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Jun 26, 2024 · 17m · startup-acquisition-stories

Startup Acquisition Stories With Eric Pacifici of SMB Law Group

Eric Pacifici · 12m spoken Andrew Gazdecki · 3m spoken
0:00 / 0:00

gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions

In this episode of Startup Acquisition Stories, host Andrew Gazdecki interviews Eric Pacifici, founder of SMB Law Group, to explore the legal dynamics, diligence traps, and economic opportunities within small business mergers and acquisitions.

How this conversation actually went

Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Andrew holds 20.7% of the talking time here. How this is scored →

Andrew as informed peer 4.0 Guest teaching 4.0 Guest disagreement 0.4 Andrew pushing back 0.4
05100:0010:001:20–3:21 · Andrew as informed peer 2/10 Eric Pacifici's Journey into Main Street M&A Andrew sets up the interview with friendly praise and prompts Eric on his background. Eric explains his transition from Kirkland & Ellis to founding SMB Law Group to serve Main Street M&A.3:21–5:57 · Andrew as informed peer 3/10 Common Pitfalls in Small Business Acquisitions Andrew asks for top pitfalls in small business acquisitions. Eric educates on how novice buyers get misled by broker tactics like earnest money deposits and neglect working capital calculations.5:58–9:07 · Andrew as informed peer 5/10 Client Breakdown: Buy-Side versus Sell-Side Representation Eric slightly tempers Andrew's premise about acquisition success stories being purely heartwarming, pointing out business buying is difficult. Andrew chimes in with his own rule about never celebrating until money hits the bank.9:08–13:22 · Andrew as informed peer 5/10 Why Deals Fail: Diligence Traps and Red Flags Eric breaks down common diligence failures, including overconfidence from finance professionals and accounting discrepancies. Andrew validates this by contrasting Main Street diligence with digital SaaS transactions.13:23–16:29 · Andrew as informed peer 5/10 Selecting the Right M&A Attorney for Small Deals Eric advises against hiring generalist lawyers or oversized Big Law firms for small deals. Andrew relates by sharing his own past mistake of hiring Pillsbury and getting billed by the email.1:20–3:21 · Guest teaching 3/10 Eric Pacifici's Journey into Main Street M&A Andrew sets up the interview with friendly praise and prompts Eric on his background. Eric explains his transition from Kirkland & Ellis to founding SMB Law Group to serve Main Street M&A.3:21–5:57 · Guest teaching 5/10 Common Pitfalls in Small Business Acquisitions Andrew asks for top pitfalls in small business acquisitions. Eric educates on how novice buyers get misled by broker tactics like earnest money deposits and neglect working capital calculations.5:58–9:07 · Guest teaching 3/10 Client Breakdown: Buy-Side versus Sell-Side Representation Eric slightly tempers Andrew's premise about acquisition success stories being purely heartwarming, pointing out business buying is difficult. Andrew chimes in with his own rule about never celebrating until money hits the bank.9:08–13:22 · Guest teaching 5/10 Why Deals Fail: Diligence Traps and Red Flags Eric breaks down common diligence failures, including overconfidence from finance professionals and accounting discrepancies. Andrew validates this by contrasting Main Street diligence with digital SaaS transactions.13:23–16:29 · Guest teaching 4/10 Selecting the Right M&A Attorney for Small Deals Eric advises against hiring generalist lawyers or oversized Big Law firms for small deals. Andrew relates by sharing his own past mistake of hiring Pillsbury and getting billed by the email.1:20–3:21 · Guest disagreement 0/10 Eric Pacifici's Journey into Main Street M&A Andrew sets up the interview with friendly praise and prompts Eric on his background. Eric explains his transition from Kirkland & Ellis to founding SMB Law Group to serve Main Street M&A.3:21–5:57 · Guest disagreement 1/10 Common Pitfalls in Small Business Acquisitions Andrew asks for top pitfalls in small business acquisitions. Eric educates on how novice buyers get misled by broker tactics like earnest money deposits and neglect working capital calculations.5:58–9:07 · Guest disagreement 1/10 Client Breakdown: Buy-Side versus Sell-Side Representation Eric slightly tempers Andrew's premise about acquisition success stories being purely heartwarming, pointing out business buying is difficult. Andrew chimes in with his own rule about never celebrating until money hits the bank.9:08–13:22 · Guest disagreement 0/10 Why Deals Fail: Diligence Traps and Red Flags Eric breaks down common diligence failures, including overconfidence from finance professionals and accounting discrepancies. Andrew validates this by contrasting Main Street diligence with digital SaaS transactions.13:23–16:29 · Guest disagreement 0/10 Selecting the Right M&A Attorney for Small Deals Eric advises against hiring generalist lawyers or oversized Big Law firms for small deals. Andrew relates by sharing his own past mistake of hiring Pillsbury and getting billed by the email.1:20–3:21 · Andrew pushing back 0/10 Eric Pacifici's Journey into Main Street M&A Andrew sets up the interview with friendly praise and prompts Eric on his background. Eric explains his transition from Kirkland & Ellis to founding SMB Law Group to serve Main Street M&A.3:21–5:57 · Andrew pushing back 0/10 Common Pitfalls in Small Business Acquisitions Andrew asks for top pitfalls in small business acquisitions. Eric educates on how novice buyers get misled by broker tactics like earnest money deposits and neglect working capital calculations.5:58–9:07 · Andrew pushing back 2/10 Client Breakdown: Buy-Side versus Sell-Side Representation Eric slightly tempers Andrew's premise about acquisition success stories being purely heartwarming, pointing out business buying is difficult. Andrew chimes in with his own rule about never celebrating until money hits the bank.9:08–13:22 · Andrew pushing back 0/10 Why Deals Fail: Diligence Traps and Red Flags Eric breaks down common diligence failures, including overconfidence from finance professionals and accounting discrepancies. Andrew validates this by contrasting Main Street diligence with digital SaaS transactions.13:23–16:29 · Andrew pushing back 0/10 Selecting the Right M&A Attorney for Small Deals Eric advises against hiring generalist lawyers or oversized Big Law firms for small deals. Andrew relates by sharing his own past mistake of hiring Pillsbury and getting billed by the email.

