Negotiating M&As Featured

8:00pm EDT July 26, 2007

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 cferazzi@porter&hedges.com or (713) 226-6626.