It’s been said “lawyers are like rhinoceroses: thick skinned, short-sighted and always ready to charge”.
Avoid charging off into the wilderness or not seeing the wood for the trees.
Here’s an insider’s twelve point list of key pointers to make your life easier and get the outcome you deserve.
Focus on the Big Stuff
Start by using what time you have establishing: potential road blocks; workable alternative solutions; “nice but not critical” points; concessions; trade-offs; “red lines”; and “deal killers”. This helps you focus and avoid bear traps, even if more time is spent negotiating warranties and disclosure. “Follow the money”. Create options. Understand all obligations.
Front Load the Thinking
The earlier you get advice, the more use it will be. Like steering a tanker, your ability to influence the direction of a deal often reduces over time. Negotiating detailed term sheets at the outset can avoid expensive abort costs or the chances of being hijacked into unfavourable terms deep into a process (when bargaining positions may have changed) or worse.
Build on Sound Foundations
Obtaining the right sale price and terms requires early legal and tax involvement. Vendor due diligence can help identify and clean up issues. Pre-sale reorganisations may optimise risk mitigation. Deal structure often impacts upon liability and terms. Consider whether your counterparty has sufficient standing and whether a guarantee, earn out, staggered sale or escrow (holding back consideration) is appropriate.
Timing can be Everything
Time zone differences, remote completions and interrelated transactions present risks best addressed early and in writing. At each stage, “what happens if a bomb goes off?” Establish all internal or other requirements and conditions precedent early (e.g. competition/anti-trust approvals, change of control consents, credit committee sign off). Don’t underestimate the effects of “deal drag”. Budget for deals sucking up time, particularly with a business to run simultaneously.
Damn Due Diligence and Disclosure
Organising due diligence and disclosure materials (and rationally explaining issues, at the appropriate time) will reduce frustration, demonstrating credibility and professionalism and mitigating liability without “spooking” a buyer, particularly at the last minute. Electronic “virtual” data rooms with access control and audit trail are advisable. Scope your requirements to report effectively on due diligence so it is a useful tool rather than an expensive, out dated, paper-intensive disclaimer. Early sight of the size, content and order of a data room will help.
Think Before (and How) you Engage
Once past competitive tension of a beauty parade or auction, a prospective buyer looking “under the bonnet” of your business may not be as accommodating as in its initial flirtation. Carefully consider when and how to disclose (particularly sensitive) information (e.g. Intellectual Property, employees, customers). Data protection law and confidentiality considerations will be relevant. Conversely, a buyer should consider exclusivity (locking others out of the deal) and break fees (recouping a sum if the deal aborts). Make sure that unexpected legal obligations are not being incurred (e.g. financial promotions in teasers and information memoranda).
Be Organised and Prepared
Documents lists clarify requirements, assign responsibility and manage expectations. Splitting tasks can foster collaboration but decide “who holds the pen” on drafting documents in advance. Establish clear (realistic) deadlines (and the reasons for them), work-streams and a path to closure. Detailed issues lists and minutes of meetings reduce repetitive posturing and obfuscation of points. Be sure, however, that control of the agenda is not abused and accurately reflects your position.
Try Another’s Shoes
Consider sensitivity to cultural differences. Face saving may mean wasting time negotiating with people without the authority or influence to make decisions. Cutting to the chase (and cutting people out) can produce results but be wary of being bounced into meetings without representation. US buyers unfamiliar with The Code on Takeovers and Mergers in the UK need to be live to unexpected restrictions (e.g. market purchases, break fees, timing and disclosure of information).
Communication is Key
Establish your preferred means of communication and clear reporting lines to avoid “the tail wagging the dog”. Transaction process can drive terms or outcome, particularly when deal fatigue entrenches positions if left unconsidered. Consider meetings (with an agenda and chairman) instead of video-conferences and instant messenger on remote conference calls. Phone calls may achieve more than email overload. Try to control unnecessary iterations of documents or calls/meetings for their own sake. Track Changes facilitates collaborative drafting but ensure metadata is not inadvertently revealed and version control retained.
Choose the Right Law(yer)
Choice of governing law will be relevant to the selection of legal counsel but can affect the balance of power or provide arbitrage. Consider this separately from the location of a business or appropriate jurisdiction and procedure for disputes. Use deal excitement to explore real commercial drivers, objectives, timing, dynamics, personnel and sensitivities during sales pitches and test how attentive and hungry a lawyer is for your business. Honest, transparent and frank discussions on scope of work and imaginative fee proposals build mutual trust and pay dividends.
Are you Paying Attention?
Sell side lawyers often get appointed before the buy side, particularly when competitive tension is maximised. Key verbal and non-verbal deal information and nuance can be lost after initial stages. Similarly, initial interaction often sets the tone and terms. Adversarial counterparties may also easily spot and seek to exploit shortcomings.
Enjoy (All of) the Ride
Adviser relationships, feedback, patience and a sense of humo(u)r are essential. Make clear how much authority you give to your lawyer, let them know when you want them to take the lead and argue your corner. Lawyers are critical to getting an enjoyable deal done smoothly (or at all), what it looks like and, crucially, how it stands the test of time. In short, legal wisdom in Technology M&A can add value at each and every stage.
Want to know more? Please get in touch.
Thomas Colmer is a corporate finance lawyer at Osborne Clarke specialising in domestic and cross-border private and public mergers and acquisitions. You can contact him at:
T: + 44 20 7105 7276
M: + 44 7887 691 541
Osborne Clarke – about Thomas Colmer
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