speaking balance: gold is Andrew, purple is the guest (3 minute bins)

0:00 · Andrew 16.7% · guest 83.3%0:00 · Andrew 16.7% · guest 83.3%3:00 · Andrew 16.6% · guest 83.4%3:00 · Andrew 16.6% · guest 83.4%6:00 · Andrew 30.4% · guest 69.6%6:00 · Andrew 30.4% · guest 69.6%9:00 · Andrew 17.6% · guest 82.4%9:00 · Andrew 17.6% · guest 82.4%12:00 · Andrew 18.5% · guest 81.5%12:00 · Andrew 18.5% · guest 81.5%15:00 · Andrew 24.7% · guest 75.3%15:00 · Andrew 24.7% · guest 75.3%
Sharpest disagreement ▶ 7:03 Hesitation on deals going great

Eric politely pushes back against Andrew's framing of heartwarming success stories by noting he is hesitant to say buying a business ever goes great rather than just okay.

 Hardest push from Andrew ▶ 8:46 Rule on celebrating deals

Andrew firmly states his own standard from the sell-side perspective, countering that you should never celebrate an LOI until the money actually hits the bank.

 Biggest teaching moment ▶ 3:54 Debunking earnest money in M&A

Eric explains why earnest money deposits are a real estate concept misapplied to small business M&A by brokers seeking leverage over inexperienced buyers.

 Andrew holds their own ▶ 16:03 Pillsbury legal fee anecdote

Andrew demonstrates his own firsthand acquisition experience by recounting how a Big Law firm charged him 15-minute increments for every email during his first exit.
the scores for every segment, with the reasoning behind each
ChapterTopicAndrew as informed peerGuest teachingGuest disagreementAndrew pushing backWhy
Eric Pacifici's Journey into Main Street M&A 2300 Andrew sets up the interview with friendly praise and prompts Eric on his background. Eric explains his transition from Kirkland & Ellis to founding SMB Law Group to serve Main Street M&A.
Common Pitfalls in Small Business Acquisitions 3510 Andrew asks for top pitfalls in small business acquisitions. Eric educates on how novice buyers get misled by broker tactics like earnest money deposits and neglect working capital calculations.
Client Breakdown: Buy-Side versus Sell-Side Representation 5312 Eric slightly tempers Andrew's premise about acquisition success stories being purely heartwarming, pointing out business buying is difficult. Andrew chimes in with his own rule about never celebrating until money hits the bank.
Why Deals Fail: Diligence Traps and Red Flags 5500 Eric breaks down common diligence failures, including overconfidence from finance professionals and accounting discrepancies. Andrew validates this by contrasting Main Street diligence with digital SaaS transactions.
Selecting the Right M&A Attorney for Small Deals 5400 Eric advises against hiring generalist lawyers or oversized Big Law firms for small deals. Andrew relates by sharing his own past mistake of hiring Pillsbury and getting billed by the email.

