Calfee Connections

Firm Chair and veteran Corporate and Finance Partner Doug Neary discusses some of the biggest and most typical problems seen in executing M&A deals as well as recent innovations in M&A transactions for companies and private equity firm clients.

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Video Transcript

Doug Neary:

My name is Doug Neary. I'm the Chairman of the law firm, Calfee, Halter & Griswold (aka Calfee).

How has M&A evolved in recent years?

Well, while that seems like a complicated question, I think it all boils down to a simple and universal fact of life. Basically, information continues to become more ubiquitous. So, sophistication and complexity ensue. More knowledge, more complexity, more sophistication. Buyers and sellers are evolving also to become more sophisticated. In fact, all of the deal participants are getting more sophisticated with outside firms becoming more capable and laser focusing on helping with each and every of the many elements of a transaction from start to finish. Things like market research, electronic data rooms, management or human resources analysis and diligence, CapEx forecasting, financial planning, environmental reviews, etc., etc. All of these things can occur with a much deeper level of technical specialization and tools nowadays. Along with all of that sophistication, lawyers need to continue to evolve in their sophistication levels as well.

I think I would cite two specific examples of these sophisticated and specialized services that have become very impactful in the last several years.

The first is the prevalence of representation and warranty insurance. This is now a fairly mature market, which helps buyers and sellers turn the pressure down on the negotiations between them by offloading the risk of a rep and warranty breach to a knowledgeable third party, the insurance company, of course, all for a price. While this is a great tool, it's also become a very sophisticated component of the M&A practice these days.

Similar, the quality of earnings analysis and review that financial firms do more often nowadays can help sellers really prepare to sell and get the best price, if they do it. If the buyers do it and they review the value and the predictability of the business they're buying, they're adding more rigor and transparency. They also may have more information, which may make them more dangerous, but it's a major development. Although I'm a cagey old veteran, or some might even say a dinosaur, I look forward to how artificial intelligence will continue this trend line of sophistication and knowledge over the next decade.

What are the biggest or most typical problems that you have seen in executing M&A transactions?

Well, that is a really good question with lots of answers, I think. I guess if I had to come up with a single answer, I'd say the biggest problem that I've seen is often just a lack of preparation from a seller. For example, I was recently involved in a complex high-profile transaction that had a very heavy real estate component, and the seller had not done any of the simple but time-consuming prep work to separate out the appropriate parcels for sale. So that ended up requiring all kinds of gymnastics between the buyer and seller, and frankly caused the transaction to take two or three times as long as anyone expected, and it was probably two or three times more expensive with outside professionals than it needed to be.

Having said that, I feel like my perspective, after doing hundreds of transactions over my almost 40 years now, is that you just have to keep an open mind. There's no such thing as a layup deal with no issues or wrinkles. Sure, some are easier than others, but every deal has problems or complications. Some of them, you can see right from the very start, staring you in the face, but other times things just pop up or get discovered along the way. For example, we found out things like important filings that weren't made decades ago that then cause a ripple effect that needs lots of workarounds to fix. Or we even had a client get stranded on a boat for several days right at closing time, so closing and loan payoffs had to get rearranged. And of course, you always have the risk of changes in business performance, etc., etc. In other words, there are innumerable issues that come along. I wouldn't cite one in particular. But if you have perseverance and creativity, hopefully with advanced planning and, by the way, good lawyers and outside advisors, you can overcome almost anything.

What makes Calfee so great at M&A transactions?

Well, I think I would cite three reasons why Calfee has become one of the preeminent middle market M&A firms around. First is our over 100-year history growing up primarily in Northeast Ohio, which, believe it or not, has an outsized number of corporate headquarters. At one point, it had the fourth most headquarters in the country, with many entrepreneurial, growth-oriented family owned businesses. That then attracted a large number of banking institutions, financial sponsors, investment banking firms, all of which then spawned a sophisticated professional services environment to support all of that. As a result, I feel like there's a Petri dish of transaction activity that's been going on in our backyard throughout my 40 years of involvement, and that's really what we grew up with at Calfee.

Secondly, our approach is always focused on the middle market, where you get to work directly with decision makers and build relationships. Our law firm at Calfee is very relationship-driven, so we become trusted advisors to our clients. Whether they are a buyer or a seller, we sit by their side and help them through their decision-making, like a partner, in a very transparent way. Equally important, our focus is always on getting a deal done, so we're not the kind of lawyers who wring their hands over issues. We've all seen them. Instead, we try to put issues or risks in context and derive creative solutions to get to the end result where everybody is celebrating on a closing.

I think the final element that makes us so great is just the depth of our expertise. We have a lot of strong, homegrown talent, and we're continually importing lateral experts from other big firms. We all grew up steeped in the M&A world, and our clients get seasoned, top-level partner access at all times, and I mean 24/7.

But it's not just deal lawyers. To accomplish an M&A transaction, you have to cover every area of your business, so you're only as good as the weakest link, top to bottom, like in any other respect. All of our support groups, like real estate, tax, employee benefits, environmental, etc., etc., they all know how to focus on the critical elements to get a transaction done, and they address their areas of expertise with that kind of a mindset. We have, specifically, a market-leading IP practice, so we have the expertise to help assess, address, and solve for any IP issues that come up.

I think that when you bring all of those things together, we are very proud of our ability to punch above our weight in the M&A world, and it's why, once we do a deal with a client, they tend to become a client for life, and it's also why middle-market PE firms who really recognize all of these elements in us are starting to choose Calfee as they've become even more focused on their overall value proposition.