Capturing Value: Successful M&A Integration

all right so uh matt it looks like people are logging in and you ready to start i'm all set mike all right terrific so i want to just welcome everybody to today's uh episode i guess you could say of our interactive dialogue series a couple of housekeeping thoughts just as we're starting up the program here uh first is that you have the materials they're sent as a link attached to the reminder email that was sent yesterday so if you have any information uh that you'd like on the slides themselves then you should have those already in your email we will be answering questions and so i commend to you the chat feature which is at the bottom of your screen i'm sure now in zoom land we're all familiar with where that is just send me a chat i'll be monitoring that and we'll do my best to either answer the questions directly or weave them into the presentation i'll also keep them anonymous to the best extent possible if that you have a confidential question then uh please just mark it as confidential and i'll make sure not to mention your name or any part of your name or company or the like and then finally i'll say this again at the end we'll be announcing the cle code about midway through and there is continuing education credit for lawyers uh that's uh attached to this program so you uh can get that as we go into the presentation so the interactive dialogue series really started with the idea of trying to kind of take the typical lawyer presentation which is 75 slides with lots of text to them and shove them into the internet for an hour as much as you can and basically read the slides into the to the computer and this is a different way of thinking what we've done is we've taken a singular topic and we've tried to discuss it in a more interactive way and tee up some of the major issues that one faces in the topic and then identify and interview an expert like matt today about that particular topic so this is a unique one it's the first time we've done a series of presentations today's is the third in a three-part series on mergers and acquisitions in the food industry however for those who are listening who are not in the food industry all of the information in each of the three programs is directly uh applicable to really any industry so it's not unique to food beverages agribusiness or cooperatives or the like the first presentation was on best practices for pre-sale preparation we hosted that with george scent who's the managing director in charge of the food and beverages practice at cascadia capital and george gave great information about best practices that companies can engage in before they put themselves on the market to really enhance the value that the company might uh you know seek to achieve in a merger acquisition or other kind of financing our second program was hosted with morgan helm morgan is an attorney in our minneapolis office is the deputy chair of the food and beverages practice at dorsey and she went through the deal timeline and process and ended with uh the admonition that don't forget you're buying this company and you'll have to run it as soon as the the closing happens she reported that she had one deal where she made that comment towards the very very end of the process and the buyer said well wait wait wait you mean i have to actually run the plant when it's all done and she said yes on monday it's yours and you need to run it well wait a minute like we need to delay everything because we're not ready for that yet so in any event today has just been great matt i'm so grateful that you're here because uh really it's a it's uh closing the circle if you think about what were the things that george said in the first series that you want ought to do to achieve the synergies and strategy that this combination of companies can provide and then morgan said okay let's make sure we understand what we're buying that you really have a good sense of it you have the information that you need to run this company and integrate them well and then today we're going to be talking about the important impact of how to integrate so uh matt with that is the kind of deal can you give a brief summary of your own background sure thing mike i mean and i think that's a great uh segue for what we're going to talk about today of someone kind of being caught off guard of of not being ready day one to integrate and have the business uh actually be put together um i'm assistant general counsel for m adventures at landa lakes inc i've been in been atlanta lakes for almost six years now um being essentially the lead lead m a attorney for all the deals we do here since i started um i was at dorsey for for the eight years prior to the to my time here at landa lakes where i learned to do these deals and i have a few other roles at land o'lakes but primarily on the m adventures and our finance department fantastic so as the person who's managing the merger and acquisition process for really one of the leading companies especially in the food and agribusiness industry but even more broadly than that for sure so glad you're here today and a little bit of a reminder for those who may not have listened to the earlier programs they are all on dorsey.com but a little bit of information about why do we pick this topic and then we'll dive into it into the process so this slide comes from the first presentation and it's fascinating honestly now to look at it again uh here at the end of june when our presentation series started back in march and the decision about it really was in the early part of the year and uh boy doubling down on what we predicted at the time first the markets are just extremely active uh it's really extraordinary there's a genuinely and generally held belief that three dollars in 2021 would be four dollars in 2022 that is a different way of saying that capital gains tax changes that are predicted to occur will have a significant impact on the net value that is uh achieved and uh that's a pretty universal belief that's driving decision making and i say that because whether that belief is true whether it's valid etc is really irrelevant it is believed and so that is definitely driving some of the decision making we're seeing uh for those uh especially on the executive level who had survived the great recession covet the dot-com etc uh and um you know and now kovid uh many executives are thinking well i'm just i'm just tapped out and it now's the time i might have thought maybe in five years but uh the you know it feels like i live five years just in 2021 uh in 2020 alone uh and uh and then also there's a lot of money still sloshing around through strategic investors private equity funds and a lot the uh there's activity