Nicholas and Trevor found us through an online SaaS community where we were all members. Nicholas and Trevor were self-funded searchers. They were already business partners in a successful consulting business, but they wanted to own a business that would be more than just a job for themselves. They searched extensively before finding a hardware-enabled SaaS business that they now describe as a laboratory information management system. Unlike many searchers, though, they did not rely on SBA financing to close on their acquisition. Instead, they used a combination of their own money, investor capital, and a seller rollover. This allowed them greater flexibility in structuring their transaction than was possible under the SBA regulations that existed at the time and meant that we could get creative.

To achieve their aims, we finalized multiple arrangements: establishing a holding company; negotiating the purchase agreement; implementing contribution agreements to achieve the equity rollover; creating a subscription agreement for the investor; and preparing an operating agreement to govern the relationship between all the parties post-closing. Since we represented Nicholas and Trevor, we pushed for their interests but not to the detriment of the other partners. It can be easy for attorneys to try to “win” too much in transaction documents, but it is key to remember that these agreements are meant to support an ongoing relationship (even in deals where there is no rollover equity); we don’t forget this. We also created a mechanism to allow Nicholas and Trevor to draw additional investor capital should that capital be needed to fund business growth. At every step, we optimized the order of each step to keep taxes to a minimum. Yes this transaction was more complicated than most, but strategizing about and executing on structuring issues is one of the areas where our expertise is most valuable to our clients and is something we actively enjoy.

We also flagged for Nicholas and Trevor during diligence that sales taxes were a particular concern here given the  nature of the business and the ever-changing patchwork of state laws. We were particularly concerned about a few states where the business was close to exceeding certain sales tax thresholds, and so we addressed this in the purchase agreement. After the acquisition, the QBench team took our advice to heart and found an accountant who specializes in sales taxes for multistate digital businesses and who is now part of our expert rolodex. With that expert help, Nicholas and Trevor will realize substantial future tax savings following a thorough analysis of their business and its different revenue streams. As for working with us on the transaction itself, here is how Trevor described the experience: