The M&A
Legal Process:
Lawyers
and Business
Acquisition Teams Working Together to Save Money and
Reduce Legal Issues Before, During & After
the Deal Closes
“My
Mind, My Time” is a hilarious song parody written
and performed by a band of practicing lawyers that call
themselves the Bar and Grill Singers. Click
here to listen to the song. We
at Maverick know there are many more good corporate lawyers
than bad, despite the bad lawyer jokes and funny songs
about “billing
time.” And we also know from our thirty years
doing M&A that if clients would learn how to better
communicate and collaborate with their outside counsel,
particularly with regard to legal work associated with
mergers and acquisitions work, there would be a lot more
happy clients.
One reason legal costs for acquisitions can skyrocket
so quickly is that inexperienced acquisition leaders
or staff on the acquisition team contribute to the confusion
and ambiguity of the deal. This happens when team
leaders or managers engage in informal conversations
with various parties in the target company; outside of
the formal negotiating process. Promises made by
the buyer, or more likely, the seller’s perception
of promises made, in order to quickly get through rough
patches in the negotiations, can and do lead to disagreements
later on in the acquisition process; sometimes many weeks
or months after the deal has closed. And there’s
one constant: those disputes are always time consuming
and expensive. And, they usually could have been
avoided.
Another problem comes about as the acquiring company’s
acquisition team leader and managers attempt to guide
the lawyer they have working on the deal-without understanding
the full implications of how their decisions may impact
the deal from a legal perspective. This happens
more typically when a junior lawyer is working with the
acquisition team. That new, usually younger lawyer
is trying to win points for his firm—and integrate
well with the team. In an effort to do so, he/she
may not be as vocal as is necessary to ensure that the
business people don’t inadvertently create long-term
problems in order to obtain short term wins during the
deal process. This dilemma should not be construed
as a misstep by the attorney-but rather, is simply
a part of the team/counsel dynamics that needs to have
adequate oversight.
Despite the long-running jokes, it is simply not
fair to assume that counsel wants to create as many
billable hours as possible on behalf of his/her firm;
and is therefore happy to let the acquisition team
and its bosses make mistakes that can be fixed later
on. Most lawyers
we’ve known want to see the deal done right, but
only as quickly as the myriad legal issues and potential
issues will allow. On the other hand, the business leaders
and acquisition team leader, under the pressures of budgetary,
financial and P/E (public companies) issues want the
deal to close as quickly as possible. You can readily
see that a few problems may arise from these contradictory
agendas-respective to the legal and business professionals.
There are several steps that you can take in order to
rein in legal costs relating to many aspects of the acquisition
process. Here are a few points that get missed
by many acquisition teams:
Once you have demonstrated an interest in acquiring
a target, try to determine as early as possible what
the obvious legal issues are likely to be—and request
from counsel an idea of the costs involved in dealing
with those issues and the legal costs in general. Then
multiply by 2, as we can guarantee you that a lot of
issues you haven’t planned for or even envisioned
will come to pass as the four phases of acquisitions
progress.
To mitigate your legal costs, have an experienced
(independent) acquisition leader look at the blended
business/legal issues and determine if there are any
potential business solutions to what otherwise appear
to be purely legal issues. It’s not unusual
in our experience to alter the deal’s terms and
conditions in order to create a negotiable business issue
from a legal one. If the ATL (acquisition team leader)
thinks he/she can craft business solutions to those legal
issues, and then get the ATL together with the GC or
outside counsel to determine if in fact, you can relegate
those particular legal issues to the business side of
the ledger.
When spelling out the contract language for closing,
do not, “for the time being, agree to disagree,” and
attempt to resolve post-closing, any significant aspect
of the future obligations of the parties involved in
the deal. In other words, like we were told early
in life, “get it in writing.”
Another step that is critical to fend off future
legal actions is for there to be a due diligence process
that not only takes into account an exhaustive review
of the target’s “data room,” but also
includes interviews with the people that put the file
room together, as well as interviews with the people
who created the data in the first place. These interviews
should not be interrogations! This is an opportunity
to build friendship and trust between the parties—which
will be helpful pre and post acquisition. And especially
so in the very difficult Phase 4 of the acquisition process—integration.
The Maverick engagement model helps us to create
an almost immediately effective and trusting relationship
with your acquisition team, senior management and counsel. In
every engagement we accept, the cost savings we bring
to the deal will be far greater than our fees. To
get the most from this relationship, bring Maverick into
the deal as early as possible. Read more>>
