The Good

Among the most important tasks of the M&A AIM (Acquisition Integration Manager) is to create an effective communications and working relationship with your company's in-house counsel and his/her outside legal resources. The more effort that is spent early on to achieve that goal-which should begin before you approach the target, the less likely it will be that your deal starts to unravel in the future; at critical pathways that are found within each of the Four Phases of M&A. What direct and tangible benefits can you expect from an M&A team that has created a highly functional working relationship with the deal lawyer? For starters, your team will be helping to ensure that costly and time consuming post-closing issues never come to pass in the first place. But if they do, your deal lawyer will be able to better understand and appropriately deal with any legal challenges that do arise. Another benefit will be lower legal costs from not having to negotiate and litigate the problems that were avoided in the first place!

The Bad

With all the benefits to be gained by integrating your legal advisor into the acquisition team early on, why do some AIM's and deal champions so often go in the exact opposite direction? Well, for one thing, most decisions people maker aren't logical, they're psychological. Based on decades of M&A experience and doing hundreds of deals for our clients, we'll explore a few of the possible reasons below. First, it's important to keep in mind that when you and your company acquire other organizations for hundreds of millions, tens of millions and even, five or ten million dollars, there are thousands of details to deal with-and having an M&A leader or deal champion that directly or indirectly, intentionally or unintentionally sidelines your legal advisor to a secondary role will be doing his team, your company a disservice-and putting the deal in jeopardy throughout the Four Phases of M&A.

Here are just two examples of the things that can and do go wrong when an acquirer's AIM fails to appropriately communicate and seek the advice of his/her deal lawyer. And, we've provided you with some solutions that will ensure that your deal stands out among the ones that create long-term value for you, your company and its stakeholders.

Legal costs for acquisitions can and do skyrocket when inexperienced acquisition integration managers (AIM) or other key members on the acquisition team contribute to confusion and ambiguity surrounding the deal. How so? One way this happens is when your company's AIM or team members engage in informal conversations with various parties in the target company outside of the formal negotiating process. Promises made by the buyer, or sometimes, the seller's perception of promises made, in order to quickly move through rough patches in the negotiations, can and do lead to disagreements later on in the process. Many times they can be negotiated away or swept under the rug, but they also come back to delay the closing or in the worst case derail the entire effort! And there's always two constants: these types of disputes are always time consuming and expensive and, they usually could have been avoided in the first place if the deal lawyer was more involved and there had more effective communications with the AIM.

With some frequency, Maverick is engaged by a client at the eleventh hour: usually right after a seemingly intractable issue has led to calls for lawyers and lawsuits on both sides. The parties are deadlocked in conflict and finger pointing and the client, almost always the buyer calls us in as a final effort to save the deal before taking other actions-or walking away from the deal. In some of these cases, the buyer's deal lawyer was blindsided and didn't know anything about the genesis of the problem. Being out of the loop did not help for him or her to have a cogent legal strategy for resolving the issue. Here's one example that illuminates the problem of what happens when the AIM and the deal lawyer were not effectively communicating or working together.

The Ugly

In the example below, which was culled from the Firm's previous engagements, Maverick's participation came about because certain "deal-breaker" issues had arisen as the parties were trying to close the deal. In this case, as in many other similar client engagements, the events that ultimately caused the parties to move to extreme ends during formal contract negotiations had not seemed to be important or even mentionable events when they first occurred during Phase Two of the deal process. In fact, the Firm learned that the AIM never gave a moment's thought to involving his deal lawyer before setting off a chain of events that would ultimately cause the parties to move toward court instead of to a smooth closing. What could have gone wrong so quickly?

Maverick's M&A practice leader interviewed the AIM and learned that he had made some verbal promises and concessions soon after completing due diligence. He said that he and a few other key members of his team agreed to the request by the seller because they thought the issue insignificant; and decided to give their assurances to the seller in an effort to build broad understanding and agreement early on. The AIM went on to say that he thought the seller would reciprocate on similarly minor issues as they came up on behalf of the buyer. Because he didn't think there would be any significant business or legal repercussions, he and his key team members gave verbal assurances to the seller that when the final closing agreements were crafted, the concessions would be included. And, when asked by Maverick why he didn't at least run the facts by his deal lawyer, he said that at the time, he believed the concessions and promises he and his team made were not so important as to rise to the level that they felt they needed to in order to run the issues by their respective deal lawyers (and incur the expense of doing so).

