Going through an acquisition is rarely a smooth process. Issues arise in a variety of areas, ranging from due diligence to company politics. Today we are speaking with Shelley Hall, GC of K2 Software - an intelligent automation software company just acquired by Ninitex. She expands on the intelligent automation industry, her lessons from the acquisition, and how she has managed the process of transitioning “out” of her role.
K2 is a global software and SaaS company founded about twenty years ago and now based in Bellevue, Washington. The company provides entities of all sizes with platforms for low-code business process automation. The field has become more crowded in recent years, with large players entering the space. The field also has shifted, with companies offering more robotic automation and other options. Both K2 and Nintex serve somewhat different market segments in this space. The acquisition allows the combined company to better position itself and compete in the evolving landscape. The sheer enormity of the process surprised me. No matter how organized you are, it’s not enough! We had acquired three companies in my two years at K2, so I understood what was ahead. However, sitting on the other side is much different. The General Counsel becomes an archaeologist, digging into every aspect of the company and turning over all the rocks.
The key for due diligence is to think about the process before it starts. Due diligence will monopolize your time no matter what, but you can save yourself headaches by organizing in advance. Think about a potential acquisition from your first day on the job. I framed my legal initiatives with acquisition in mind, completing our IP portfolio, implementing policies and processes that would help us check future due diligence boxes, and cleaning up some of our contract negotiating practices to reduce due diligence efforts (ie, no most-favored nation clauses, consents to change of control, etc.).
What I learned, though, is that you need to do more than clean up your practices and policies ahead of time. You also need to organize documents from day one. I recommend creating folders based on due diligence topics, even if acquisition seems years away. For example, put a copy of all corporate formation documents for subsidiaries in a folder that you can easily grab. If you have contracts that require consent for change of control, keep a running list and put copies in a separate folder. You can then move things as a group when the time comes. That way you won’t need to run seemingly endless searches or comb through various internal systems to complete disclosure schedules.
These topics also arise in fundraising and bank financing due diligence, so organizing them will help you even if the company never is acquired. I wish I had organized documents earlier. It certainly would have saved me time!
One other tip is to identify necessary people resources ahead of time. Know who in the company “owns” various types of information. The best way to do this is to create open communication lines with departments throughout the company. This is something that will help you as a GC even if no acquisition occurs; it’s a lot easier to do your job if you build relationships in each department and understand each department’s needs. Early in my tenure, I met with the heads of as many departments as possible to talk about how we could work together to advance the business. These efforts paid off later when I needed to gather information and materials for the deal.
My biggest tip is to make sure you have a seat at the negotiation table. GCs understand both the law and the business; it’s a unique perspective that outside counsel does not always share. Because of that perspective, you bring value to the deal. Your presence in the discussions can save the parties time and resources. For example, you can provide feedback about whether proposed disclosure schedules are realistic because you know more about the internal company processes than outside counsel does. Without your input, the parties could end up with unworkable provisions that delay the deal.
It’s easy to become consumed by diligence requests and gathering information, but you must remember to stay involved in the deal itself. If necessary, enlist outside resources to herd cats on due diligence so you can participate in the negotiations. In retrospect, I should have done this earlier, and it’s something I will remember for next time.
Every GC knows that an acquisition by a strategic buyer can result in you exiting the company. After all, the combined company will need only one GC. However, not all employees are as sanguine about working toward an exit. You will need to enlist the help of several employees in the diligence process, and you want them to remain with the company through close. Make sure the company identifies these employees early and provides them with the incentives to remain on board so you do not lose valuable resources midstream.
Also think ahead about the company’s severance and executive compensation policies. You will want all of these in place long before the deal moves ahead. Some advance planning with the Board and executives will save everyone effort later.
It’s definitely a challenge. You dedicate months of intense effort into working yourself out of a job. We all know this comes with the territory. Even so, it’s sometimes difficult to maintain perspective.
Remember that every deal is different. Depending on the buyer, post-transaction roles may exist at the combined company for you to explore. Think about what interests you and about your future goals when considering these roles. If you are exiting, do some advance thinking about transition, particularly how much of a transition would be beneficial and what role you would want to play during that transition.
Once the deal becomes public and you can share the news, alert your network. Taking a company through acquisition is a big deal for a GC, and people will want to know. Also remember that the experience gained from acquisition work will make you a stronger GC for the next role. Working your way out of a job under these circumstances should ultimately increase your marketability.
Finally, after all that effort on the deal, taking a break to think about the next adventure probably is a good idea!