In the final instalment of the mergers and acquisitions series, Mark Beyer gets a legal perspective. BEHIND every M&A lawyer is a frustrated merchant banker. It’s an old cliche but it has an element of truth.
In the final instalment of the mergers and acquisitions series, Mark Beyer gets a legal perspective.
BEHIND every M&A lawyer is a frustrated merchant banker. It’s an old cliche but it has an element of truth.
Lawyers are constantly seeking to educate clients about the broader commercial value they can bring to M&A transactions.
The bane of their lives is when clients negotiate a deal and then belatedly ask the lawyer to simply complete the paperwork.
Instead, the lawyers want to be involved early in the process so they can guide and advise their clients.
Corrs Chambers Westgarth corporate lawyer Philip Lucas characterises the role of lawyers as providing risk assurance.
A properly structured due diligence process can make an important contribution.
“A lot of due diligence just isn’t focused,” Mr Lucas said.
“You need to focus the due diligence on the key risks and the key drivers of the business.”
Allens Arthur Robinson M&A partner Lynn Jensen agrees that the due diligence process needs to be carefully structured.
“At the outset you need to agree with the client on what is critical,” Ms Jensen said.
“You need to work out the key value drivers; whether it’s the physical assets of the business, its personnel, or licences they hold.”
Feinauer & Associates principal Dirk Feinauer often finds that key aspects of a transaction are not properly dealt with.
A prime example is the treatment of property leases.
“People go out and buy businesses and they spend a lot of money on the fit-out but they don’t always look into their right to operate from the premises,” Mr Feinauer told WA Business News.
“The lease might run out in six months so they have to renegotiate or find new premises.”
Another risk to watch out for is redevelopment clauses, which might force a business to relocate within a shopping centre while works are under way.
Mr Feinauer said the treatment of intellectual property was another area that needed to be managed carefully.
For instance, the right to use intellectual property, and even the right to use a trading name, could be attached to a specific legal entity.
He recalls one incident where a client was keen to sign a contract giving him long-term management rights at a tourist resort.
On close inspection, Mr Feinauer found that the proposed contract did not actually cover the management rights.
Ms Jensen counsels purchasers to be very careful about what they are buying.
If they are buying a company, they need to ensure the company owns all the business assets, including trademarks, brand names, and so on.
Alternatively, if they are buying the assets directly, they need to make sure who owns them.
At a tactical level, Ms Jensen said some clients spend too much time negotiating the heads of agreement.
They end up replicating a lot of the debate that occurs during the final contract negotiations.