Maverick conducted exhaustive and time consuming debriefings and document reviews with the AIM and his team. With a possible legal strategy advanced by the team's deal lawyer, Maverick assessed the situation and the possibility of whether the deal could be salvaged and if so, would it still be as viable as once thought.

With the cooperation of the seller, the Firm's M&A practice leader-with three decades of hands-on experience decided to lead his team through a second due diligence to determine if there was information available that would have-and should have, kept the AIM from making the concessions he did-and whether additional information that was critical to the deal was still undiscovered. At the same time, the Firm's M&A practice leader asked the Firm's Behavioral Integration Management™ (BIM) leader, a licensed, PhD clinical psychologist (with decades of business experience) to speak with the seller's key team member and outside counsel about the situation, so that Maverick and the buyer might be able to better understand their perspective about how the problem originated, and what had ultimately caused the stalemate and animus that now had the parties ready to abandon negotiations and head to court.

First, Maverick's BIM leader settled on a place in which to hold the discussions that provided a relaxed, comfortable and non-threatening atmosphere. He began by asking a series of questions that did not make the subjects feel wrong or accused, but rather, were carefully designed to provide the interviewees with an opportunity to vent their frustrations over the situation. Over the course of several hours as trust was established, the conversation ultimately became both candid and very revealing. The seller's key team member on its M&A team admitted that he knew the buyer had missed uncovering key data during the due diligence process-and therefore saw an opportunity to take advantage of that failure. From his perspective it was simply a business decision and one that offered his company additional financial advantages. As to the damage this had caused, he never thought the information would be discovered (it was passed over the first time) and thought the buyer would simply agree to move forward as prearranged.

The Firm's M&A practice leader and his team did in fact uncover a treasure trove of data that had been overlooked by the M&A team's due diligence efforts. Had they understood what they needed to be looking for-beyond the requisite financial documents, the AIM would have known that many contentious issues were waiting ahead of them. In discussions with the AIM, it became clear that he and his team just lacked the necessary experience to understand that due diligence goes beyond the numbers, and often, well beyond the data room provided by the seller. The lesson for the AIM was to understand how imperative it is to keep the deal lawyer in the loop and never-NEVER make promises or give guarantees before discussing them and getting a sign off from the attorney!

Once Maverick began the process of healing of bruised egos on both sides of the deal, a reasonable value was agreed to for the earlier concession made by the acquirer and the deal closed-almost a month later than had been anticipated. But how much value was lost in the long-term due to morale issues, corporate culture clash and human capital that didn't stay on was simply incalculable. How can you ensure that similar situations don't arise during the course of your deals?

Devil's Advocate

Certainly, you don't need to bring your legal counsel into every conversation or even in on every decision path along the way to consummating your deal. But that said, your deal lawyer should always be consulted before the acquisition team or AIM conveys any promises or consideration to the seller-in writing; and it's especially true before you verbally tell the target "not to worry about this or that," or say that an issue is "not a deal breaker-and we'll find a solution or a way past it after we close." These are precisely the small missteps that can lead to conflicts between the acquisition teams on both sides of the deal-and cause irrevocable relationship breakdowns. Going to your lawyer to "fix" a problem long after it was created is like going to a marriage counselor when the relationship is hanging by a thread. A positive outcome is unlikely. Lawyers are trained-and well intentioned to ask the questions nobody else wants to ask-in order to ensure that their client (in this case team members) on the acquisition team can substantiate and factually support their positions on relevant issues as the deal progresses. The use of devil's advocacy is not intended to hurt anyone's feelings (if it does, you're in the wrong business), but rather, it is a time proven way to try to knock holes in a strategy or the thoughts behind a decision or set of decisions that is intended to bring increased value to your deal.

