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Publication

Growing pains

20/09/2018

Locations

United Kingdom

Fieldfisher corporate partner and technology specialist Tim Bird looks at the discomforts of deal execution and how to avoid them.

For many organisations, planning for a corporate transaction is a headache.

Cost and risk management rank highly among the most common concerns, often adding avoidable delays or, in extreme cases, preventing transactions from taking place altogether.

The unintended consequence of laborious transaction planning can be missing a strategic opportunity, which may have severe repercussions for a business further down the line.

This has emerged as a particular problem in the technology industry, where the rapid pace of development, the huge variety of novel products and services on offer and anxieties about valuations can cripple business decisions.

Today, however, it is much easier to control many of the variables that conspire to suffocate corporate M&A than many companies realise.

For instance, within certain sectors, sizes and types of transactions, it is possible to predict with considerable accuracy both the cost and time it will take to complete a deal.

It is also possible to devise an approach that anticipates and builds in solutions for many issues that may develop later on.

Fieldfisher advises a number of Tier 1 technology companies which regularly acquire software and solutions companies and then integrate into them their existing business.

For these clients, we create template documentation to reduce the amount of negotiation needed, which, alongside due diligence (DD), is one of the most costly aspects of any transaction. We also advise our clients on how best to balance risk and cost by highlighting the high priority DD review areas.

In addition, we carry out a Deal Debrief after each transaction to look at what went well, which processes could be improved and where expenses could be minimised or avoided in future.

Our clients tend to acquire businesses in the £5-50 million consideration range, with smaller deals often demanding the same level of attention as the big ticket transactions.

To simplify these deals for the benefit of our clients and their counterparties, we break the acquisition process down into the following components:

Offer letter

The aim of the offer letter is to reduce areas of likely disagreement during the long form documentation process by creating certainty.

Where we know in advance that a client will be particularly focused on certain areas (e.g., whether consultants should be classed as employees; whether IP is owned by the target company; or whether key customers have contracted on reasonable terms etc.), we can highlight to the sellers the approach we will take, as efficiencies need to be planned by both parties.

This typically makes the on-boarding process smoother and less confrontational, maximising the chance of retaining key personnel post-completion.

We also aim to establish a sensible period of exclusivity to give our client the comfort that they can carry out DD without being used as a stalking-horse.

DD and disclosure

Key to a smooth DD process is having a well-organised data room. We encourage sellers to use specialist third party virtual data room (VDR) providers, rather than free document storage apps, as they are easier to organise, allow for permissioning of access, update everyone when new documents are added, automatically indexed and ultimately make the disclosure process easier and more certain.

By agreeing the client's approach to DD upfront, we minimise costs and focus on what is business-critical. This in turn reduces the likelihood of problems post-completion.

Long form documentation

Regular acquirers, often for good, reason have unique quirks in their documentation. By establishing a long-term relationship, we are able to point out these quirks to sellers in advance so there are no last-minute surprises which can delay timetables.

This approach also increases the likelihood of ending up with a document which is favourable to our client, but also fair to the other side. Reducing the number of surprises in a deal takes some of the threats out of the process and helps start an ongoing relationship.

Completion process / logistics

This is an area where cost over-runs often occur, unless the process is well-planned.

By using appropriate technology platforms where possible, we reduce the number of versions of documents circulating between the parties and have a low-friction system for dealing with signature pages and creating "bibles" upon completion.

Post-Merger Integration (PMI)

This area is almost always overlooked both by acquirers and their legal counsel.

Deal teams do not always like getting involved in PMI, as it is not as profitable and does not suit their skill-set.

We focus as much attention on PMI as we do on the acquisition process itself, without adding unnecessarily to the cost our clients pay.

This is essential if acquirers want to successfully integrate their acquisition target into their existing business and retain staff.

It is also best practice in minimising exposure to any historic liabilities that may be lurking within companies.

 

How do we price?

Our approach is geared towards certainty, of service, delivery and cost. Therefore we offer a fixed price with pre-agreed parameters and assumptions.

How does technology assist the process?

We use technology to make the deal work better for the client.

We use a variety of technologies including Workshare Transact, which starts each deal with a full list of documents and assigned responsibilities for all parties.

This platform controls the versions of all documents to remove considerable numbers of emails, while enabling clients and other permissioned advisers to obtain deal updates simply with a clear dashboard.

When it comes to completion, the platform makes execution easy by allowing you to click and drag signature pages to each document, creating an automatic bible of documents at the end.

Our use of technology enhances communication, improves service and brings the transaction team together; we find that this improves the deal structuring and results in improved commercial returns.

We also increasingly use teams based in locations outside London in order to provide a more competitive and high value service.

Fieldfisher's innovative approach to funding deals

We find that we can 'unlock value' in transactions because we can work with various technology providers to create new platforms designed to make the fundraising process for deals a lot easier.

We are a shareholder in SeedLegals, a multi-award winning platform which enables clients to prepare their own legal documentation for seed funding.

At Series A and later rounds, we are working to create a new platform which will help the process end-to-end and we look forward to being able to offer this to clients in the near future.

Ultimately, we can help you make your deals happen – through experience of providing practical commercial legal advice developed through the execution of hundreds of complex transactions, the use of the leading technologies, access to sources of funding and finally a pragmatic common sense approach to working with you – one that is founded upon partnership and value.

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