On this episode of the R&G Tech Studio, mergers & acquisitions partner Sarah Young sits down with data, privacy & cybersecurity partner Fran Faircloth to discuss how she advises clients on all aspects of corporate strategy, and whether she thinks artificial intelligence and machine learning will impact her clients in the months and years ahead.
Transcript:
Fran Faircloth: Just to get us going, can you tell us a little bit more about who your clients are, and who are the businesspeople that you see yourself working with?
Sarah Young: Yes, absolutely. On a day-to-day business, I end up working frequently with in-house legal teams at a lot of corporate strategic clients, as well as the corporate development teams there. And really, what I do is help those clients solve their corporate problems and achieve their strategic corporate goals—that really is anything and everything from buying assets or buying another business unit or perhaps selling assets or even selling a whole company. We work with those clients in a range of corporate solutions depending on where they are and what their corporate goals are.
Fran Faircloth: Interesting. It seems like, more and more, every business is a tech business in its own way. Can you tell us about some of the recent acquisitions you've worked on?
Sarah Young: Yes, absolutely—and I think that's really true. Two of the deals we did in this past year that really showcase that—and two deals that I found particularly exciting—were, first, we did an acquisition for HP Inc., a company we all know. They bought, last year, in a $3 billion acquisition, the company Poly (or Plantronics). I thought that one was particularly cool because Poly was the company that manufactured and developed the headset that was used at the NASA control center when Americans first landed on the moon, so it's cool to see how technology has developed since then. Then, in a more recent deal for a private company, we sold a majority interest in the company, America's Test Kitchen. I don't know, Fran, if you're much of a cook, but it is certainly a company that I've known for a really long time with the Cooks Illustrated cookbook, but really, they've become a tech company, too, with streaming content and apps to pull up recipes and whatnot. So, technology really is anywhere and everywhere these days.
Fran Faircloth: Yes, I agree, Sarah. I'm also a big fan of America's Test Kitchen—I was geeking out a little bit there that you worked on that transaction. Can you tell me a little bit about some of the ways that tech is impacting your clients?
Sarah Young: I think one of the biggest issues that our technology clients are facing—and even clients who aren't technology companies but that are engaged in adjacent markets—is the difficulty of the market on the whole. As we sit here today in 2023, we are in a market that is just difficult to get deals done in. We have increasing interest rates (and have for some time), tightening of debt markets, overall market uncertainty, in year two of a war in Europe, and we're certainly in a regulatory environment that makes getting deals across the finish line fairly difficult. I think on top of that, Fran, we're in a place where a lot of our large tech clients did undergo transformative M&A deals during what we refer to as the "COVID boom," so to speak, and so, I think a lot of folks are taking a step back and evaluating the assets that they have, the assets that they acquired, working on integrating those new acquisitions into their platform, and achieving the synergies that they projected to achieve there. I think that where we are in the market with the difficult regulatory environment really means that folks are taking a step back, so to speak, but I don't see that lasting long, and I'm hopeful that won't be the case.
Fran Faircloth: That's really interesting. It sounds like technology is bringing up a lot of sticky issues for our clients. How are you helping clients deal with these issues?
Sarah Young: Yes, we're helping our clients in a number of ways here. I think one way, in particular, that we're seeing is a lot of companies are now considering what assets they might have—say, non-core assets or less profitable assets—that perhaps might be a good opportunity to engage in a sell-side transaction or an asset carve-out. I think, also, we are seeing a number of clients just be a bit more creative than we needed to be over the past two or three years. On the buy side, we're seeing more creative, alternative uses of financing where there's a delta between valuations on the buy and sell side. We're seeing folks increasingly rely on earn-outs to get a deal across the finish line. Then, on the regulatory side, as I noted, that is a difficult environment to predict what we will see from regulators, but I think it's critical, pre-signing, to engage in antitrust diligence to understand the scope of potential concerns that might come up. And then, a lot of clients are thinking about ways in which they might be able to pre-empt those inquires or perhaps fix those concerns before we get there. So, all that is to say, it's certainly a more difficult deal environment than it has been in recent history, but we're definitely still seeing things get done.
Fran Faircloth: It's good to hear that things are still moving forward, even in this more difficult environment. Looking down the road, what do you see coming for your clients in the next one year, five years?
Sarah Young: I think one area we're definitely going to see development is in artificial intelligence. I know a lot of our clients have been using machine learning and artificial intelligence for a long time now, but that's certainly changing now that ChatGPT is in all of our kitchens, living rooms, and whatnot. I think we're going to see a lot of development in that area as employers consider how to protect themselves from disclosure of their personal information or use of those sorts of services by their employees. It seems well and good when you're using artificial intelligence like that to come up with a meal plan or recipe list but far more concerning if it involves disclosure of your trade secrets or confidential information of your users. So, I think, Fran, when we think about that in the coming months or years, really, we can see the headaches that that will cause for legal departments, IT departments, and HR departments, and I think it's really great that Ropes & Gray is at the forefront of learning and coming up with solutions to those problems that emerging technologies will cause to our clients.