and interest in acquiring and the food space in particular is one of those where you know they're not growing more agricultural land and the like and people still need to eat and then uh also we included this slide from uh the last presentation in which morgan helm uh described deal timeline process and examples and i i want to just emphasize you know maybe a little bit of an obvious uh observation on this slide but uh if you look at the at the uh you know moderately aggressive uh timeline where there'd be a you know early stage letter of intent you know already marketed the company and uh then you get to a closing about six months later if you're not already in that process then it might be too late for 2021. i say that excuse me recognizing that we also have an aggressive timeline at the top but one of the things that we're finding in the merger and acquisition process right now is that things are really bunched up and it's becoming more difficult to find key providers of certain things whether it's a lawyer an accountant tax opinions uh you know real estate transfers and such uh just getting people's attention because there's so much in the pipeline right now is becoming an interesting time so uh if you're not on it yet you better have that being objective by the end of next week so uh all right um so with that as kind of a lead up to uh this presentation um i i wanted to kind of start off with some definitions matt and uh you know we we talked about you know the idea of integration what does that mean from your perspective well for us mike i mean as a as a strategic inquirer acquirer and strategic uh partner in joint ventures uh integration for us is often about you know actually combining the target business with with either a division of our business or otherwise really closely aligning it with with our business as you know as opposed to something that's more of a on the private equity side where you're just kind of stepping into it often the deals that we do are not plug and play so you have to actually take every you know every system in the target business and make sure that it's going to going to work smoothly with with our existing business that we're plugging it into so it's you know all the the property and the people in the systems uh putting it together and and overall um you know looking from start to finish let's start looking at the supply chain of the target business all the way to its customers and how to how do we make sure that that on day one that business is working fairly seamlessly with our with our business and so you're kind of indicating that the integration process doesn't start on closing it starts at some point before that right it does i i most successfully i've seen it start you know even before we've signed a letter of intent or read you know soon after a letter of intent where you're actually talking about the nuts and bolts of putting the business together uh once you have that initial kind of commitment under a letter of intent so i think it's the earlier the integration starts and of course it will be a matter of degree it's high level uh integration from from the outset but certainly uh before the agreement is even signed mike we we often start our integration process so you reference uh the wide-ranging planning and problem solving what would be some examples of the kind of planning or the kind of problem solving that one might want to do in this leading up to a close um well we have uh you know like i said we're being a strategic uh acquirer we it's there's you know we're in the food agribusiness discussion here so it's a lot of a lot of the manufacturing um discussions of thinking about where ingredients where does the target company get its ingredients are those all coming from the same place um do we do we need are we planning to expand the manufacturing capacity are all the you know where the employees are all the employees sticking around are the are they on their benefits day one um distribution are we utilizing the same distribution chain uh customers need to see you know day one we want the customers it's often often a big key for the business of the customers um you know having the right seeing the right face on day one and knowing not being caught off guard and knowing knowing what's happening so so the more smoothly integration can happen day one and without um a lot of things will be happening in a transition post-close uh the typically more successful the business will be you know it's fascinating i'm reminded of the last presentation by morgan where we talked about how typically at least in the early stages the deal team is very small and that what you're really describing though is much much broader uh it's truly kind of getting in and uh rolling up your sleeves to understand the business uh just even the idea for example a supply chain you'd have to think do we already have contracts with those suppliers which one is preferred is that going to change our deal structure are those the kinds of things that you'd be looking at for in the you know especially as you get closer to close absolutely um you know the business is trying to sniff out all the synergies and then be able to capitalize on those energy so you're looking at efficiencies along those lines but you're also especially on the legal side you know we're trying to minimize surprises later in the process and so the more uh to the extent you're able to ask those questions and and look in all the nooks and crannies for surprises early on and um you know the fewer surprises you'll have later and you know in terms of the team you're right we keep a keep a small team early on for purposes of confidentiality um but we found here it's always good to get you know someone who's the top of the supply chain or a higher lieutenant and the supply chain team on our side uh to be to be looking at at supply chain issues at the target and thinking about those things earlier so that we can plan and even though we won't have all the information that we'll need from the target of course early stages diligence has just begun it's great to tee up what those questions are so that we can um start our planning so the uh team will evolve it sounds like and there's not like a branch where all of a sudden you add five people it's more like you know we're gonna pull this person and then the next and the next and so on is that how it works yeah typically you see it kind of go down the chain as the deal ages more and more people are involved and um you know you'd be surprised because you bring in as people lower in the chain come in they have their own specific aspect of of any particular process that they're thinking about and there will be you know you can't avoid all the surprises