| Managing the Deal (the lawyers' perspective) |
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| The principles of project management can be brought to bear in planning and executing a successful acquisition. Declan Moylan and Niamh Clarke of Mason Hayes & Curran provide a comprehensive overview of the issues involved in the large volume of legal work and activity unleashed by an acquisition. |
T he level of Irish M&A activity is unlikely to slow down any time soon. A booming economy, privatisations and demutualisations are all likely to ensure that the deal flow remains strong for the foreseeable future.
The sheer volume of activity involved in a major transaction can come as a major surprise to the companies involved. Company executives and in-house lawyers often receive an unpleasant surprise when they realise the amount of work which a significant transaction entails.
A major M&A transaction is best thought of as a project. Like any other major project it needs to be managed.
So who manages the transaction? Transaction management starts with the client. However, while overall management of any large corporate transaction will have to come from the company itself, company executives and in-house lawyers will have to communicate their needs and
requirements to outside lawyers, due to the scale and volume of work involved.
Any transaction will feature several sets of advisers. It is vital that overall control is maintained over the deal and the various participants involved. Usually, as the transaction proceeds to completion, it is the lawyers, normally the external lawyers, who take centre stage. This is because it is their function to keep a documentary record of the transaction containing all that has been agreed between the parties. For this to happen, project management will, to a greater or lesser extent, be delegated to or assumed by the lawyers.
The more your infrastructure falls short of what is necessary for a transaction, the deeper the external lawyer’s role will become. How then should you, as in-house lawyer or company executive, run your lawyers? How should the external lawyers run a deal? There are no hard and fast rules. However there are pointers as to what works best and what is most likely to facilitate a deal.
Who does what?
The first thing to do is divide ‘negotiation’ from ‘transaction management’. In a multi-faceted transaction this is vital. This means that, lawyers conducting a due diligence exercise can concentrate on that aspect of the deal while those involved in line-by-line negotiation of documents can concentrate exclusively on that task.
These different activities should be overseen by one senior lawyer. He or she supervises the progress of the deal and maintains the relationship with the client. This division of responsibilities has increasingly become more the norm, as clients retreat from the concept of hiring one lawyer to negotiate, draft and run the transaction.
What does project management mean?
In a transaction situation, it means delegating the specific responsibilities to the best people, managing those people and co-ordinating their
activity. It also involves assimilating all the key information on an ongoing basis, so as to facilitate immediate response.
How best can you do this?
Select your team.
* More and more, transactions are referred to law firms on a one-off basis, with the proposed team assessed by the various clients. You will want to be satisfied with the entire team presented, and not just the team leader. Just because a firm may have the best banking lawyer does not mean that that person should be on the team. Likewise, where a firm has a high-profile environmental lawyer, you might not need someone of such elevated status when what is needed is routine advice.
Define what you want to know.
This is a key area where cost and benefit need to be balanced. In a legal due diligence exercise it is important to establish the extent to which you wish to turn over the stones. Will it be sufficient to accept loosely composed information and take protection by warranty and indemnity?
In every case, priorities will differ, but it is vital to tie down the criteria of any diligence exercise. This will prevent what judges quaintly call people going on a ‘frolic of their own’.
Examples of what you need to know:
Property - Do you want your own lawyers to be satisfied with title? Alternatively, are you happy to accept an opinion on title matters from the target company’s lawyers? Subject to adequate insurance the latter course is the one to take.
When discussing the property aspects of any transaction the following questions should always be asked:
l Where is it?
l Who owns it?
l Can you gain access?
l Can you be closed down?
If you are adequately covered on these issues you will save both time and money!
Environment - Here you will most likely want a full investigation. Problems can emerge long after the ink is dry and warranty and indemnity periods have expired. Your approach to environmental matters may be more exacting than the law requires. This may well be a post-deal management issue. The lawyers’ function is to work with the environmental consultants, to inform you, and to document any protections that are agreed between the parties.
Business Contracts - This is the area where there is the best opportunity to define lawyers’ input. Do you really want to know about dispute resolution mechanisms and ‘proper law’? Or do you, in fact, only care about when you get paid for delivery of a product? Generally business people are the best experts in their own discipline.
Litigation - Where there is litigation, the logical approach is to park defended litigation with the seller and take the benefit of company-initiated litigation. It will frequently make sense to take carriage of litigation with the incumbent lawyers. Ask them ‘will we win?’ - See if you can get a straight answer!
Tax - The ‘rule book’ regarding unpaid tax is that the seller will pay outstanding tax. If the business is not complex from a tax perspective, maybe you need relatively little information. Trust the taxman and auditors to find the problems and send the bill to the sellers.
Practical suggestions:
Join the co-ordinating meetings held by your lawyers A well run team of lawyers will meet frequently to co-ordinate all aspects of the deal. Join in, it saves everybody’s time. If
you have any concerns or issues which you wish to raise with any member
of the team, this is the best opportunity to raise them.
How much is on the clock?
Most legal firms will quote either a fixed price for a transaction or a narrow band as a target fee. Normally there will be a provision to deal with unexpected items involving further investigation or negotiation. If you are being charged on a time basis, ask to see the meter: you can do so in a taxi! Most firms record time billed electronically with daily updates possible.
Decide where you need contractual protection.
Lawyers tend to be troubled by the slightest real or perceived interpretation in any legally regulated agreement or circumstance. For example, a key supply agreement may be said to be regulated by ‘British law’ (problem: which bit of Britain? - England, Scotland or even Northern Ireland). It may be that it doesn’t matter e.g. if the contract is otherwise clear or if the supplier is not relevant.
Pay for follow up
Once the euphoria of the successfully completed deal has passed, you will be faced with running a new business and a skipful of documentation. At closing you should not leave without a copy of the main contract. Soon after that you will get your reams of documents.
You will know about the deal, but you may have moved on to the next deal. Will your colleagues know what to do if there’s a claim to be made on the tax deed? At three in the morning of completion it might have made sense to require claims to be made within two weeks. However, what if you’re in a French company where the finance department vanishes to the Cote d’Azur for August? Therefore, the follow up must include a thorough briefing session with people who will ‘run the contract’ in the event of a need to consult it in future.
Be optimistic
If you have satisfactorily defined your requirements regarding investigations and contractual protection and get what you want, maybe you’ll never need to look at the document again! |
Declan Moylan is a partner and
Niamh Clarke is a solicitor with Mason Hayes & Curran.
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| Article appeared in the March 1999 issue.
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