you know just one quick thing on the employee purchasing you know one thing that I find fascinating is and it's happen to a number of my medical practice client is off and also a couple law firm cases um my client is built a nice practice there maybe you know a number of professionals in the firm they have one person that they have their eye on that they want to be the person that succeeds them and you know become a real player and the entity and when they approach that person thinking that they're giving them the gift of a lifetime the person has been not interested in being a partner and owner and I've seen it more in the last ten year that I have ever done in much in the past where the employees aren't really interested in taking on the risk and the burns and the time commitment that it takes to be an owner of a professional practice and that's something that takes you know some of the my client to back so I try to raise that initially so they can have that conversation early before you know it gets too far down the line yeah so right so that's what I was going to say as you want to feel front mode the conversation as much as is you know clickable an appropriate obviously you know they want obviously with your you know onboarding kid but but also I think it also leads back to the succession planning issue talked about rights only if there's fewer folks that are interested in sort of coming up again that just exacerbates the problem I'm next bullet small firm or group acquisition you know with this type of acquisition sometimes leaders of the selling is if you stay sometimes they go I think there's pros and cons for each I've seen each i'm mostly seeing this type of transaction in the dental and accounting space with the former in the dental space I'm often seeing the leader of the selling the shareholder who's selling the part after a short period of time that's not always the case but I do see that frequently whereas on the accounting side I see the show is typically staying for a while maybe that supports what you're saying earlier John they accounts just never seem to want to attack they never go away right and the finally merger of equals or unequals em in some some of this is just terminology since there's really always an acquirer in name or or in fact but i think the points I made earlier really kind of fit into the mergers of peoples as well yeah you know on the small former group acquisition I was part of that hair McLain I I brought four lawyers with me and joined the firm and a group and I've done it for a number of clients as well and the thing you only have to worry about in that situation is you know people that come into group can leave as a group and getting them you know and I'm sure if I think seems go talk about this later you know getting them you know into the fabric of the farm quickly is important because you know if if a group that comes in remains to cohesive to each other and not part of the firm they they can easily leave and it's even I were joking before this started they were looking at lawyers weekly which you know about the publication so it's the lawyers and this week you know there's all these groups that are you know leaving one law firm and going to another and then going from one firm to another and it's it's like musical chairs but it's usually group 4 5 6 they move from one form to another and you know you should try to minimize that risk by by getting the whole group into the firm you know and be part of the farm as soon as possible and the other one is the merger of equals or unequals I mean it's really important to figure out those in that case you know who who are going to be the everybody thinks they're going to be the one that's going to be running the firm so playing that out quickly is important yeah I think you bring up an interesting point John and it's an overarching point for the whole topic which is you know the merger process when does it begin and when does it end right you know it's not even close to ending when the date of the merger occurs or when the paperwork is signed it may feel that way right I need to make feel that that's when it ends but if it's not even close then then because the success is contingent upon the integration or assimilation that's what we're talking about with this or larger group coming in there's a tremendous amount of work so I mean what when does when is the end I mean it's certainly not when the paperwork aside I mean there's a lot that precedes it obviously we're talking about those things due diligence of so and so forth but there's so much it happened afterwards to make it successful so you know how do you how do you get the transaction started how does it how did it go so typically you know many many times the two parties will know each other professionally before they even consider a transaction it happens very frequently to bar associations or or you know joint clients or just by name you know sometimes they don't but it's important right up front to have an open dialogue mckee things on there really to talk about what's important to each side if you can really figure out what's important to each party makes the rest of the transaction go go smooth some people care about retention of all employees some care about the geographic location you know what's important to people is not always apparent that's an open dialogue the only way and talking about things openly right from the beginning is the only way it'll work there should be a book a spokesperson that's not to say you can't have a committee or you can't you know meet as a move to discuss things but it really should be one person for each group that's talking to each other because you know I've seen I've seen transactions go off the rails when you know by partners are talking to five different partners with all different ideas on how the transaction