and um i mean it's a benefit that i have here you know as in-house counsel mike it's a benefit that i have where i have access to um people below you know just the cfo and the c-suite folks that we can i can talk to a vp and in trent you know in the supply chain or in in manufacturing or in quality control and and i'm in those in you know we're having integration team meetings and talking through those things early on and it's it's a good perspective for on the legal side of things that even if even if they're not making it into the purchase agreement um we know there are aspects of of the process that have to be addressed and sometimes they do make it into the purchase agreement you know and it struck me as well that you also have the benefit of some volume uh so you've seen four deals like this in the last two years and so you kind of know okay we're going to need to pull it in really early because that was an issue before i would think yeah absolutely it's um and you know iterative learning process of the types of things to even ask uh about about the i.t or about about any of the various processes um you know something 10 years ago that i would have never thought of is that you need the you might have certain and obviously it's specific to the to the business but there's um you know some software like for us we need the formulation software at a specific manufacturing facility to speak the same language as a procurement software maybe you know that hq that's like an enterprise software but not all the facilities that we don't have one unitary clean i.t system that goes across the country at all of our facilities and so a particular facility has particular formulation software or or quality software of some kind and it needs to talk to the to the other enterprise software that does the procurement or or otherwise um so it's things like that which you know that then again we're in deep into like this maybe there's a there's a carve out deal that we're doing where we're not taking one whole system of i.t that's going to be a plug-and-play on day one so that colors a lot of the way i think about where the risks are you you mentioned here uh strong assist from legal uh what what do you mean by strong assist uh strong assist i mean you know it's kind of if the business development team is sitting in chair one i think legal is often sitting in chair one a and um and given and not kind of just being in their legal not being in the legal role i think the legal is kind of playing oftentimes playing quarterback with the business development team and trying to see the whole field um and so it's i think strong i think that's what i'm trying to you know imply there with a strong assist is uh pretty heavy involvement from the legal team because again we're looking uh legal is start to finish in the process and then and you know for in-house teams we're around for far beyond the closing and so um our assistant is pretty critical now a question just mostly from your experience before going in house to lando lakes um uh where you know many of the people who are participating i noticed are from companies where they either don't have an inside legal department uh presumably don't have the inside business development uh group which uh usually uh if it's external provider you call that person a uh investment banker right and so how does that coordination work when you've got those three parties i guess you know won the business obviously the most important party uh and then the two outside providers right and so and on some deals you won't necessarily have the investment banker either and certainly at dorsey we i did plenty of transaction for it was an in-house business team that wasn't really a business development team that um was more just an operational team that had to kind of strap on their tool belt for one for a deal like this and that's absolutely where a ton of value can be added by the external council um throwing some people at it doing some of this helping the business think through some of this planning i mean the business has the information they just need you know some of the language and some of the organizational practice to be able to pull this off so you're uh it's a you know it's a much leaner team in that situation and we run a fairly lean we have a lean business development team here as well mike um but but when that's the case it's just a matter of um you know outside counsel to the extent you can and oftentimes you'll still only have one contact point of course at the at the client and then depending on you know giving them the tools to go out and compile the data from from inside the business um and and then going to the target as well and kind of doing the same thing so it's that's that's the lift you know uh one of the things i found surprisingly effective is the very old school conference call with literally a conference bridge line not even zoom and uh just to keep the cadence up and it's funny uh you know i have a actually a taxonomy of meetings believe it or not uh there are only so many reasons that you have a meeting and and you know convey information gather information make a decision or social and i found that a very short you know 30 minute once a week or twice a week phone call just get everybody focused on wait this is really happening it's very important it can be a good um kind of skeleton uh to keep the deal team focused is that your experience as well i agree i i mean i think that's one of the keys to getting the integration right is to is to getting having a cadence and having having frequent meetings um as we saw in the slide of the deal timeline these things can drag out and uh folks you know at the business have plenty of other stuff to do we all have plenty of other stuff to do and things can kind of languish a bit and then you're playing you can find yourself playing catch-up so i think that we you know depending on the stage of the deal a weekly call by weekly call internal calls and all sides calls and keeping those going are going to allow you to stay on top of everything and not not let you know let a particular traction uh transaction be pushed to the to the back burner um where issues don't get resolved and i find you know mike we were talking before about a lot of the keys especially on the legal side are you know let's let's not let the client get surprised by anything and like you said have to delay a transaction where the you know closing timelines are are absolutely key so if to avoid delays um those calls are important because if you have a weekly or bi-weekly call somebody can't wait on something for three weeks to get an answer and this is it's you know really a game of compiling the information and planning and and