Navigating rough waters: COVID-19 and M&A
experts throughout the JUST A YEAR AGO, world began discussing doomsday scenarios following the SARS -CoV-2 outbreak. This novel virus immediately shaped, and in some cases controlled, our corporate and personal lives at every level. Although, COVID -19, the disease caused by the novel ccoronavirus, continues to have an adverse impact on a variety of industries, from hospitality to entertainment, and the economies of almost every country in the world (with the impressive exception of China), it has also accelerated digital transformation and sparked a boom in certain industries, most notably communications, e-commerce and parcel delivery. These dramatic shifts in industries are pushing companies to adapt, and one of the most common ways to adapt is to invest or divest. Given historic low interest rates, record levels of cash generated by certain industries and easy access to money, M&A (mergers and acquisitions) activity is picking up pace.
The idea of an M&A transaction is always exciting and may often be a key performance indicator for a given C-suite. Depending on how it is handled, an M&A transaction could be a pleasant ride or a nightmare haunting you forever, especially in partnerships. Below are three key points to consider from an M&A lawyer’s perspective when investing in or divesting from a business.
► Observe, Ask, Listen: It is a common
understanding that a successful negotiation focuses on the counterpart’s interests. However, this is rarely the case as parties are eager to simply impose their interests on one another and close the deal with the best possible package for themselves. But every M&A deal is a relationship, and as in all relationships, it can only work if it goes both ways - i.e., if the parties’ interests are aligned and addressed mutually, and the overall outcome satisfies both parties. Most M&A disputes we encounter arise from extremely one-sided contracts; it’s almost a testament to the fact that an abusive and/or one-sided relationship is doomed to fail. Therefore, it is crucial to observe and listen to the counter-party carefully and patiently; raise the right questions and understand their interests; and internally analyze whether you can address their interests while protecting yours before proceeding with the deal.
► No shame in walking away: If at any point before signing (or even in some cases after signing), there is a strong sense that the transaction could create problems after the closing, just walk away. often after we intuit a potentially toxic M&A transaction and warn our client that the deal is being forced and will be prone to disputes, disputes arise after closing. A problematic deal actually shows itself from the beginning. However, due to success fees for advisors working on both sides, the key performance indicators (KPIs) of the internal deal teams, or merely human psychology, people just want to close at all costs. In some cases, it’s better to simply not close. An additional advantage is the fact that your willingness to walk away will give you more leverage in negotiations – a very simple but often disregarded Grand Bazaar rule.
► KISS (Keep It Simple and Short): This applies to the transaction documents. We lawyers love to draft complex and long agreements that few people would understand, and this might have been the trend until about ten years ago. But nowadays every businessperson wants to be able to read an agreement without the aid of a lawyer. Besides comprehensibility, simple and short drafting also drastically helps avoid or resolve potential disputes.
In the majority of the M&A transactions we have worked on where the above set of rules were followed, every actor in the transaction was content, even if the deal wasn’t concluded. These rules may sound archaic in today’s disruptive business world where you learn hundreds of new things on a daily basis, but the fact of the matter is that there are things that never change.