should be and by the end it's such a mess that everybody just walked away and doesn't even really know how to how to make the transaction go forward it's important to keep all of your partner's informed I have personally been involved in a number of these but despite whatever I told them decided that they were going to keep the discussions to only a few partners of all the partners that are involved of all the professionals that are that are involved in the transaction and then sort of spring it on them it's at some point when it's sort of far down the road is done not as I'm heal but it's pretty far down the road there are reasons to keep it quiet but that never seems to work very well shocking your partners is ever are usually a good idea so as soon as it's somewhat serious I think you know provided that they can everyone has the ability to keep things confidential I think that's that's important you know deciding how the employed professionals in the the other providers will fit into the plan is also very important you know in the medical group at arena we're talking about you know nurse practitioners physician's assistants you know technique various definitions we're talking about dental hygienists we're talking about in the accounting firm they know there's all kinds of a paid you know professional same as in the law firm area I mean how they said it fit in you know if there's different categories and the different firms how they can wear that you know how it's all going to shake out it's really important to your employees into them to the to the members of the firm as to what how this will affect them and deciding that up front is really important yeah I think also I think part of it will be in this river in this regard here at some point the group space starts getting together so figuring out you know when it's sort of public or semi-public are the managers from each group going to get together and sort of dialogue a little bit the different strata I think it is it really the point and I think it's really important to decide what to tell the staff and when you know hbu you can definitely tell people too early and you can definitely tell them too late so it is this is to me one of the most difficult parts of the whole transaction because you know employees will leave if they're if they're concerned about a merger and how they're going to fit into it and so telling them before before you can tell them where they fit in you know where they fit into the transaction can be a dicey proposition and they're going to they're going to figure it out by the way you know if you wait too late but those they'll figure it out there'll be some sort of indication and so it's that would be a little bit regrettable I think if it didn't come from the appropriate channels yeah so we just received a question assam in question if you know someone at a target before you approach the target but the deal falls through what are the legal implications with respect to hiring that person how long would a non-solicitation provision stay valid so typically you know these things are are put in writing you know as part of the transaction so you know met many times they'll be first a nondisclosure agreement that's signed by both parties typically the non-disclosure agreement will have a non-solicitation agreement with respect to the employees of the other of the other folks usually one year very seldom seen anything longer than that if the transaction terminates but that is a hotly negotiated issue usually many times people won't agree to a non-solicitation provision because they expect if the deal falls through they will hire people from another firm so that really has a lot to do with what the with its initial non-disclosure agreement would say after that point there's usually a letter of intent maybe a remember Adam of understanding again that will usually address hiring each other clients how that you know what the period of non-solicitation might be or if there the provision so that's really you know how that would work now there are other factors though that are important you know legally on if you're a partner in a firm or a shareholder in a in a corporation of a few you know smaller corporation with a you know a relatively small number of partners you will fiduciary duty to all of your other partners and all of your other shareholders and you have to be careful about you know what you're going if you're the one leaving what you're taking with you is part of this and how you came to know the other firm and you know what information that you might be bringing to the firm that was a failed you know candidate so looking at the other way you know if you're the one leaving a firm to join a firm that maybe it was part of a failed transaction you owe a duty to your own partners and so all those things really have to be looked at when you're if a transaction doesn't go through and you want to you know you know hire employees or leave to go to another farm questions so here are some of the other things that are part of the ground rules you know it's really it's sort of a sort of a long term process so you want to kind of talk about the objectives of both firms kind of have a plan you know we hire a lot of lateral attorneys here many of which you have their own practices we generally shown on a timeline this week we're going to run conflict checks to make sure that there's no you know conflicting clients this people going to talk about you know different things so you know as it goes through we have a timeline so that the transaction progresses on a normal normal course you know you really do have to keep the train moving on right up foot and this probably should have been a higher up in the list is agree to non-negotiables you need to get out front which done you know if part of the transaction is you know steve has to leave the