so what you have to do if you you know when you fall behind like that oftentimes i see good planning be sacrificed right and and then you get caught with with surprises you know uh we we had a summary on that slide as well about legal risks but many of those are anticipating the legal risks that can happen post-closing and either trying to contract around it or anticipate i think one that i find particularly important is understanding the nature of consents and transfer limitations assignment clauses and the like and one of those that sometimes surprises the business executives is that the standards of law actually change for intellectual property licenses so whereas general contracts are are in most jurisdictions deemed transferable unless the agreement restricts them with i.t licenses the uh the opposite is true uh it's uh it's deemed that you need to have a consent to the assignment and i thought it was just interesting that when i asked you know what are some of the bigger challenges uh perhaps no surprise your example was directly i.t related of looking at procurement software and will it talk to our procurement software and there you know etc can you um can you describe briefly the post uh transaction challenges that you find are the biggest roadblocks that might surprise somebody yeah and i think we have a good list going here we've talked about i.t a bit and that's that's a good one like and just in terms of assigning it and just the you know the number of different i.t vendors that that a typical business is going to have makes it challenging and um so on the legal side there's you know all the contractual obligations are can be a morass as well um and not to mention you know some of the business issues i was talking about of actually having all of the all of the i.t talk to each other on day one so that orders can be taken and you know um procurement can go along smoothly you know you mentioned when we were prepping that you were surprised that benefit plans can wag the dog what did you mean about that right um well it's i mean it's you know how the employees of course are it's a very sensitive part of the business keeping people happy and it's a stressful even if the employees are kind of excited about a change it's still a very stressful time in the life of an employee um and so getting and and also you know just the benefits field being if it's a complicated uh niche uh sector and you know it's rules that are not necessarily inc uh intuitive so it's it you know it's important and it's important for the employees that everything day one is is how they're they've been kind of sold you know told that it will be in terms of the transition and so it's but you know for timing i've seen deals be completely rerouted for timing because of employee concerns around not wanting to have to issue two w-2s or have folks deductible start over or things like that that you know as a practitioner you're not thinking about those as the high level issues but for you know for the number of people at the target company that they can affect they do end up it's probably you know from our from my state it's fair to call it wagging the dog but for um people who have to run this business business on day one it's it's the dog and so you know it's fascinating literally on friday i was talking to somebody about a topic related in a way where they had acquired some businesses and for whatever reason they the payroll systems uh just didn't sync up and that was a bit of an i.t issue but the result of it was that they had uh not paid people properly and it just you know not only the absence of the payment but also the fixed which didn't really fix it which then they had to do a triple fix and they just kind of through no fault of anybody were bumbling around and uh it caused all kinds of ripple effects it caused employee problems a few lawsuits were filed labor issues with labor unions challenges with management as far as the perceived competence of the company it's just just everything so yeah precisely that's a perfect example mike i mean it hits the i.t issue as well and it's but it affects the employees and and how important is it to get to you know for a lot of employees to have their have their paycheck hit the day it's supposed to hit um and it's something that if it you know given to attention that it shouldn't be it's not the most complicated issue um it's a tech it's a logistical issue so getting out ahead of it it's the type of thing you know i thought it was interesting that you mentioned cultured twice too on this slide uh can you describe how that could be a post-transaction challenge yeah and i think i mean it kind of goes to the example you just gave mike right of you know where the um the new new ownership is coming in and you want to have a good first impression with with employees and with any you know any management that's sticking around at the target um and in a pre-covered world it was always i thought it was great on deals where we were able to have have some in-person meetings with the employees on day one and and i've seen our company and other other clients go the extra mile and and have have new personnel in very you know across the country at different locations and having you know having a big big tele conference among the various sites to to kind of welcome everybody and just get off on the on the right foot um you know trying to understand the culture of a target before you buy it it's difficult as well but we i've seen effort be put in to do that in the diligent side which is not something you usually see in the legal due diligence checklist of trying to get to the bottom of the culture but it but it's important i think for integrating and for and you know on both sides of like i said showing showing kind of the best version of the acquirers culture as well so i had an interesting example of that many years ago where it was a business fairly small compared to the size that many of the deals you've worked on but uh the ceo of the acquiring company the buyer came in and had a meeting with all the key management team of the company that they were buying and uh had memorized the seating chart uh and pictures and called each person out by their first name it was you know a bit of a party trick honestly but an amazing one and uh it said you know matt this is why you're important and you know john and sally and all the various people who were there at the company and i thought what an interesting way to really approach because there's always a fear i would think uh and you know by by walking the culture talk it's critical absolutely um and then the next uh bullet point uh talks about affecting the assignments and consents uh why would that be a post-transaction