Kandace Watson, Corporate M&A Partner, Sheppard Mullin, and Michael-Bryant Hicks, a seasoned EVP, General Counsel & Corporate Secretary recently discussed mergers and acquisitions perspectives from the Boardroom and C-Suite. From the Board and Executive Management viewpoint, there are only a few key important wins.
- Ensure Directors and Officers know their fiduciary duties and establish a robust protocol to demonstrate they fulfilled those duties. Corporate minutes should document how deal terms were benchmarked to market, alternatives considered to a sale of the company – such as opportunities for continued revenue growth, fairness opinion considerations, and other key decisions and protocols.
- Seller's want deal certainty. A busted deal can have a significant negative impact on the company targeted for sale, especially the stock price of a public-reporting company. Seller's may want high break-up costs and even specific performance as key deal terms.
- Bifurcate due diligence into two phases, pre-signing deal-breakers and post-signing integration. Before a definitive agreement is signed and announced, both Buyer and Seller can save time and money by focusing on only the 5-10 deal-breaker due diligence items that would halt the deal. These critical deal points should be communicated to the internal and external teams, to effect surgical due diligence pre-signing. After the deal is signed and announced, leadership of both Buyer and Seller should customize post-signing due diligence to focus on post-closing integration issues.
- Confidentiality is critical – construct a rigorous clean team process to limit distribution of the most sensitive information. Limiting pre-signing due diligence can also reduce the number of employees who need to know. Limiting information distribution can mitigate risks of leaks and undesired employee departures.
- Consider special regulatory issues. Sellers in industries with special regulatory issues may want to take the lead in interactions with regulatory agencies.
- Address management team employment agreements and tax issues early in the deal. Internal Revenue Code §280G and its counterpart §4999 define certain tax rules for excess golden parachute payments contingent on corporate changes in control, which can have adverse tax consequences for public and private companies and their executives or other disqualified individuals. Advance planning to avoid or reduce potential tax liabilities may include non-cash strategies, such as obtaining a cleansing shareholder vote (for private companies) or obtaining valuations of non-compete agreements, compared with other alternatives such as cutting back or grossing up amounts payable to executives or disqualified individuals to avoid or offset the excise tax.
By focusing internal and external teams on the most important deal issues at each stage, both Buyers and Sellers can streamline the time and costs of successfully completing mergers and acquisitions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.