firm you know if that's a criteria you've got to get that out you know out front you know or if it's a criteria that you know these three partners have to stay at least two years after the transaction or you know that our client is next time I'm mobile and they have to come to the new firm although otherwise it we won't work those need to be up front that buildin the last you know three weeks of the transaction not the time to raise the mountain gosha videos grace yet waiting does not help at all their age tentative appointed term debbie is the timeline and things like that you're talking about again I just going to bring it in and this might lend itself down to it's sort of a larger group but again if if if there's a timeline and there's other folks about I just think bringing in the different levels maybe it's practice groups from both entities to start to dialogue because I think that upside there can be pretty powerful whereas you get a lot of by in on a credibility a lot of energy momentum and suddenly you know there's a lot of a lot more power there that you thought so that's not you know forgave one obviously but in terms of formulating a plan I just one bringing those the strata again to different levels of colleagues that should be at the table I think yeah and the thing that really the biggest deal killer in these many times can be the fear of the people that are that are going to be affected by the transaction but I'm part of the negotiation so what Steve saying hey we should get them together as soon as possible and they see that the other people's they'll be working with their normal you know that takes away a lot of the lot of the stress then the last one I think I have to throw that in as a lawyer you know gave you know gauge your advisors as soon as sooner rather later I mean I have been involved in transactions like you know hey write this document we did a deal on the back of a napkin and at that point first of all is probably you know three quarters of the terms aren't included but the ones that are included you know are written in a way that you know maybe not everybody really is on the same page so as we all know lawyers aren't infallible but it really is good to have lawyers and accountants and anyone else you need advise you on the transaction and sooner rather than later it believe it or not it is cheaper in the long let's do it that way agree so in terms of due diligence I mean obviously there's a huge amount of due diligence depending on either the size of the transactions and the complexity and we don't have a due diligence checklist or anything like that and you can google that and get probably a billion hits we'll just talk about some of the big element so will lead off with with valuation so you know my somewhat naive view on valuation is that if two reasonable people truly want to make a transaction get done and will work nope earnestly at it then the valuation is not going to stand in the way of it I mean it's just not again that there's a pretty strong assumptions in my in my statement there but I do believe that again they're people come to the table and want to do something I think that the valuation is not going to be the stumbling block that being said into John's excellent point just a minute or two ago this isn't something to be left to the end of the conversation I don't think you should be the first thing you say I think there's you know so many other more important things like you know culture and where we true it the right did for each other but but you can't say his evaluation or the dollars for the end it that's just not fruit the issues concerning valuation will likely require several commerce conversations that doesn't presume that they're contentious conversations it can just be complicated it will require analysis you and further analysis and impossibly likely you know outside professionals depending on what industry we're talking about you might I are a business valuation person you need your attorney or accountant away it so you do want to allow enough time for this element but despite the you know it's all about the money i don't necessarily subscribe to that I think it's right up there near the top and no one would do anything that it was foolish in this regard but I think it can be worked out terms of clients I think that the the slide here lists all the points very thoroughly one idea that I had to add to that it would be you know considering clients from maybe the seller if you will maybe patients as well I mean get making it broader that should not come as part of the deal all right I think that's perfectly fine you need two men you understand what that means you know what what if we agree that you know you know red heads aren't coming as part of the merger I can use that as an example 800 games a redhead okay you know then but but but that's that's twenty-five percent of your practice John and I think again to make you good reasons to exclude that subset but whoa its large may be larger than I thought you know um so again this is a good opportunity to make sure that all the clients coming to the party or the client that we want to serve but um and maybe some shouldn't shouldn't come to the party um and finally on the client aspect you'll remember that just because the transaction is good for you or good for us that doesn't necessarily mean it's good for the grip of the clients let's not be so presumptuous make it we just think it's great it's great it's great but at the end of the day we're trying to you know create value for the client so what are the enhanced capabilities that we can message and bring to bear let's not just think it's all about us yeah i mean it is all about us but but in the big picture they climb to go anywhere they want if they don't think it's a good fit they will go wherever they want if you if you look in boss i'm