challenge well i think that's this one also sits on both sides of the of the fence of um you know obtaining the third-party consents to all their you know assignments is a big um you know there's big diligence effort there and then also just executing on closing to get the consents and but it's also an integration issue just because you know like we talked about mike it's um these consents are from important suppliers and important customers and important it vendors um and so making sure that those those relationships are working the same way on day one that they need to and not having needless kinds of interruptions that that make everybody question the relationship um it's plenty important as well and you know and the pre oftentimes with those important customers or suppliers we're having businesses uh you know someone from the business there's a there's a relationship contact and maybe there's someone someone else representing the business uh to sit sit with some of those to talk with some of those parties either probably day one or uh t minus one something like that um to assure every assure all all interested parties that were look we're here to support support this new business and and take care of this relationship so i uh knowing that you obviously now work in house for orlando lakes and had i think worked on transactions for lando lakes as an outside lawyer as well right yep correct i i did a handful of land of lake transactions before coming over so i want to ask you the question i always ask somebody in your in your situation and that is you know knowing what you know now on the inside as essentially the client but also working on the legal team kind of what would you do differently as an outside lawyer for the many outside lawyers listening in or maybe what would you do the same but more of it that kind of thing yeah probably on the you know a lot of the same but more of it and i you know oddly mike when i um there was a big transaction for land of lakes that we signed my last day at landa lakes and then uh and then closed um did actually did two closing at two closings atlanta lakes when i once i came in house and so i had a cup that deal in particular where i was able to strat you know i was able to see both sides of it where we'd set that deal up entirely and signed it um as external and then and then closed it and did everything external it was a a special transaction in some ways that made it even you know that was like i said it had the two closings it had this very long period between closings um but certainly some lessons to be learned in terms of of what to do as for as outside counsel versus inside counsel and a lot of it would kind of you know to things we've talked about about trying to get investigate a little bit deeper into some of the business drivers that are going on um and the with with the uh with the particular transaction and understanding some more of the you know like the supply chain to customer network that i that i mentioned before um and that i know you know time is precious and you don't always want to bring an outside lawyer on every call either but the more kind of the more you can give the outside lawyers a peek into into some of the the business integration planning in particular um it's helpful i you know i would say like a on this one particular that deal and plenty of other deals where i've seen a similar thing if you can um understand some of the assumptions in the business model that they you know that the business is put together to justify you know buying or merging or doing this deal there are underlying assumptions in the model and oftentimes those are well can we hit the growth and add new customers and expand and that kind of thing but a lot of but sometimes as well they're about assumptions about certain costs and um and those those can often be affected in you know via legal legal structures um or or kind of quasi um structures that you're building into the deal to make sure that a business is following some of the assumptions for instance like a deal where there were there were pretty strict distribution cost expectations and but the our warehousing team was was planning to just sign up a warehouse lease because it would have been great and convenient to just have another warehouse space across the street and we kind of sniffed that out and and and said well if we if we sign up that warehouse lease we're going to we're going to blow up the model because we you know uh that extra warehouse cost was not was not planned into the model so things like that where i think just investigating the the drivers of the business the business model are very useful for for outside counsel and ultimately it's the roadmap for what questions to ask right exactly so that the people that you're asking are those who are on the integration team and we um listed out kind of some of the key uh various uh members of that team can you can you walk through um an example of of the kinds of business professionals that you want as you're uh as you're integrating yeah and we you know we talked mike about some sensitivity around the size of the team and so as much as possible keeping the team you know pretty small from the early stage but um here we go you know real estate jumps out to me as a long one as a long tail often if there's when there's property involved and even if it's leased property but especially owned property as we've all kind of see real estate delay deals if you're acquiring really old property that has has issues if and real estate is kind of a closely related to environmental health and safety which is also an important one um we had a actually we we did a deal where we had to decommission an airport that was right next to a dairy facility that we acquired which we thankfully kind of uncovered early enough because we knew we needed to do an expansion on this on a project to make it you know to support the deal assumptions but the expansion would have uh would have been a problem because airplanes would have been flying too close to it for the for the aviation rigs yeah how do you get commissioning i mean i didn't even know that was possible right so we i mean we ended up having to decommission this it was kind of this uh it was a small airport that uh it was named after a local hero so it was especially i think heartbreaking for folks the municipal team to to decommission it but it's um you know that's a realist it was a real estate ehms thing where it was uh a lot of important groups that kind of and i would i you know i know i knew the airport was there and i knew there were going to be issues but but without having some of the some of these experts involved accounting and finance is an obvious one in hr we kind