Psychological Forces at Work

Even if the issues talked about it the preceding paragraph can be resolved late in the game, at the very least there is going to be additional cost and time for all involved. More importantly, the egos of key players on one side or another may have been bruised. If that happens, the people on one side or the other of the deal (sometimes both) may perceive that they were being made to "feel wrong," (click here to learn about this deal breaking business relationship phenomena): and when that happens, relationships may become fractured or broken. The result may be many months of time, effort and significant amounts of money and other resources completely wasted-as the target pulls out of the deal. How can you avoid these relationship disasters? One way is to hire Maverick: the only business consulting firm that has uniquely integrated the management and behavioral sciences. The Firm's methodology allows it to effectively and successfully deal with corporate culture clash and people issues that are involved in just about every M&A transaction.

Maverick's business savvy, licensed, PhD clinical psychologists will work with your team to identify, assess and address potential deal breakers that are related to corporate culture clash and people issues before they have an opportunity to suck value out of your deal. Read how we do it here. If you don't think people issues and corporate culture clash are absolutely critical to the success and long-term value of your deal, remember this: according to an article in the Wall Street Journal, fifty percent of all deals that fail to deliver their expected value do so for those very reasons!

Bad to Worse

Even when a lawyer is on the team, problems can still arise. Only this time it's because the AIM

and key managers unintentionally try to guide their lawyer toward the outcomes they want and see as most beneficial to their efforts: but they often do so at their own peril-as they may not understand the full implications of how their business based decisions may impact the deal from a legal perspective. How does this type of scenario arise? In our experience it happens more typically when a junior lawyer from an outside firm is working with the acquisition team. This new, usually younger and not yet highly experienced lawyer is trying to win points for his firm—make friends with key team members and integrate well with his client. In an effort to do so, he/she may not be as forceful or 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. It's all part of the corporate culture and people issues that are intrinsically woven through every deal.

It's another reason why Maverick's unique engagement methodology-which integrates the management and behavioral sciences, can be so effective in ensuring that your acquisition deal team members and leaders are selected for their knowledge, intelligence, emotional empathy, communications skills, leadership qualities, and other complementary personality traits.

Lawyer Up! It's Good for the Deal

Listen to "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

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 that Maverick has worked with want to see the deal done right, but only as quickly as the myriad legal and compliance 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 these contradictory priorities and agendas-respective to the legal and business professionals are bound to cause some friction and miscommunication. So, what can be done?

There's a large swath of middle ground when it comes to the legal issues of M&A: and a good deal of what happens never has to rise to a legal issue: over the course of decades and hundreds of deals, Maverick's hands-on experts in M&A have developed unique ways in which to keep business issues from becoming legal issues. It has to do with managing thousands of deal points at the same time that you consider and address the ongoing people issues. If you put many of legal issues that erupt in the course of an acquisition under a microscope, you'd find the same cause behind most of them: people issues! Because Maverick has uniquely integrated the management and behavioral sciences-it can help your company avoid costly delays and potential legal conflicts in your deal. And if they do arise, Maverick will be able to work closely with your deal lawyer to create the best short and long-term strategies to ensure that the deal maintains its expected value

Here are four steps you can take that will lead to build better and more effective communications with your M&A deal lawyer and ultimately, better deal outcomes.

1. 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 an estimate of the legal costs in general to cover the entire deal. 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 M&A progress.
2. 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 Maverick's experience to alter the deal's terms and conditions in order to create a negotiable business issue from a legal one. If the acquisition team thinks it can craft business solutions to those legal issues, and then get the relevant team members 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.
3. When spelling out the contract language for closing, stay far away ambiguous language that attempts to resolve issues that cannot be easily agreed upon at the present, by pushing them back to be "discussed and agreed upon post-closing." Yes, you may close the deal sooner, but the backlash that can occur from pushing agreements into the future-especially after money/securities has changed hands is how a lot of lawyers bill a lot of hours. Take the time and effort to ensure that you include all post-closing obligations within the deal agreement-and that nothing is left to "sort out" later. Make sure your deal team (and the seller's) truly understand and agree to the legal language your attorneys have incorporated into the closing agreements. Contracts should be written so as to be clear and unambiguous in their meaning.
4. 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.

Get more value from your deal: Maverick can create an almost immediately effective and trusting relationship with your acquisition team, senior management and counsel. In almost every type of engagement Maverick accepts, the cost savings that the Firm brings to the deal will be far greater than our fees. And, we're the only Firm to guarantee it! Read more about Maverick's satisfaction guarantee.