Counsel to Counsel - September 2008 - (Page 7) MANAGING TRANSACTIONS: Your Role When the Company’s for Sale ERIC G. STENMAN | BARNHART, INC. ROBERT G. COPELAND | DuANE MORRIS LLP Eric G. Stenman is president and general counsel at San Diego-based Barnhart, Inc., which was acquired by Atlanta-based Heery International in June. Eric can be reached at estenman@debinc.com. Partner Robert G. Copeland practices corporate law at Duane Morris LLP with an emphasis on corporate finance, securities, real estate and mergers and acquisitions. He is Peer Review Rated and can be reached at RCopeland@duanemorris.com. situation in-house counsel Shareholders or controlling shareholders have decided to sell the company. implementation steps • Review and update your company records. • Prepare management for the M&A process. • Establish an electronic data room. • Play a leading role in the sales agreement review and negotiations. • Consider establishing a disclosure deductible to keep the representations and warrantees process moving. As the company’s general counsel, you will play an integral role in the sale, even though you may not be familiar with the process from this vantage point. Further, the buyer will probably be monitoring your ability to oversee a smooth, amicable transaction on behalf of the seller, so you want to make a favorable impression. challenge approach adopted Begin with a “clean up,” “read up” and “tee up” strategy. An acquisition will change the way you view your company. “Clean up” company records in preparation of pending due diligence. What will the buyer want or need to know? Be sure all board meeting minutes are signed by the secretary; that your litigation files are up to date; and board and shareholder election records are organized and complete. You will need an electronic data room. Interview several vendors in advance and, if possible, conduct the data transfer in-house to save time and money. Since the M&A profession has what amounts to its own language, the process will probably expose you to a vocabulary you’re not familiar with. “Read up” on the M&A process and familiarize yourself with the terminology. The American Bar Association, for instance, offers M&A publications to bring you up to speed. “Tee up” by preparing upper management for the M&A process. Companies usually want to keep the deal quiet because it will upset employees and allow competitors to use it against them. How far down the management chain should the early discussions go? Will the transaction teams meet on site to go over the letter of intent, or at an off-site location that won’t draw attention? Attend all meetings. You are the bridge between the legal teams and upper management. You need to understand the mechanics of the deal to be able to brief upper management and the board. Lead the review of the first draft of the merger agreement. You have the ability and credibility to judge the give-away points, determine where to push back and keep the deal moving. If additional financial or other corporate data is needed during negotiations, you can obtain it faster than outside counsel. Focus heavily on the representations and warrantees exceptions. In today’s M&A environment, disclosures must accurately reflect the company’s state of affairs if a smooth, contentious-free transaction is to occur. Send a disclosure questionnaire to all your project managers. Consider establishing a disclosure “deductible.” If a disclosure is missed, the buyer is responsible for the cost up to several million dollars. Beyond that, the seller picks up the entire cost. That moves the deal along because the seller knows he won’t be “nickel and dimed” for relatively minor oversights, and the buyer is assured he is protected from any major nondisclosure issues. If the deal goes smoothly and there are few, if any, post-transaction surprises, both buyer and seller are happy. That, in turn, reflects positively on the general counsel. The general counsel has clearly demonstrated his or her loyalty and value to the company and, as a result, there may be little or no reason to consider a replacement. measuring success www.martindale.com/c2c SEptEmbEr 2008 best practices 07 http://www.martindale.com/c2c
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