of talked about the insurance risk management team i find that they're they're really useful to think about they're also oftentimes seeing the whole field of you know our risk managers as well and um capturing some synergies and um good folks to have in and then i've got you know some deal specific groups i mentioned quality control before which can be key you know manufacturing sometimes we'll be acquiring a business where we've got to find space in our existing manufacturing footprint or make some changes on the manufacturing side at a facility that we're buying um sales and marketing can often be important um in the sales and marketing uh department just by way of example uh you know a lot of times you're you're looking here at what are the choke points or bottlenecks and the process from you know getting supply and manufacturing whatever your value add is and then selling and in this example it was a customs control issue where uh by changing the name or or changing the potential supplier it had already been approved in various countries around the world and so it changed the potential deal structure pretty significantly and that would not have been noted if it weren't for the fact that uh somebody in that department was involved in the integration a team comparatively early on right i mean we've got a ton of talented creative people up and down uh the organization which i you know whichever all companies do and it's good to be able to leverage leverage that and they have expertise that that legal folks don't or they're seeing something that they're that someone up the chain from them is not seeing so i i had a couple of interesting questions from attendees uh and uh one of which i think is pertinent here uh shelly asked a question about uh how in in looking at aligning cultures post-closed uh have you had situations where the desire was to maintain the uh separate nature of the company and maintain its own uh culture not necessarily integrated into the buyer and how does that kind of change the process or the timing for the integration team or other issues yeah um that's a really insightful question mike um i have seen that i think it's um that's a real thing where if you're you're buying a company maybe that has its very own distinct brand and distinct culture and and more so than worrying about what is the what's that what's the buyer's new culture going to be it's more about um we do want to retain our culture because we you know we've been cultivating it for uh for years and it's important to us and if it's a and for even for the acquirer it could be very important for the um for the brand going forward of course that you're you know to customers it's important to you know customers feel more comfortable with the target brand and they don't want to see it subsume necessarily into some future you know larger brand um that's i think it's absolutely doable and and it's it's more just about keeping a bit of a hands-off approach obviously there are some aspects of the business where you need to be connected and still maintaining a bit of a standalone [Music] situation we have a company called vermont creamery that you know is a very distinct brand and they're a they're a b corp and they've got some other you know some very unique aspects and i think we've we've done a good job of allowing it to keep a lot of the things that made it made a distinction all right so i want to i want to switch uh topics a bit to legal issues that can arise uh after closing and uh i i want to um start with the last point here which is who owns this one uh i find that uh you you had an example of where you owned everything up to the day of closing uh as an outside lawyer then closed and then you owned it afterwards as well uh it was a great example of the old adage that when you point a finger three are pointing back at you so uh but in any event you know once the deal closes my experience at least has been that everybody who's involved is just exhausted you've been working 15 hour days for weeks or months and you know getting all this information and there's every detail out there etc um and then you know people take a break uh but i kind of call it the d-day plus one problem you know they they stormed the beaches uh and were successful but you know the next day they needed gasoline and toilet paper and food and everything you know that you need and and so who owns that park yeah and you're right mike you know especially on the outside council kind of things you're kind of you know taking taking a half day to to rest easy breathe take some do some breathing um and hopefully you've done you've already prepared that post-closing checklist for the client and and you know focus shift your focus to something else um in-house here similar oftentimes where i'm i'm having much less involvement with any particular target uh once the deal has closed but we've um kind of actually been trying to uh institute a little bit more involvement from the legal from especially you know i'm there's the business unit attorney and they're involved they kind of take it over so i'm kind of handing it over to the business unit attorney we're trying to stay a little bit more involved just because um you know there are oftentimes obligations or rights that are arising post-closing and some of these things we've mentioned as well before about what are what are some of the deal assumptions from day one that need to be carried through and who should be owning that and certainly kind of my m a team my little m a team of a few people um can have some ownership over that so we're um you know utilizing those post-closing checklists and tracking we kind of try to do this post-closing tracker uh with calendaring and such to to at least we're not to own the whole thing because now it's it's on the business and and even you know the bd team is is mostly done with it as well although like i said we've had we have plenty of situations with multiple closings for these things the deals don't go away you know i remember years ago learning a trick for any speech i went to i would bring two pads of paper one to take notes on about the topic and the other to take notes on about what i was going to do about it you know my own kind of personal checklist and i think one really good tip for those involved in a transaction on both sides of the you know buy or sell is to keep start early with your list of posts uh closing integration topics from the very get-go of what the value is that is uh makes this deal so compelling and write that down somewhere and and then as issues come up you can kind of delegate it to the paper and begin creating your checklist that should be evolved rather than created on the day of closing or cut for a