thinking mostly on the accounting firm mergers I mean there were some that were just spectacular bad fits and it had to do with different things culture billing rates just the way that you know clients were handled they're just different and the clients you know weren't no more necessarily you know i'm bored with it and they don't think definitely don't have to stay no they don't and they didn't really ask for this either right i mean you know this has to be absolutely seamless on the client side right i mean if this is this issue of the service that we're providing to that they're not they don't it's up again I some level they don't really care that that happens so they need the uninterruptedly have been used to and you know that the one issue here or conflicts and you know of course we've got the ax 2 we have attorney-client privilege issues but also you know there's all kinds of confidentiality issues with all the judges didn't merger of our medical practice and of course you have all kinds of HIPAA concerns patient record concerns so you have to be very careful to document everything very carefully so that you're complying with all illegal you know all the regulations it's around confidentiality of information you should designate as few people as possible to actually get the names and information of clients or patients or anything like that and make sure that security is just paramount that is something that many times will happen toward the end of a transaction there you know you know unless they're searching for a particular client but the other issue with this is you know many times you go down the transaction with clients you know numbered or lettered so that you don't know the actual names so that they're you know no one's trying to poach the other person's clients or anything like that so you know the identity of clients can you know like it's a critical component you know conflicts are a big consideration or something something of that nature you know the names and identities of clients it may be you know not reveal tool towards the end so in terms of staff it's really about the culture of the two entities if the culture on both sides doesn't line up the transaction might work but it's going to be a heck of a lot harder for sure I'm also getting to know the culture take a tremendous amount of time and requires true honesty and hard thinking you know on a first meeting we may think oh that sounds like our firm and that sounds like you know our firm or our practice and so that'd be great but but but again let's not be too presumptuous that just that those you know quick casual conversation indicates that you know the long-standing entities that we've been part of are going to mesh together so easy easily let's give it the time and effort that it needs I think it comes down altima tlie the bottom line is caring about people so you know it's how you feel about your professional colleagues your staff your partners on both sides and if you look at the other side you perceive or it becomes very obvious that the other side why our priority doesn't share your level of comparing and compassion fairness and all the sort of core values you hold near and dear I just I don't think you should do the deal I'm a just don't think you should do the deal so the culture ultimately it's the last point there but it really is the whole point of the slide I want to make a point about something John about earlier in terms of looking at the different staff and there's practitioners or sort of texts managers on so forth different different industries in terms of competency and redundancy you know you really should have the honest conversation about whether a person's role is needed and or whether he or she has the confidence to join the new entity and this is the time to do it and and I think both sides coming to the table have to have that honest conversation I think it's it's an obligation and if if if if there's some problem with an employee you know we're in a confidence issue or just a redundancy issue this is a real good time to have that honest conv rsation when they employ him and make a change I mean if not really you're bringing a problem into a greater group we all know that you know terminations and dismissals that might have to happen later on in that that's now visible in a larger group really they should have even shouldn't even happen you know so it's avoidable but it's hard I mean that none of this is none of this is easy so it maybe we should have you know called the title that's not for the faint apart write this book right because advice it's not and I could hate to say it but I definitely agree with stephen both two points you made what is you know getting a problem employee or a problem partner or another problem professional as part of the merger you know is it necessary you need to have a frank conversation as we mentioned earlier you don't have to listen to what people are telling you I mean I do a lot of this will McLain trying to help find you know people that we can bring in and also for my clients and I listen no taste for things like well Steve's really good you know as long as you watch him and make sure he comes in then time and doesn't take three weeks and if you listen to all the excuses and all of the yeah the back story about people you'll you'll you'll identify the problem you know if there's a seven point you'll never be able to do it you really have to rely on your your transaction partner you know to identify them for you but it's a small enough room for there's a small enough number of partners and professionals you really have to talk about each person and listen for the key key signs that say you know maybe it isn't someone we want to bring on because once once you once you emerge once you bring the practice in for your problem you know for mennah great and so taking