Hendershot Cowart P.C. attorneys Bryan Tehrani and Justin Futch recently represented the founder and sole owner of a Houston-based maintenance and construction services company in its $13 million sale to a private equity firm.
The transaction included $11 million in cash at closing and a $2 million seller note with revenue-based performance provisions. The deal structure maintained operational continuity while providing a successful exit strategy for the business owner.
"This transaction represents a significant milestone for our client who built this company from the ground up," said M&A attorney Bryan Tehrani. "We structured the deal to balance immediate liquidity needs with ongoing incentives that align with the company's continued growth, safeguarding the founder’s legacy."
Key Transaction Challenges in Private Equity Acquisitions
"We encountered several significant challenges throughout this transaction that could have resulted in unacceptable levels of risk for our client,” said corporate attorney Justin Futch.
Some of the challenges our attorneys navigated include:
Earnout Structure and Risk Allocation
The terms of the purchase agreement included a clawback provision that would reduce the note value proportionally if the company failed to achieve $20 million in revenue by year-end.
To protect our client’s interests, the firm structured a revenue-based earnout instead of a profit-based one to shield our client from post-closing expense manipulations. We also secured employment arrangements for the seller to give the client operational influence over the company’s performance.
Business Continuity and Employment Protection
"As a services provider, this business’s valuation was largely based on its customer contracts, requiring careful attention to business continuity and customer relationships," Justin noted.
To maintain operational stability, the seller was retained as president with no fixed term, while his son received a negotiated employment agreement. Non-compete provisions within these employment agreements were designed to be voided if the seller was terminated without cause. In addition, the buyer retained all existing employees.
Many Customer Contracts Required Consent
Many key customer contracts contained consent provisions requiring approval for assignment upon change of control.
The firm identified all contracts requiring consent, drafted appropriate consent documentation, coordinated the approval process with customers, and negotiated a capped indemnification provision to address outstanding consents at closing.
Translating Financial Complexity into Client Confidence
“Our client had a lot of concerns about the deal mechanics, including working capital,” said Bryan. “As his legal counselors, Justin and I considered it our role to make sure that, when we arrived at closing, our client would be comfortable with the terms of the deal and confident that his retirement plan was protected.”
As a result of clear communication and careful negotiations, the transaction successfully closed in April with the full purchase price paid according to terms, plus an additional working capital adjustment.
Our client remains involved in operations with a strategic equity position in the buyer's parent company.
Planning Your Business Exit Strategy? Contact Hendershot Cowart P.C.
If you're considering selling your business or receiving acquisition offers, having experienced M&A counsel can make the difference between a satisfactory transaction and one that truly maximizes value while protecting your interests and legacy.
The business law attorneys at Hendershot Cowart P.C. have extensive experience structuring and negotiating complex business transactions. We guide clients through every stage of the sale process, from letter of intent and due diligence to closing and post-closing adjustments.
Contact us today at (713) 783-3110 to schedule a consultation and discuss how we can help you achieve your business succession goals.