bit afterwards right so so john asked an interesting question about transition services agreements uh he has questions particularly to the food and agriculture sector but you know i know that in some situations there is the the integration doesn't happen on day one and the closing doesn't happen in in a you know day one you actually describe the two closing process can you talk a little bit about what a two closing process is and then maybe in the context of that what a transition services agreement might be and how that could work sure um i mean on the transition services agreement side i think you know as i was mentioning as a in the strategic acquisition uh side where we're doing a lot of of carve outs of a business transition services are are fairly standard where we need um you know need support from the selling from the selling entity if you're carving out part of the business and we can't take an entire enterprise infrastructure that that the seller has um and we need to get those transitionary services like we see it oftentimes on the i.t side where we need where the the acquirer needs to um utilize some i.t the benefit of some it contract for for a while until the buyer can set up its own i.t um so it's it's kind of up you know in all the various kind of aspects of the deal um and it's important you know it's a good that's a good part of the integration to keep an eye on of um here are things we've identified in the diligence and in the integration that day one we're not going to be able to do um and we need to get those from the seller and that's that's where that happens and it's one of the the transition services agreement uh good point from john that's one of the important tools in the in the integration toolbelt it could give you a little bit of breathing room i guess to identify and tie up those loose ends that you describe right right and depending you know sometimes there's some friction and tension depending on the buyer and seller and the relationship of how long are we going to provide those transition services agreements how much are they going to cost um and if they're you know the cost the cost of the transition services agreement should be should be looked at in terms of the overall valuation of the deal and is that going to is that going to hamstring the project in the in year one or two because of because of the increased costs of the transition services that weren't taken into account early on right right so you have to price those in and negotiate that you know um you also list on legal milestones before we leave this slide two topics that i hear about a lot in the early stages and then people seem to be you know like i don't know forget about it but it you know the ideas of earn outs and equity roll over can you talk about what those are and how you approach them post-closing sure um the earn out just refers to a portion of the consideration being made contingent on achieving certain you know typically business targets um i've we've seen all manner of earn you know sometimes tied to revenue sometimes tied to retention of certain customers or tied to getting uh even like an fda um approval for a product which of course would be more on the healthcare side we've had earn outs tied to sale of you know specific seed volume and things like that so it's really about okay seller you're telling us the business is going to be worth x well we don't quite believe that but if it gets there then then we'll pay you more for this business um and those are that can be absolutely a mixed bag and i would i always try to look at scans at the earn out to determine do we you know do we really need to offer the earn out to get this deal and folks probably remember different m a markets when and earn outs were i think a lot more common and and it might just be that buyers and sellers have both kind of been burned enough that these you just try to try to do it in the pricing up front as opposed to the internet but they're still done of course um and can be some of the trickiest in that post-closing period just in terms of you know what is the business doing to meet the earn out are some of the par some of the seller parties still involved is man you know is management still involved anybody that's still helping to run the business that is looking you know that's incentivized by these iron outs you mean i still have to work here after i get all this money if you want to get more money mike so it's you know just fraud that there are conflicts and there you know can be easily be disputes about whether the milestone was reached and you know further to the subway hear about changing circumstances um it might be in the interest of the business to change something about the way it goes to market that could compromise the earn out and even though it might be better overall of course there are there are issues of even if the even if the parties um who would receive iron out are no longer involved there might be some covenants post-closing covenants about how to run the business to make sure to hit the earn outs and uh and so it's there's too many to me that you know too many contingencies and and too much can happen in the in the out years you know i'll give a final example on earn announce that uh we had a transaction recently where one of the key um people it was a traditional company buying a software company and they really needed some key people to stick around and so they had an earn out as part of that but one of the key people said you know i'm just done and walked away maybe a month later and they said well but you're leaving all this money on the table and the gentleman said yeah okay sounds good and uh he was he was done never working again so uh briefly uh we've got some issues on the international side which is um i i would say amplifies right matt all the things that we've talked about so far that you know administrative timing i mentioned earlier the customs issues which could be significant employee deal consequences and terminations abroad often very very different and much more difficult to affect layoffs carry significant cost penalties and such so it's just really important if you have an international deal that have that be a topic you know early and often i guess right yeah i think that's the takeaway on the international is that domestically you know you have a feel for how things go but you can't make any assumptions about a given jurisdiction um i have a good example about um hitting a a competition uh speed trap in in poland on a deal where we didn't you know neither this neither us nor the other party had any activity in poland but poland's got a speed trap competition law that's going to require you to file for competition uh approval there