If you’re a seasoned GC, you’ve likely seen your fair share of M&A transactions. If it’s your first time navigating a private equity deal, how can you successfully navigate the unique challenges that come to the table? And how can you make sure that you’re as prepared for the transaction before you have to hit the ground running?
In our recent 2023 TechGC PE Buyout M&A Virtual Forum, Scott Behar, Partner, Fenwick, and Julia Shullman, former General Counsel at TripleLift lent us their insight during our panel titled, “Are You Prepared for a Transaction?” They spoke in detail about legal and operational preparedness, areas of self-diligence, and non-legal matters GCs need to keep in mind to execute and manage throughout the process of a transaction.
Read their 4 of their key takeaways below on how GCs can make transactions run more smoothly:
Get alignment on key objectives and expectations as early as possible
When you begin work on any kind of transaction, you’ll likely be working within one of 3 different scenarios with different timelines – an acquisition that’s been in the works for a while (can be quick or slow), an offer out of left field (often quick), or bankruptcy (very fast and often more chaotic).
Regardless of which of the three scenarios you find yourself working with, your job as a GC is to think about anything that will hold up a deal or reflect badly on your company during the acquisition process.
To make the process go as smoothly as possible (and avoid the worst case scenario – the deal falling apart), it’s important to get extremely organized and make sure that there’s alignment across stakeholders when it comes to the high-level objectives and non-negotiables.
Don’t forget to think through all of the moving parts within a deal that will have a ripple effect on tax holders, since you’ll likely have folks at both sides of the table when it comes to how the structure of their deal will affect their tax positioning. You should have an understanding as early as possible of what shareholders expect so that you aren’t trying to change the structure of the deal to meet someone’s desired tax position in the middle or end of the process.
In general, be crystal clear on your strategy beforehand along with what your team is willing to give up in order to get the deal finalized. Everyone needs to be aligned on key walk away points so that you’re not trying to get clarity on a stakeholder’s position when you’re already deep into a deal.
Don’t forget that you have the most leverage at the beginning of the deal
As GC, you want to make sure your company is in the best possible position going into the transaction process. Based on your team’s objectives, your company’s data points, and the expectations of your buyer, put together a list of every possible thing that might concern a specific buyer (or if you’re shopping around for a buyer, general concerns).
This list can include everything from equity acceleration to employee classification and open source code use. Remember, your goal is to get ahead of any potential buyer concerns by either having specific talking points to assuage concerns or by getting additional data to bolster your company’s position.
Above all, don’t forget that your moment of highest leverage is at the term sheet before you go into exclusivity. After that moment, you can’t speak with other buyers, so your acquirer will be looking under the rug and taking a magnifying glass trying to find ammunition they can use during the deal. For that point on, your bargaining power will likely only decrease.
Don’t underestimate the emotional aspects of a deal
Acquisitions are highly emotional events. At most companies, you’ll essentially be helping them sell something they’ve built their entire life around over the last 5 or more years. To them, this isn’t just a transaction, so you’ll need to be there for them from an emotional perspective during the deal process – especially when unexpected events pop up or acquirers push back to try to negotiate
Additionally, much of the deal process depends on assuaging the concerns of both your shareholders and the acquiring team, while making sure new and established relationships come out unscathed when all is said and done.
Don’t forget that your team is going to be part of the acquiring team when the deal is done, so let your outside counsel be the bad buy on when they need to be, rather than deciding to handle it yourself. You’ll have to continue to work with these people in the future and maintain relationships to keep the business running.
Take full advantage of external help
Now is the time to lean on all of the external resources at your disposal – counsel, advisors, mentors, etc. – especially if you’ve never gone through a transaction before. Most importantly, make sure you have the right help in place before the deal is even kicked off. The last thing you want to deal with during this already stressful process is having folks at your side that you don’t trust or work well with. Ask your peers on the TechGC Braintrust platform to get trusted referrals and guidance.
As an example, a trusted banker that’s introduced to you by one of your shareholders can be an extremely valuable resource, especially when it comes to introducing you to additional bidders so that you have a good sense of who your potential buyers are and an ideal valuation range.
Finally, take advantage of outside counsel by getting them to create questions based on all the data your team has come up with for the diligence process. If you’re dealing with multiple bidders you’re going to have to do this over and over again, so it’s helpful to get an outside perspective on common buyer questions along with your key talking points before you even begin to get into diligence talks.
Conclusion
Managing a transaction from beginning to end can be an arduous and complicated process, even for experienced GCs. Especially since the business needs to continue to run smoothly even as you attempt to broker a deal between two parties.
By keeping the 4 tips in mind that we’ve outlined above, you’ll be able to manage expectations, avoid deals falling apart, and keep relationships intact so that the business can continue to thrive long after the deal has been executed.
If you’re a GC navigating new and challenging situations for the first time, join us for our First Time GC Conference. Want more tips from industry experts and peers on how to be an effective GC and accelerate your legal career? Request an invite to join the members-only TechGC community.