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I "almost" bought an advisory firm -- update

For the past several months I have been working with a new group, in fact, old colleagues from my aerospace days -- funny enough none of us are involved in that anymore.  Still, this acquisition came around in a strange way.  Several months ago, I friend of a friend inquired if I was available to do some consulting work, On the side, as he called it.  

The work was defense-related, very "hush hush" as the Brits would say, with no cell phones in the office or computers, which were provided by the client.  We came into their office clean and it was an eye-opener, in terms of security.   These guys were not kidding.  Years ago, I had worked for a defense contractor and they all used "old software" because none of the virus codes were written for their systems...until that didn't work anymore.  This was different.  

Anyway, this consulting firm had a lean 2021 and early 2022, and it's a small firm.  So my contract was for an initial term of six months, but when it came to paying me, they had no money left.  It was all gone in salaries for the staff, this was a company and not a consultant firm (where you eat what you kill) still I was out a lot.  But I was motivated in continuing because there was more money coming from that contract, which is now going to be at least a 3-year project.

A few weeks ago, I was having dinner with a good friend and was bemoaning the fact that it would take a while for the firm to pay me back.  My friend, initially and in jest, suggested that I should ask for partial ownership of the firm, as deferred payment.  The conversation with my friend continued after that dinner, and he mentioned that he was interested in becoming a partial and for now a silent investor in the consulting firm.  

So about two weeks ago, we made the offer, and it was accepted. Partially because we were also bringing in some fresh capital.  Then the lawyers got involved.  I mean that is a real pain, part of the problem is that the company was poorly incorporated and that any changes could result in a massive tax bill,. something we are really trying to avoid -- since it would kill the deal for the seller.  He just doesn't have the free cash to do this.

I had completely forgotten how convoluted the Canadian tax system has become, and the risks are not insignificant. So for the past two days, I have been both working full-time and dealing with the lawyers.  It has been a nightmare because the only way the lawyer can reach me during the day is either by office phone or fax.  No emails.  The deal was supposed to close Friday of last week, but we missed some kind of deadline or approval, anyway, the lawyers called, in extremis, to tell me that the closing was delayed "until Monday", so Monday I arrive at the law firm, to sign the final documents...guess what stuff is still not resolved and the deal is still stuck because of some stupid tax documents that are missing.  None of this is the seller's fault (ok a little), the lawyers (they should have known) or us, the buyers (we really didn't know some of the issues), and finally, we didn't know that some of the consultants had a right of first refusal...now this last one is NOT a problem, except documents from seven consultants have to be drafted, signed and they want some guarantees...but also it takes a day or two to get that done

My friend is investing a substantial amount in this, some of it is going to me some of it is going to the firm.  Because we thought we would be smart, my friend on day one owns 1 share and will buy the shares from me over the next 2 years, until he has 25% of the firm, and then in 5 years he will start buying me out.  All this is complicated and if done right can lead to a very attractive tax treatment, but done wrong...

So I have been busy

P.S.  Some of the consultants have a right-of-first-refusal for any sale of capital increase for the company.  Two things I want to keep them on board, but I want to be the owner for a number of reasons.  So the past two days have been intense

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