and so that slows things down and involves you know the typical huge data compilation that they need to see so it's always i think that's the key there mike is um just validate all the various aspects of the transaction i mean we've had deals where you have to where it's been very difficult to move intellectual property between affiliates um because they're going moving across jurisdictional lines and the subject jurisdiction has tried to keep ip in in its jurisdiction and so all kinds of complications that are that would be that are literally foreign to us here in the states and i would say getting local council is critical and sometimes very local you know in the city or county that you're you know at issue uh example in poland um you know someone in the eu is not necessarily going to be uh fluent in the polish law issues that are unique to that transaction and such uh then we had some slides on breaking up is hard to do more i think perhaps on issue spotting uh side um i as people are kind of reading through these topics you'd mention the dual close and uh and you know fairly extended it sounded like you know bifurcation uh what is that do a close and how might that you know complicate breaking up of a deal or integration of it i mean right a lot of different reasons for doing a dual close we've had to do dual closes because of non-competes either on our side or on the on the other side that you're they're waiting for those to expire before a certain business comes over um or we're you know we've done deals where we've held back some intellectual property assets until certain certain deal triggers occurred um and those can be for you know for a short period of time or they can be for years and as we said before the changing circumstances can really complicate that second closing because you've got a deal agreement that was written years before um and so i you know i think the the bottom line under this one is uh as we say here keep a version of the integration team in place try to you know you're not having bi-weekly calls for three years obviously but if you can you know have a good post-closing checklist integrate that business into you know the business uh checklist try to keep some kind of we've seen we'll have like a quasi um almost advisory board for the subject business as well that's kind of keeping all sides involved so some some version of don't lose track of uh of of where the pieces are on the board over the course of a long interim period and i would think that it increases the risk on the business side saying well wait a minute you know this isn't as good a deal as i thought it was gonna be and uh hey lawyer can you find a way uh you know that kind of a thing precisely all right so as we wrap up then uh i always ask for five takeaways meaning what are the five things that the people listening can do right now uh to help improve their company improve their business or in this example improve the uh effectiveness of integration and capturing of the value that they were hoping for in the transaction so you had a five plus a bonus uh takeaway which i i love so can you briefly describe these for the participants yeah absolutely i mean as we've as you've likely picked up here the checklists i think are the key tool and like as as underlying the business checklist as well you can get your business to to put put their planning in a checklist and keep both of those handy and updated um the second one here is is a good thing to keep in mind as we mentioned start integration as early as possible but the flip side of that is is you know look making sure to keep an eye on anti-competition or antitrust uh gun jumping issues watch the competitively sensitive information until it's appropriate to share and try to do as much as you can without without crossing that line and be aggressive with the timelines um third here you know take some time early on just to just as yourself as the council on the transaction these deals are very complex try to look look from supply chain to customer and think about all aspects of of the business that you're acquiring and the business you're latching it on to um and talk with folks in the business and try to try to gather information um internationally as we said here maybe can't you can't make assumptions about um that you're gonna be able to file merger papers in in hong kong that will be ready then that day you know we're we're used to that with delaware that's not the case all over the world of course um fifth over communicate um i think that's yeah that's the perfect word for for how i would go about it um especially in this in the zoom world that we're that we're still in it's hard to just run over and talk to somebody so to either you know set up set up the frequent calls um pick up phones um and then sixth you know yeah it can take a while it's a long process grind it out um pass this prologue as they say which is to say you know in the early stages of the deal we're setting the stage for what's going to happen post-closing um and all the planning that that is done we're going to have you know we're going to have deal fatigue etc but we're you know you're setting the stage for the business success you know and i would put in that that final one said said actual personal milestones you know six months in this is where we want to be a year in uh you know we're gonna have a birthday party it's gonna be the first birthday of of this transaction or whatever and and so having those kind of milestones is really critical so terrific well a couple of things as we close out first uh again a reminder if you'd like more cle credit you should complete the sign-in sheet which was included in yesterday's reminder email you send that in to michelle hubbell who then coordinates the cle certificates and the like for those interested in particularly cooperative law and merger and acquisition issues in co-ops we have a book called cooperative business law it's now available on amazon very cool uh and so i commend that to you and then finally matt was very gracious in saying that he would i'm not sure welcomes the right word but definitely be available to folks for questions following this presentation uh on some of the practical tips uh that uh come up in this very important area and so we will we've taped this program it'll be available uh online not for cle credit but otherwise available if you'd like to send it to other members of your team you're welcome to do that once it's up and we also have the other two presentations as well on this three-part series so with that uh matt thank you so much i've learned a ton uh and really appreciate your guidance uh and input my pleasure mike thank you all right terrific thanks everybody for attending