PMI – An Insider’s Guide – Part 1: What to do When You’re Asked to Assist with a Potential Acquisition – Due Diligence Phase

The Internet is jammed with articles reporting that most merger and [acquisition activity fails, and yet each year companies large and small continue to engage in the practice with the hopes that bringing onboard this particular piece of technology or that line of business will be the holy grail of their own success story.

One theory why mergers often fail is that process of acquiring a company: seeking the appropriate target, the due diligence process, and the merger negotiations are often led by a team of people who will have little to do with the target entity post-acquisition.   Once the purchase agreement is signed or closed, like a swat team, they move on to the next deal.  This team of corporate development executives are laser-focused on finding acquisition targets that meet a specific business need, such as a key piece of IP, a core group of personnel with specialized skills, a customer footprint or line of business in a coveted geography – in order to push forward the overall company goals and remain competitive in the industry.

Another factor in failed acquisitions is timing. The acquisition/merger process is often fast-moving, necessarily limited to a small number of senior executives, and highly focused on making a strong business case for why this particular target should be acquired.  The driver here is often on promised future revenue potential of the combined entity, with little to no focus on what happens after the acquisition is completed.

If we take the reports at face value that many if not most acquisition activity does fail, can post-merger integration (PMI) be one tool to turn around a failed buy?  This series of brief articles demonstrates that at any stage the legal group is engaged, there are steps that can be taken to make a successful integration.

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It’s the call no one in your legal group wants to get – too sensitive even for an email – and the voice at the other end delivers the news:  We’re looking to acquire a certain company and we need you to help us issue spot and prepare for the acquisition.  Now what?  Here are three points to bear in mind when asked to participate in a potential acquisition.

1. Business First. Keep your business hat on even as you try to identify potential legal issues – at this phase your teammates in the working group may be skeptical of legal’s involvement other than the M&A team and outside counsel because the business is still trying to determine whether or not to acquire this target entity or another.  Because of this, try to think like your business colleagues and frame your questions in terms and examples that will matter to them as they think about potential risks and issues that could emerge in the target entity.

2. Due Diligence Report. Obvious as it sounds, be sure to obtain a copy of the final due diligence report, likely generated by outside M&A counsel, to understand the full range of issues and considerations related to the target entity.  From this report you can start to piece together the initial critical pieces of information you will need to begin to strategize about what a legal support model may look like once the transaction is completed.  Focus on what geographies the target entity is based, what products or services it offers (and how they complement the acquirer’s existing product/service line), if any products or services are regulated or sold in a highly regulated country/region, if there are any existing legal staff to support this work (and if so, will they come over in the contemplated transaction), and how many client/vendor contracts you will need to transition.

3. Secrecy is Paramount.  Don’t do anything that might jeopardize the confidentiality of the contemplated transaction.  This means you can’t discuss what you know with anyone else at the company except those who are already involved and are on the designated project team.  Because of the sensitive nature of acquisition activity, you don’t want to be the one checking out future colleagues on LinkedIn and raising suspicions of those who can see who has been looking at their profiles.  Restrict communications to the designated team and don’t share information with anyone else.

Taking a few small steps like these three can help you get out in front of the potentially large work flow that may come your way if the acquisition of the target entity proceeds and you are asked to help with planning for integration and integration implementation.  Remember to think like a business operator and not get too lost in potential legal issues while leadership makes strategic determinations about whether or not to pursue a given target; study the due diligence report for as much basic information about the contemplated deal as possible; be mature and discreet in your communications to show your ability to treat ultra-sensitive, potentially market-moving information, confidential.  All of these skills will serve you well, especially if you are called in to assist with the actual implementation planning if the acquisition proceeds.