Friday, September 23, 2011

More Caddy Shack Quotes

As noted in a prior blog post: (See,
my article identifying M&A guidance from Caddy Shack's Judge Smails has been pretty popular, so I thought my readers might enjoy a few more quotes from everyone's favorite golfing judge.  These quotes were edited out of the article published in the Dallas Business Journal to meet its word count limits, but that doesn't make these quotes any less entertaining. Here they are:

“Well, we're waiting!”

Just as every golfer has felt the frustration of waiting for another golfer to swing their club, every veteran of merger and acquisition transactions has felt the frustration of waiting for the all of the parts of the transaction to come together for a closing.  Typically, many parties are involved in an M&A transaction, including buyers and sellers, lawyers, bankers, accountants, appraisers, title companies, and potentially many others.  The deal may need to be approved by boards of directors, shareholders, creditors, landlords, regulatory authorities, or others.  Thus, you may find yourself waiting on any number of deal participants.  An experienced M&A lawyer prepares a detailed closing checklist, anticipates and addresses potential bottlenecks that might delay closing, politely but persistently reminds other deal participants of their responsibilities, keeps the deal moving forward, and keeps the client informed on the status of the transaction.     

“Oh, Porterhouse, look at the wax build up on these shoes.  I want that wax stripped off there, then I want them creamed and buffed with a fine chamois, and I want them now.  Chop, chop.”

A seller in an M&A transaction should scrub up its business records with the same zeal that Judge Smails expects Porterhouse to apply to shining shoes.  A well represented buyer is going to conduct detailed due diligence review during which the seller’s problems are likely to come to light.  It is much better for the seller, and the seller’s reputation, if any bad news comes from the seller rather than as a result of an audit by the buyer’s accountants or other representatives of the buyer.  The seller will want to put the seller’s best foot forward.  That means business records should be as complete, accurate, and organized as possible.  And of course, the seller can make Judge Smails happy by assuring that its business records are free of wax build up.

“I've sentenced boys younger than you to the gas chamber.  Didn't want to do it.  I felt I owed it to them.”

When things go badly for the target of an acquisition after the closing, the buyer may share Judge Smails’s sense of moral obligation with respect to the seller.  For example, the buyer may refuse to pay the seller the earn-out portion of the purchase price if profits fall short of expectations.  As the buyer learns more about the target company and its operations after the closing, the buyer often becomes aware of breaches of the seller’s representations and warranties.  Like Judge Smails, the buyer may feel it owes it to the seller to sue and seek indemnification from the seller under the purchase agreement.

Judge Smails: “Do you mind, sir. I'm trying to tee off.”
Al Czervik: “I'll bet you a hundred bucks you slice it into the woods.”
Judge Smails: “Gambling is illegal at Bushwood sir, and I never slice.”

Too often, sellers take too little time reviewing the representations and warranties in an M&A purchase agreement because they think their company is “clean” or the target company has “never had a problem.”  Like Judge Smails, sellers think they will never slice.  But guess what?  There is a first time for everything.  And with new management of the target company after the sale, sometimes new problems emerge or old problems are uncovered.  When that happens, the seller will be glad if the seller carefully reviewed the representations and warranties and reasonably limited the representations and warranties with qualifications as to the seller’s knowledge and materiality.  Failure to carefully review the representations and warranties and related disclosure schedules in a purchase agreement can truly be a gamble for the buyer or the seller.    

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