care of them earlier rather than later is better and you know I know we've talked about it five times already but culture to me is the number one issue in making a transaction work or not if the culture is not correct and it's not the same as please similar it won't work that's and it takes a lot of work to make sure that the culture culture stays the same I mean you know I just using our firm for an example I mean we love the culture here and that's one of the one of the selling points we have only three people on board we don't want to bring in a group of people that would change the culture I mean it's going to change inevitably a certain level ladies involved but if you bring someone in it's a total clash of the cultures and you end up with a totally different culture than you originally have really if its culture you like you're losing something and and everyone will know it so you really that something that's very important again as I see and I look over all of the mergers and acquisition activity in Boston and particularly in the high level with large large entities culture seems to be the big sticking point when things go awry great yep so due diligence you know again you know I through all the transactions I've gone through you have to be very careful with due diligence because once once the transaction is over you know you're pretty much stuck together unless you can figure out a way to disengage so you know getting it right up front is important and you really have to go through all of the different issues that would listen here to make sure that it's a good fit and that is something that you want to you want to complete again location is always a key issue for everyone where you know where where is it weird everything going to going to go I've had IV had transactions terminate because of the firm name great um you know I don't know for all I care they could call this place without whatever but firm name is extremely important to people and you can tell that leasing a law firm arena you can see you know there's 47 names and that you know 47 partner names in the name of the farm you know that that it's important to someone right but that is a don't discount how that that issue you a leadership you know some people fancy themselves as leaders and some people are leaders and they may not even be the people with the titles that are in either entity so you know it's important to make sure that you know you look to see who the leaders really are make sure that they're people that you want to you want to do business with and then it could work you know another thing that's interesting particular larger one is you know the location of leadership you guys probably so i think it was good win you know now all the leaders of goodwin procter are going to be in New York City and I don't know what I change the front lemon oh I don't know if I will offer won't but it's definitely different than a thing for for a hundred years and so you know how those things work out in that in a trans a guess on logistics yeah partner compensation is always towards critical you know everyone has their own different compensation scheme and I've done medical practices where the compensation schemes are just they're unbelievably complicated straight and you know I'm sure same with accounting firms and law firms but you know trying to mesh those together are more important making sure the vision is the same it's funded and unfunded retirement is one that comes up a lot unfortunately comes up a lot toward the end when you know we're trying to figure out how to measure some of the some of the plans together and some of the ERISA plans and seeing what what has been promised the people in contracts and that's you know that's that's a critical thing chief give me an afterthought I agree suppose the retirement fence and lasting that's that's kind of brought up and the other point is going to make another partner dream is just making sure that if there's any mandatory retirement part of retirement age or you ownership relinquishment age but that's visible don't get earlier on you know also in the partner agreements similar transactions I've been and some that i've read about certain partners come in and they get guaranteed compensation so they may say you know you get out of x percent of the patient billings or x percent of the client fillings and but it will not will never be lower than 1 million for for these five years and oh number of law firms red trouble with this issue because it isn't meet the minimum get in you know bringing it up so they hid these minimums which is a drain on the resources of the rest of the firm it's just important to know that if there are any unusual partner arrangements that they're up front right in the beginning of the transaction so you can either agree to them and plan for them for decide that they have to be renegotiated if the transaction cynical throat yeah professional liability claims you know surprisingly this is come up very infrequently and most of my transactions usually there's a claim that insurance insurance has been accepted or not but you know there are any unassertive claims or things of that nature just have to make sure that coverage is there whether it be medical or legal or accounting or whatever the profession that you're in these claims can sometimes end up being larger than then you might expect but it's always possible tease or insurer or for them make sure that insurance or a reserved for them so usually that's not a huge sticking point but you should know what the what they are you know commitments finding out up front you know and ends up usually being a minor sticking point is you know I've got a five-year leaves you've got a ten-year lease and where are we going to be because we've got dozens commitments technology you know in many of the medical practice mergers that I've worked on you know the medical record and billing systems have been just a nightmare to to coordinate sometimes we just gone to a third party you know a third one just to try to you know mesh them together in a way that it will work very very difficult it's interesting because I think this is a game comes to my timeline concept where you know it's a pre-merger is identified if you will have to figure out a really the pain and suffering cuz it's not likely the use of where we came to the deal because you use and I used villegas as if you'll softly love it every but but the afterwards it can be extremely painful and really it's something that people take a lot of effort to make the integration work and everybody of cards want to keep their their their technology so you have to you know you have to don't make provisions for that upside financial statements honestly after doing this for so many years I believe no one's financial statements are lesser audited I mean most of the time you know I've either in part of a try or represented people in the transaction and somehow the financial results the next year never seem to end up being the same as the year before and it's for variety of reasons just not always nefarious but as many times it's just careless or poor bookkeeping you know just the way that people report things unusual here sometimes people try to do a transaction because they've had a great year different which is a nation but um you definitely have to review them but I wouldn't what at the house and everything within their how I think if they are done properly though you can identify things you know if they're on an e reviewed in this footnotes those are usually a good source of qualified in some information but um you know those have to be always look that with a grand so i think best practices can be another one like you said with technology are it's just a minute you know the your system are preferred because the best practices very soon you're injured every something that's not the way we do it right so this that's the one that you're really going to lean on we have similar cultures that one's going to truly test to see whether or not you know again we have the sort of the understanding and the patience to really make this work and you as close as the culture can be when given the best chance for success in terms of transition issues i think that again it the the listing that you see on the slide is quite thorough on to add a few other thoughts to it you I've mentioned this before to get groups from both sides together sooner rather than later to eliminate the fear of the unknown that's like John said you know the group is negotiating the deal and there's a group that's not we did transaction in our firm last year and this was an area where we received some good feedback actually a we actually went over there we had a group that went over and had lunch with the entity that we were merging with and it just gave everybody in the ability to kind of feel pippa know everybody a little bit better um in terms of getting together do things that reveal the shared culture um manufacture anything you know make it real but give it some thought for instance the day of our the day we did the merger the actual day was consummated one of the partners from from my firm went over and hand-deliver bottles of champagne to the firm we were merging with them it's just a small gesture but if it really can just reaching out and and showing pregnant people we care be honest with with the folks are communicating with you're not going to have all the answers it's okay to say I don't know I'll get back to you I mean that is an okay answer you need to give activism it's predicated on that and particularly if it's being communicated to the other side's folks you don't know that is it the best way to build trust is to do what you're set you say you do and obviously those the best way to lose trust is not to you need to really work hard to mitigate fears and concerns I think this is an area where the details matter whereas the owners may let some small things slide and hopefully they do don't we can't assume it that would be the case for staff you know respect with the staff consider important and be prepared for surprises because there will be surprised as things that come up that you had no idea that it was important to you know do this or consider that and also as I've been talking about follow up after the merger is consummated the assimilation and integration process is really as important if not more important not sure as the merger process simulation process is harder since everyone thinks the merger or a lot of people think it's done but so good we merged with the hill James you know Jane sit there and it's all set but far far from done keep an eye on emerging young leaders who have lots of opportunities particularly if it's the seller you probably were drawn to that entity again regardless of industry type because of some of the talent there well then it really behooves you for all the right reasons to make sure that those emerging leaders feel really good about the new entity and make sure at the merged entity that that the new folks have one person to go to with any issues we have found that to be a really critical element you know mentor sort of office body it doesn't matter what it means if they don't understand anything from where the pens kept to who has the authority to sign some sort of documentation app they need to get the answers of your question so I always think client communication is the most difficult of one of these transactions now in certain certain cases you know it may not be too you know it may be just a letter so you know it may be you know X Y you know X is retiring after 35 years I've to fly to be my successor or hope you join me I'll be remaining with here you know with the place