Statements from this episode (10)

Disclosure
Pacifici billed $1,500 an hour in Big Law before starting SMB firm
“I was billing at 1500 bucks an hour at the time, so way too expensive to do a Main Street deal.”
Eric Pacifici Jun 26, 2024 ▶ 2:23
Opinion
Pacifici: Generalist and Big Law attorneys poorly serve the $2M–$25M market
“Most folks who do M&A in the two to fifteen million or two to twenty five million dollar enterprise value space are either general lawyers who don't know M&A at all, do a really bad job for their clients. We see that a ton on the sell side, or they're really g…”
Eric Pacifici Jun 26, 2024 ▶ 2:36
Disclosure
Pacifici: SMB Law Group closed $950M in enterprise value last year
“Well, last year we closed about nine hundred and fifty million enterprise value. The amount that we, those are closings. The amount that we worked on is in the several billion and then in terms of sheer number, maybe a couple hundred transactions that we've wo…”
Eric Pacifici Jun 26, 2024 ▶ 3:31
Insight
Pacifici: Earnest money deposits do not belong in small business M&A
“Earnest money deposits, for example, is not an M&A concept. Very Common in real estate. Obviously, if you ever bought a house, put down some earnest money, and it makes a lot of sense there. It doesn't make sense in in small business M&A, but you've got a lot …”
Eric Pacifici Jun 26, 2024 ▶ 4:16
Insight
Pacifici: Small business buyers often seek exits within 18 to 48 months
“What we're seeing is there's a relatively fast life cycle. You know, guys and gals will go out and buy businesses when they're 35 and fresh out of business school or whatever, and then 18 to 24 to 36 to 48 months later, they're oftentimes looking to sell.”
Eric Pacifici Jun 26, 2024 ▶ 6:22
Insight
Pacifici: SMB deals typically die in financial diligence or from deal fatigue
“Generally speaking, your deal is going to die really in one of two stages. It's either going to die in the lending process, in the quality earnings process, you know, your financial diligence, you've gone under LOI, you've now lifted the hood, and you're seein…”
Eric Pacifici Jun 26, 2024 ▶ 9:33
Insight
Pacifici: Ex-Wall Street buyers struggle in SMB deals by skipping QoE providers
“I see a lot of really sophisticated people financially struggle with the financial diligence piece of it, because they come in, you know, they've got 10 years of experience at Goldman Sachs, right? And they're like, I don't need a higher quality of earnings pr…”
Eric Pacifici Jun 26, 2024 ▶ 10:30
Assertion Not checkable as stated
Gazdecki: SaaS deals rarely use earnest money deposits and ease financial diligence
“Surprisingly on let's say the SAS side, we rarely see earnings, earnest money deposits. And then also quality of earnings are typically easier because everything's online, everything's digital.”
Andrew Gazdecki Jun 26, 2024 ▶ 12:58
Opinion
Pacifici: Hiring a Big Law firm for SMB M&A is counterproductive
“Having a high powered corporate law firm on your side, it's like bringing a bazooka to a night fight. It doesn't make a ton of sense.”
Eric Pacifici Jun 26, 2024 ▶ 15:27
Disclosure
Gazdecki: Law firm Pillsbury billed 15 minutes per email during first sale
“I definitely wish I knew the last point when I sold my first business. I remember I hired Pillsbury, if you're familiar with them. And I remember they sent me an email and they said, Andrew, like you've been emailing us a lot. And just so you know, we've charg…”
Andrew Gazdecki Jun 26, 2024 ▶ 16:04
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