The Game-Changing Strategic M&A Transaction: How a Small to Midsize Company’s General Counsel Can Drive Success

6 Min Read By: Shanil R. Vitarana

For a small or midsize company CEO, undertaking a strategic M&A transaction is often a legacy-defining proposition. An acquisition of a direct competitor, another key industry player operating at a different level of the supply chain, or a promising high-growth entrant into the marketplace presents a truly unique opportunity to add unprecedented value to the organization.

For the GC of the acquiring company, this would seem like a tremendous opportunity. Being able to serve as the CEO’s right-hand strategic legal advisor on an acquisition can be a career game changer. It could mean that you help your CEO take the company into emerging global markets, onboard hundreds of new employees, build and distribute new industry-leading products, and generate additional revenue that will benefit the company’s investors and shareholders. But as GCs undoubtedly know, the hard part is getting the acquisition closed, and doing so in a manner that fits the company’s risk profile, minimizes liabilities, and satisfactorily meets any regulatory obligations. To get a transaction from exploratory conversations to a successful closing, a GC needs to assess how the legal team would support such a transaction and what type of external legal assistance would be required.

It starts with due diligence; every M&A transactional lawyer knows this. But for a small to midsize company GC, the first challenge before even tackling due diligence is figuring out the budget. How do you procure top-notch legal services to support this acquisition while obtaining value for money spent? Assuming the acquirer is not utilizing an investment bank or advisor, a relatively straightforward task such as coordinating review of a target company’s due diligence—often under significant time constraints—can be a daunting task. In-house legal teams of small to midsize companies rarely have personnel on staff with M&A expertise. Moreover, these teams are consistently stretched supporting a multitude of business areas and likely don’t have the resources to fully cover all the various phases of an acquisition.

Law firms are tremendous partners when it comes to advising on deal structures, negotiating sale and purchase agreements, asset purchase agreements, joint venture agreements, etc. They are similarly well-equipped to bring in specialists in the areas of tax, employment, executive compensation, benefits programs, litigation, real estate, and compliance investigations. However, their billable model can prove to be an obstacle for small to midsize companies to utilize their services for a comprehensive due diligence review. Legal technology vendors—particularly those that provide contract abstraction and summarization using AI technology—may be a significant help in many instances and can reduce hours spent manually reviewing applicable clauses in the target company’s commercial and operational contracts. While the software tools used for these abstractions do indeed drive efficiencies, teams of lawyers need to help manage these platforms and undertake certain administrative and operational tasks. Lawyers are also needed to utilize the insights to produce due diligence red flag memos and help pinpoint critical risks and liabilities. Law firms do often partner with legal technology vendors and offer these capabilities, but again, their billable model makes it challenging for many GCs to consider using them to assist in these areas.

Alternative legal service providers can help fill the void by operating at the intersection of the law firm and legal technology vendor. They can perform due diligence reviews and assist with post-closing planning and integration workstreams involving contract review, as well as provide end-to-end support with change of control notices and contract termination and assignment letters. ALSPs can provide a model utilizing quality legal support paired with AI technology to review thousands of contracts with significant cost savings. The buyer’s preferred law firm can take the diligence reports produced and drive negotiations of the deal documents to secure better terms for the buyer and shift the risk allocation appropriately.

The above outlines how law firms can work together seamlessly with ALSPs and legal technology vendors to add value, leveraging each of their strengths to avoid unexpected contract liabilities or other surprises. The glue that holds everyone together, however, is the in-house legal team. A critical component of a successful due diligence review and post-closing integration is having the right subject matter experts within one’s organization review the appropriate documentation and provide guidance as to risks. Departments such as finance, tax, marketing, operations, leasing, and compliance all have key roles to play within an M&A transaction, and these functions are vital to the success of the deal. Moreover, often small to midsize companies do not have formal corporate development or project management teams in place to coordinate deals because they do not have sufficient volumes of transactions to justify staffing them. In the event a buyer does not have such a team, or has limited resources in this area, the in-house legal team is called to step in and project manage diligence review, because very few other teams know the personnel working within these other corporate departments better than they do. The in-house team can help law firms and ALSPs get organized and coordinate among stakeholders. Small to midsize company GCs will find success if they can leverage resources within their in-house legal team to play a coordinator role should help be needed—and this institutional knowledge can be tapped into for any future deal that comes through the pipeline.

Beyond due diligence and negotiation of the deal, another area where the GC can help ensure the organization optimizes value associated with the acquisition is to ensure the legal teams are involved with post-closing planning and integration workstreams. This includes preparing, tracking, and executing termination and assignment notices with a host of suppliers, vendors, marketing agencies, distributors, and the like. Being proactive in this area allows the GC to save the company money right at the outset, which the CEO will undoubtedly appreciate. Reaching out to customers and key accounts and notifying them of new points of contact and the orderly assumption of those contractual relationships will surely make the organization’s sales and account teams happy that no customers are falling through the cracks following the acquisition. Lastly, harmonizing and integrating contract templates, workflows, and content of the acquired company’s contract lifecycle management (CLM) system will drive efficiencies across all business areas.

Pulling off a successful strategic acquisition is no small feat for any small to midsize company GC. Understanding when and how to leverage in-house legal resources and which services to engage from the ecosystem of external legal service providers will be instrumental to the GC getting the deal across the finish line while protecting the CEO’s reputation and the acquirer’s return on investment.

By: Shanil R. Vitarana

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