with so many times before to seeing you when you come your next appointment but I will tell you can be done very very poorly too so in the medical field I could just tell you from personal experience I showed up one day my doctors these just got it you know they emerged with someone this guy didn't make the merger and they just said well you know you're going to see this other person and then I went you know like a year later and I got a different person that I said you know I I you know I don't get that special feeling so it's important to figure out how are you going to communicate this decline is going to be tears typically so I'm going to get personal business I would like to come by and talk to you about it some are going to get telephone calls some are going to get letters but this should be a plan of exactly how that could it be it's going to be you know the most feel most important to the nephew know maybe some that are a little less with dollars in on you but just assuming that they're going to be thrilled about it all and joining you because they got a little card in the mail saying emerged really is it a great idea I emerged my firm as I said into mcclain years and I five years ago I only lost one client and it was shocking to me because with the client I was personal friends with lifted my child knew them very well and still still to this day comes to our events here at mclane and I talked to a lot of time but he at least it was either an excuse or a reason was I was no longer located in his building and to me that is a very much there are some clients I never seen so but you don't know much importance to a client you don't know what might be you know the thing that may make them switch and I don't know if I went to see him beforehand today look I've got skype I've got this I've got that you know shouldn't be a problem maybe he still you know is his company would still be you know my client today but if it's important to find out what's important to the clients make sure that if the clients are critical you talk about the person and then make sure you solicit feedback concerns from the clients when you're in acquirer always want to make sure that the person's payment is somewhat based on client retention if it's not then your target has no incentive to have to have the clients come to stay and they may even work against you by joining another firm or you know if they're not happy with the transaction or feel like they didn't get a great deal may work didn't send the client somewhere else so it's critically important probably one of the most important things is to make sure that the payment or the conversation that there's a target for the people that merge into your focus team is based upon client etention it's going to go off over time I mean no one you can't base it and then no one retains one hundred percent and over time it's really the firm's problem not that person's problem for that continuing the retention but that's really is a critical factor you got it you have to be aligned on you know keeping the clients is important to both both the acquirers a pregnant a lot of the other side sergeant right so in terms of other transitional issues i'll just have a few quick comments here extend over we're running up against the time this is a good opportunity this this this event this transaction rights a good opportunity to promote yourselves for both sides so don't miss an opportunity to shout it from the rooftops and this is certainly such an opportunity also not just an opportunity for the entities that's and also an opportunity for the professionals involved to promote themselves so put it on professional publications linkedin it's gets a dual benefit bills personal brand and it builds the professional brand and then just sort of a protocol nuts and both reminder to ensure that there's coordination across all your platforms you know if you announce something on Twitter or LinkedIn make sure the same document or a release whatever is also on the website if it's the obvious stuff but just make sure it's coordinated across all the all the platforms this is sort of the two-minute legal part of the of the seminar you know everything needs to be documented you may trust the person you may have in a good relationship with them you may feel it they're the most honest people that they may not be there tomorrow you know you reach an agreement with the managing partner of the firm that you know I'm going to be the chair of this department and it's going to be great and then he retires in the next person says you know I never we never promised that you'd be the chair or whatever it is the medical practice or similar issues so what you want to do is make sure that you know to the extent it's important you need to retain people or it's important to the to the people joining that they have employment agreements could solve employment agreements with key players the purchase and sale agreement of the app that a purchase agreement purchase Hills typically for real estate at the purchase agreement if there's a if it's not a merger but I put a true transaction or purchase those are those are key documents sometimes it's a master agreement which shows the transition and all the steps to integration of course a lot of parts of that professional services agreement you know those are agreements with you know perhaps professionals that are going to be affiliated with the new entity than our employees particular but you know those all have to be negotiated you know you know there's a lot of other agreements that can go into a transaction but these are in terms of the negotiables I think we kind of covered a lot of this you can divide this slide into two buckets you know who the shareholders and then the non shareholders employees putting I think we've covered a lot of it the only the only comment I would