Fran Faircloth: Such an exciting time right now with everyone being stirred up about generative AI, with, like you said, ChatGPT being discussed around the kitchen table and in all of our homes. I'm sure you've had many clients ask for advice about how their employees can use AI—I know I have—and so, I don't think those questions will slow down any time soon.
Sarah Young: I think that's exactly right, and I think as the technology becomes even more impressive, it'll create even more issues. As a fun experiment, Fran, I actually just asked this question ahead of the podcast to ChatGPT—the response that I got was really incredible. The first issue that ChatGPT suggested that our technology and data clients might face in the next couple years was exactly this: The increased use of automation and AI, but the benefits though of a streamlined process, reduced cost, and improved productivity. I did have to joke, Fran, because the second point that it raised was the cybersecurity and data privacy issues that'll arise from those uses. So, it itself acknowledges the problems that might come from this, and I think this is going to keep us on our toes for years to come.
Fran Faircloth: Are there any other issues that you see coming down the road?
Sarah Young: I think another issue, Fran, that we'll likely see is actually one that you and I traded emails on yesterday, which is the continued cyber threats to all of our clients and the increase of cyberterrorism and ransomware as it relates to mergers and acquisitions. I think we've all seen in the news recently that with more frequency, announced merger targets are becoming threatened by ransomware or cyberattacks, and I think that's something that we're going to see buy-side clients increasingly focused on as both part of diligence and then also ensuring as soon as possible post-closing that these entities have in place the kind of rigorous safeguards that larger companies have. So, I think that that's something that will be developing too and an increasing focus.
Fran Faircloth: Yes, the attackers are definitely getting smarter and figuring out new ways all the time to engage in these attacks, so I know this is something that all of our clients will be watching pretty carefully. This has been really interesting, Sarah. I could keep talking to you about cybersecurity issues for a while—it's a personal favorite of mine—but I want to make sure we reserve some time to get to know you a little bit better, and I think these are some of the best questions of these podcasts, so I want to make sure we have time for them. This will be a little bit of a speed round with a few questions just to help our listeners get to know you a little bit better. First, have you read any good books lately?
Sarah Young: I have, Fran. I have to say, I'm in a book club that is going 10 years strong.
Fran Faircloth: Wow—and you actually read them?
Sarah Young: Yes, I read most of them, but everybody generally reads them all. It also means, Fran, that I end up reading some books that I wouldn't have otherwise picked off the shelf myself. This book, Tomorrow, and Tomorrow, and Tomorrow—I don't know if you've read it, but it sounds like you have?
Fran Faircloth: I have. It was one of my favorites I read this year.
Sarah Young: Me too. I would never have read it myself. For those that don't know, it's a coming-of-age story of two computer game engineers, and it follows them as they grow and develop personally and also in creating a gaming company. I'm not much of a gamer myself, but I couldn't put it down, and I have not stopped recommending it. So, I highly recommend it to everybody here—I think it's the best book I've read in years.
Fran Faircloth: I agree. I was really drawn in by some of the things about the gaming industry that I did not know before. I'm also not a gamer, but it was really the relationships between the characters and their growth over the years. I thought it was a really compelling and beautiful book.
Sarah Young: I agree. Also, just learning what goes into making a video game and how they talked about the shadows or the depth of certain colors. It really showcased that it's an art, and I hadn't fully appreciated that before.
Fran Faircloth: Yes, absolutely. When you're not reading for your book club, what are some of your other favorite hobbies or activities?
Sarah Young: I have to say, Fran, I really love having friends and family over. My husband and I moved to New Jersey during COVID—we're about 20 miles outside of the city now. In our free time, we love to host and entertain, showcasing why there's life outside of Manhattan for those that haven't moved out. We really love to cook and bring friends and family together, so I'm pretty much always doing that where there's time and an opportunity.
Fran Faircloth: Fantastic. That is also one of my favorite activities, so I'm with you there. One more question to close us out on a high note, since at least when we're recording, it's a Friday—I'd like to go into the weekend with some good dreams. If you're dreaming and it's a happy dream and you're somewhere you love, where are you?
Sarah Young: I'm in France, without a doubt. I am a Francophile. I love all things French—I love the food, I love the culture, I love the art, I love the clothing. So, if I am in France and I am in a dream, Fran, I am probably there in July. For those who've been to France in July, the sun rises at 6:00 a.m. and doesn't set until 10:00 p.m., so you have what feels like an eternity in every day. My perfect French day would definitely involve strolling through the Marais, shopping for antiques, all of the people-watching at a café, and that sounds pretty much like heaven.
Fran Faircloth: That sounds pretty wonderful to me. Thank you again, Sarah, for taking the time to talk to us—it's been great to chat with you. For our audience, once again, this is the R&G Tech Studio podcast. It's available on the Ropes & Gray website on the R&G Tech Studio page, and it's also linked and available wherever you get your podcasts. Thanks so much for listening.
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