Negotiating M&As

Mergers and acquisitions (M&As),
leveraged buy-outs, spin-offs,
restructurings and work outs might sound to some business owners like terms
that apply only to Fortune 500 companies
or multinational corporations. There are
times when small- to mid-sized businesses
will need outside counsel to work with
management and their in-house or regular
outside lawyers in M&A transactions.
When such needs arise there has to be a
well-thought-out, mutually agreed-on plan
in place if the client and attorneys are to
work as a smoothly functioning team.

Smart Business spoke with Chris A.
Ferazzi, an attorney with Porter & Hedges
LLP, to learn how in-house and outside
counsel can work efficiently to complete
M&A transactions and satisfy the interests
of all parties as expeditiously as possible.

Why would a small- to mid-size business
need to hire outside counsel to complete an
M&A transaction?

Businesses do not always have control
over their own destinies. For example, they
might become targets of companies that
want to acquire them or they might actively seek ‘strategic alternatives,’ including
selling their companies, and thus, putting
the business in ‘play’ for sale to the buyer
willing to pay the highest value. In addition,
an experienced outside M&A lawyer is better equipped to negotiate more favorable
terms and conditions in the transaction,
including items that may have monetary
implications, and will likely be in a position
to complete the transaction on a more
expeditious basis due to his or her understanding of the process and related best
practices. In such scenarios, the client’s in-house or normal outside counsel may not
have the experience to conduct a complex
business transaction like an M&A transaction.

What services can outside attorneys provide
for businesses in M&A transactions?

Outside counsel can provide advice on
legal, regulatory and tax implications of
alternative transaction structures and proposals; organize and implement legal due diligence reviews; draft and negotiate
transaction agreements; tender offers and
related documents; assess litigation and
regulatory risks; and make presentations
and offer advice to senior management and
boards of directors during the process.

What must outside counsel understand to
complete an M&A transaction successfully?

In addition to general M&A experience
and competency to deal with the process
and issues involved in a typical M&A transaction, the process requires a great deal of
organization and communication. One of
the most important criteria is to understand and prioritize the client’s goals,
objectives and concerns in the transaction.
Depending whether the client is buying or
selling and the form of the consideration to
be paid in the transaction, the client’s goals,
objectives, legal duties and concerns can
differ substantially.

It is also important to recognize that
M&As are done from a transactional standpoint, rather than the litigation perspective
where the ultimate goal is generally to get
the deal done on terms as favorable as possible to your client but reasonable from the
other party’s perspective. This requires a
bit of give and take on both sides.

Understanding in-house counsel’s staff is
also important. The outside counsel needs
to understand what is important to in-house counsel to stay focused on, what he
really cares about, and what he will rely on
the outside counsel to handle rather than
get involved with personally. In-house and
outside counsel have to work as a team,
and outside counsel should strive to make
in-house counsel look as good and effective as possible to its management team
and board of directors.

Is there a ‘game plan’ that the M&A team
should follow to complete the transaction?

There are several steps that are consistent in virtually all M&A transactions. The
team has to assemble a working group and
make sure the members understand their
related roles and responsibilities. Once the
team is assembled, everybody involved in
the transaction must be made aware of the
proper person to contact for specific subject matters.

A key part of this process involves establishing detailed timetables and responsibility lists, since there will likely be timetables
and responsibilities for different stages of
the transaction.

The timetable for most M&A transactions
is a moving target and will generally
require frequent updates, but it is outside
counsel’s goal to keep things on track as
much as possible. To that end, it is generally useful to have daily or weekly telephone
conferences or e-mails relating to status.
The frequency of these communications
will depend on what stage of the process
the parties are in, and may include what
legal or business decisions need to be
made, what appropriate business information has to be made available to deal with
specific issues and information about people in the process who might be impeding
the work.

CHRIS A. FERAZZI is a partner, Corporate Practice Group, with
Porter & Hedges LLP. Reach him at [email protected]&
or (713) 226-6626.