say is it's probably likely as it relates to compensation for the employees that as it that there's going to be one or two or some sort of subset from the acquire II the seller that that data whacked with with the the buyer it's just mean my experience it just happens that way and that frankly I think that's okay I mean I think that you just have to deal with that and maybe that if you will out of whack salary for that those so that subset okay I can't be although that that would be a serious issue but if it's one or two my experience is that that can be managed within than the new entity and worked on over time so I guess I wouldn't what I'm saying is I wouldn't devote a lot of tyrants to that otherwise you'll generally there needs to be aligned it with the notes of the benefits of the retirement plan vacations owns these two quick things income guarantees i think i mentioned what trouble a lot of companies get in with those income guarantees tale coverage just get a quote early i will tell you from personal experience when I emerged my farm in here I said yeah we'll take care of the tail coverage for us that's our responsibility no point zero claims and five or six lawyers at the time thirty-five or forty thousand knowledge and a lump sum payment which wasn't expecting that we paid it but you know you you don't realize how much some of these things cost tickly kale coverage for legal and the medical field even without claims is expensive because basically they're coming you from now anything from the prior firm for now for the end of time so it's um it can be an expensive proposition something you have to pay for my again a lot of these time we talked in the question restrictive covenants and non-solicitation those you know are important for key partners and employees they don't work in the legal field you know there's no such thing as a compete you're not explicit ation clients can go work with what would they want but a lot of the other fields there are this is not the medical field is also very minimal ability to you can only compete non-solicitation is possible to be very careful with how you drop those you know you talk about other things like outside income again in the medical field is a lot of teaching opportunities or writing or other work that they do and you have to figure out that's part of the track us or not and then real estate and again sort of income guarantees again but really that is the income guarantees have been a downfall of more than one firm and it's something that really can't emphasize enough how important it is that you minimize that please tie it into client retention or some other metric that will ensure that you can pay for you so this is the last slide and the only thing I would say it on this slide is it's been my experience that if they deal is going to get out of a transaction is going to happen it tends to happen with some fairly good pace it's not a rush it's not a crisis but it's moving along and I think it's just reflective of what we talked about earlier which is people have genuinely have an interest in doing a deal if things are lagging and it takes a long time I mean frankly I feel like you know what there's not the reciprocation of interest i'm not sure where it is maybe neither side really is that interested in it that doesn't necessarily mean it won't happen or it or it shouldn't happen but again I think that the if it's moving along somewhat promptly and timely I think that that's a harbinger of good things actually so that's the end of the presentation again you're free to submit any questions if you have anything and we'll be glad to handle them we appreciated the opportunity to talk with you today and give you some of our thoughts on Reno merging and acquiring a professional practice thanks P thanks P thanks guys so yeah again if you do have a question you can use that question feature on your control panel we are a little bit after one o'clock now so if we don't get to your question here we will obviously follow up with you if you do submit one or we'll also include both John and Stephens contact information in a follow-up email so you could always contact them that way so guys we do have one question here what earn-out models have you seen that work for both parties or what common earn-out pitfalls have you seen so you know so earn-out models that have worked usually have a you know you don't start at one hundred percent retention or a hundred percent you know hitting the net income number it's usually something less than a hundred percent and usually you know I like to see three years 25 years with it with us you know a decreasing you know require a bit of retention of income or retention of client and you know I taste got to be a substantial portion of the of the compensation for the for the for the practice you know otherwise it's meaningless to the person LLC alright well it doesn't look like there are any other questions so thank you John Steven for taking the time today and thank you everyone for joining us you will be receiving a survey about this webinar in the near future so if you're able to take a few minutes and tell us what you liked and where you'd like to see improvements for future sessions we would greatly appreciate that we do hold about two seminars a month in our room burn office on a variety of topics in the next month or so we have in a new interactive monthly series that will be holding in 2015 that's taking place on the fourth thursday of each month with the first one on debt financing on january twenty seconds there's also a massachusetts health care and affordable care act update on january thirtieth as well as a personal and professional goals for the upcoming year on februari 11 so for more information to register you can visit us at mclane com thank you very much for attending again and have a great rest of the day