I love it when falsehoods and myths are put to rest. In this case, however, it was especially sweet – a lawyer, standing in front of a room full of M&A professionals, blowing up one of the biggest falsehoods in M&A lore – the misinformation and bad practices surrounding the legal do’s and don’ts of pre-closing integration planning. I wanted to stand up and applaud, but this is even better.
"Start now, as you can't afford to wait ... there's far more you can work on pre-close than what you can't work on."
Now let me introduce you to that lawyer. Regine W. Corrado is a Chicago-based partner with Baker & McKenzie, where she serves as a key member of the Cross-border Corporate Transactions and Restructuring Practice. Baker & McKenzie has been an important corporate sponsor of the M&A Leadership Council, and it has been an honor and a privilege to get to know Regine and many other outstanding partners at Baker & McKenzie through our work together on the Council.
With Regine’s permission, I’d like to summarize what she so eloquently stated that day. Historically, many executives and many lawyers – both external counsel and in-house counsel – have taken an overly cautious approach and, as a result, have restricted most data from being exchanged or discussed during the transaction period after signing/announcement but before the date of legal transaction closing. Regine’s advice can be summarized as follows:
- Start now, as you can’t afford to wait.
- You must maximize pre-closing integration planning in order to maximize the value of the deal.
- There’s far more you can work on pre-close than what you can't work on.
Having said that, let me quickly point out these important principles and cautions:
Always, always, always work in close partnership at every step with highly qualified legal counsel. Work on a data exchange protocol early in the transaction so there are no unnecessary delays or missed opportunities.
Educate your executives, deal teams and integration teams on the biggest legal risks pertaining to pre-close integration planning, namely:
- Gun jumping – most merger control laws require parties to suspend the conclusion and implementation of a transaction prior to approval or the expiry of a waiting period. Integration steps during the suspension period should always fall short of a de facto implementation of the transaction. Before a transaction is closed, the parties should be very careful about what information they share with each other and how they do it.
- Exchanging competitively sensitive information prior to the closing of the deal in violation of antitrust laws
- And don’t forget a close #3 – illegal insider trading and tipping. Illegal insider trading refers generally to buying or selling a security (e.g., stock in the public buyer or target), in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include "tipping" such information and securities trading by the person "tipped."
Finally, make sure you incorporate the 3 W’s of pre-closing legal do's and don'ts into your M&A playbook and methods:
- Who: Limit information to people with a need to know. Only people who are directly involved in negotiations/due diligence and legitimately need to see competitively sensitive information should see it. While it may be appropriate for an acquiring party’s business development team member to see the other party’s marketing information to evaluate a possible transaction, it may not be appropriate for the information to be disclosed to a marketing or sales manager for the acquiring company.
Use independent third parties and clean teams when possible. Consider engaging third-party resources through external legal counsel to extend legal privilege. And establish a pre-closing communication protocol that includes having legal counsel vet all information requests, distribution and messaging in advance.
- When: Avoid exchange of competitively sensitive data while there is any risk the transaction may not close; discuss with counsel the timing of Hart-Scott-Rodino (HSR) and similar filings outside the US and potential second or similar requests by regulators; and maintain vigilance against "gun jumping" decisions or actions until after the close.
- What: As you will see in this downloadable resource, Pre-Closing Legal Do’s and Don’ts, there are substantial amounts of data essential for pre-closing integration planning that can almost always be exchanged and discussed to people with a need to know. Conversely, there are many items that are almost always prohibited and others that are very often restricted.
Thank you Regine, and Baker & McKenzie, for your partnership on the M&A Leadership Council and for your important advice on pre-closing integration planning.