We all know it's impossible to do M&A without lawyers. But the question is, how early should lawyers be involved in a transaction? Understanding what lawyers do is crucial to answering this question.
In this article, Felipe Heiderich, Senior Counsel at Moderna, discusses the importance of lawyers in M&A and their role throughout the deal lifecycle.
"The more information we have as lawyers and what we're trying to do from a strategic perspective, the more intuitive our analysis becomes." - Felipe Heiderich
The primary role of any M&A lawyer is to de-risk the entire transaction every step of the way, which means involving them from the very beginning. As the deal progresses and it gets closer to the finish line, the importance of their role increases.
If lawyers are brought in late and need to make significant adjustments in the initial agreement, the seller will end up frustrated, which breaks trust.
In-house counsel needs to understand the overall strategy because it sets the tone for the entire acquisition. They need to know the end goal because some goals can be accomplished through JVs or partnerships. Other strategic goals require full integration, which involves risks depending on the target company. Every deal has different risks, so lawyers need to be involved from the beginning, especially when selecting targets.
"If you focus on everything, then you're focusing on nothing because not everything can be equally important." - Felipe Heiderich
Assuming that lawyers know the strategy, they can heavily influence the transaction’s prioritization. They are the ones that will review the contracts and work with the functional leads to focus on the value drivers of the deal.
If a deal is heavily focused on revenue synergies, they can work with the sales team and prioritize customer contracts and retention. If the value driver is key employees, they can work with HR and look at employment contracts and retention.
"You can't know everything about a company, but that doesn't mean you shouldn't try" - Felipe Heiderich
For most people, diligence involves finding risks, but for lawyers, it's about mitigating them. The first step is to take everything they've learned through diligence, tie it to the value drivers, and mitigate them using representations and warranties.
The next step is to put operating covenants that dictate what the companies can and cannot do between signing and closing. And then lastly, the lawyers should help determine the closing conditions.
Lawyers are the ones that put everything in writing and finalize the entire transaction. Understanding the strategy allows them to play with legal terms and fight or give up certain things during negotiations while still pursuing the value drivers of the deal. They will now decide how much risk the company will take to acquire the target company.
Once the deal closes, it's not entirely over for lawyers. If there are post-closing conditions like holdouts or earnouts, they get brought back in. However, unless significant issues come up, they take a considerable step back at this point.
Felipe likes periodic updates from the deal, so he knows what worked and didn't work for future references.