It is a little known fact that there’s a strong connection between the success of a deal and the team assembled to get it done.
“Management needs to be very diligent about selecting members of its internal and external deal team; it’s critical that the teams have the right fit, experience and industry expertise,” says Goody Agahi, a shareholder at Stradling Yocca Carlson & Rauth.
Smart Business spoke with Agahi about what it takes to assemble a strong mergers and acquisitions (M&A) deal team.
What is a deal team and how is it composed?
A deal team generally consists of key employees at the company, M&A attorneys, accountants and, in certain circumstances, other outside advisers such as investment bankers. The first step in assembling a deal team is to identify the key employees at the company who are intimately familiar with the company’s operations and financial matters. The next step is for the company to identify, interview and ultimately select its M&A attorney and other outside advisers.
In selecting an M&A attorney, the company should be focused on an attorney’s M&A experience, industry expertise, reputation and fit. An experienced M&A attorney will be able to assist the company with identifying other service providers. For example, if the company is considering an auction process to effect a liquidity event, an M&A attorney can refer the company to multiple investment bankers that, based on the attorney’s experience, he or she believes has the right experience and will be a good fit for the company. Investment bankers can assist the company by performing an analysis of the M&A landscape and identifying prospective buyers. The auction process provides the company an opportunity to see how the market values the company and, depending on the level of interest by prospective buyers, gives the company leverage in negotiating definitive transaction documents. An auction process, however, may not always be appropriate.
What qualifications are important to have in each team member?
Extensive deal experience is critical when considering whether or not to hire a particular service provider. An experienced M&A attorney will be able to advise the company on substantive issues, potential exposure and acceptable compromises. An experienced investment banker can help prospective buyers appreciate the investment opportunity, and an experienced accountant or CFO can give a prospective buyer comfort with respect to the company’s accounting methods, policies and procedures, as well as quality of earnings.
Unfortunately, too often we see companies using legal counsel that is ill-equipped to handle an M&A transaction. This is normally the case when management doesn’t fully appreciate the value the right M&A lawyer can bring and, conversely, how costly it can be to use a lawyer with little or no M&A experience.
When should a company begin assembling the deal team?
Once management begins considering strategic alternatives, the company should start the process of assembling a deal team. Even if a sale transaction is years away, it is prudent for a company to engage advisers to position the company for a liquidity event. For example, a company’s M&A lawyer can perform a review of the company’s organizational documents, equity incentive plans, compensation arrangements and third-party contracts in order to identify and address any potential issues. By addressing such issues in advance of a liquidity event, the company can potentially avoid unnecessary delays, valuation adjustments and special indemnities in connection with negotiating a liquidity event. The better organized a company is, the more desirable the company will be to prospective buyers.
Why is a strong deal team important to an acquisition?
An experienced deal team will work closely with one another to showcase the investment opportunity, and identify and address potential diligence issues in advance of a transaction. Seasoned professionals have been through the process; they understand the issues and offer solutions that can bridge gaps between the company’s and a prospective buyer’s positions. As a result, the right deal team can maximize the purchase price, minimize the back-end exposure and facilitate a quick closing. ●
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