When the economy took a swan dive five years ago, many companies found themselves on the bargain basement rack.
They weren’t all eager to be sold, however, nor were those flush with cash willing to immediately open the corporate pocketbook.
“On both sides there has been wariness,” said Sam Chafetz, a shareholder with Baker, Donelson, Bearman, Caldwell & Berkowitz PC, who helps companies both public and private navigate such prickly pathways.
Chafetz said the wariness from both parties is understandable.
On the buyer’s side, there is the need for assurance that the company being looked at for purchase is able to weather a recession. Such a buyer has also been holding onto cash to ensure surviving the recession in good form. Yet it also understands that prices for companies have dropped, tremendously in some cases, and it wants to take advantage of the bargains.
At the same time, the seller is wondering why it should let itself go at such deep discounts and are hoping to wait out the recession for a chance at better pricing as competitors fold. These sellers know that companies hoarding cash for purchases will be anxious to make up for lost time.
“Now we’re in the position where sellers, having climbed out of the recession, have an immediate past history of relatively poor results and want to be able to show at least a year or two of good results so they can get the best prices possible,” Chafetz said. “Indeed, some competitors have been wiped out and those that have survived, and survived well, will get much richer prices than they would have gotten during the recession.”
Chafetz was born and raised in Memphis and went to the University of Michigan for undergraduate studies followed by Harvard Law School. He practiced in New York City before returning to Memphis to work as in-house counsel for Cook Industries, then the world’s largest cotton trading company and the world’s third-largest grain trading company. From there he went to work for Waring Cox for 30 years, joining Baker Donelson in 2000.
His area of practice is in securities, mergers and acquisitions, and venture capital with experience in SEC and stock exchange regulatory compliance, capital formation from both public and private sources, management prerogatives, shareholder rights and corporate governance, and accounting, public disclosure and investor relations issues.
His reason for such a focus was personal.
“My family sold their private company to a public company in a disastrous transaction,” he said. “I wanted to save other families the grief that my family suffered.”
When it comes to such a scenario, “the devil is always in the details,” he says. “The question is always, ‘Are you going to get paid in cash or are you going to get paid in stock?’ If you’re going to get paid in stock, you need to make sure you don’t put all your eggs into that one basket.”
Chafetz walks both sides of the street in his practice, working with both buyers and sellers, giving him a unique perspective of what each seeks to accomplish. This makes it easier and more expedient for him to get his clients where they hope to be. The people he has worked with provide services, manufacture or distribute goods, and operate within the health care industry.
When speaking of such public entities, he makes a point to say “people,” he says, “because companies are figments of the legislature’s imagination, but they are populated by people who are their employees and who earn their livings from them.”
As the economy strengthens, the volume of buying and selling increases. Despite front-page news, the vast majority of these transactions are relatively small and this is what drives the economy. It’s where most of the employment is and where income is generated.
“As those companies get bought up, people get money, they go out and start new businesses, we end up with a very efficient economy, and that process is well underway again,” Chafetz said.
In Memphis, there are fewer such transactions as compared to other markets, yet the infrastructure for such business is healthy with investment bankers, business brokers, financiers, lawyers, accounts and plenty of professionals for advice.
For Chafetz, it’s the most exciting time of life being “seasoned and senior,” he said, and he’s asked to field the most challenging questions.
“We have fabulous clients at Baker Donelson, people who are in a position to try and change society because they have experience, the size, the heft, the expertise,” he said. “It is a fabulous place to practice.”