M&A 3.1 – The Flatiron Way

THE FLATIRON DIFFERENCE

April 25, 2017 by Mark A. Haddad and Conrad E.J.Everhard

Founded by sophisticated lawyers who have elite law firm, Silicon Valley, private fund and in-house experience, Flatiron Law has developed a model of superior M&A execution which we call M&A 3.1.

The Flatiron M&A 3.1 model is based on four foundations:

  • Being very explicit about what matters to you as the client in both overall business strategy and the particular deal we’re working on, including pushing to clarify what are often ambiguous objectives and roles. We work with clients to identify their key goals before a deal, and then we sit down with clients (without charging for this time) after every deal to discuss lessons learned and possible improvements to process. Our goal is to have a transparent, predictable process with 5-10% value and efficiency improvements in each subsequent engagement.
  • Deep and wide-ranging understanding of all the changing legal (including tax, IP and employee benefits) issues that drive transaction value, and a strong ear to the ground on what is market on various issues. Under our partner-focused business model, you interact only with seasoned deal lawyers who have decades of experience acquired at elite global law firms and in house.
  • A detailed project plan that reflects your priorities and schedules, which we track to ensure completeness, schedule and budget. We use the optimum mix of people, process and technology to deliver efficiency and value, while keeping our senior lawyers engaged day-to-day with the client to give our clients the edge.  The back-office elements of an M&A project plan, such as disclosure schedules, due diligence, and data rooms, are often pacing items for an M&A process. Where appropriate, and requested by the client, Flatiron can second a team member (or deploy our Due Diligence 3.1 Parachute Team) in advance of the deal to expedite these elements and the overall sale process.
  • Breaking transactions down into their component parts and then establishing transparent workflows in the way that’s most economically rational to you. We leverage technology and best-in-breed cloud-based tools, like virtual deal rooms and precedent databases, use innovative legal process management approaches, and outsource time-intensive, lower value-added work to more efficient contract providers, all with a view to maximize efficiency and value for the client. 

We are working with some of the top thought leaders in legal innovation, including Paul Lippe of Legal OnRamp/Elevate Services (former general counsel of Synopsys), to help define our performance model. Every time we do a deal, we sit down with the client team to find ways to do the next deal better.

Being explicit about what matters to you. Law schools and law firms typically see lawyers at the center of all things, so lawyers often have a hard time distinguishing between what is important and unimportant to the client, or appreciating many of the nuances that impact business value. Flatiron’s M&A 2.0 model begins with the end in mind to clarify what matters to you. And having been clients ourselves, we know companies often proceed by creative ambiguity, and so sometimes the most valuable role lawyers can perform is to help clarify some of those ambiguities. Here is our approach:

    • Setting priorities. We start by asking where do we want to be as a result of this deal in 2 years, in 5 years? What could go wrong? Based on the answers, we help the client clarify clear priorities in deal-making:

      • Critical must haves in terms of the business deal, such as people, price, tangible and intangible assets, technology, market access and other keybusiness drivers;

      • Clear identification and prioritization of risks, such as IP ownership, keyemployee retention, contingent liabilities, market uncertainty, legal or regulatory risks and key dependencies;

      • Transparent understanding of trade-offs between schedule (getting deal done fast or slow, depending on client objectives), optimizing for terms and other critical business timing drivers, as well as maintaining congenial relationships;

      • Understanding the integration plan and the optimum hand-off from deal-making to integration.

  • Identifying roles. We work with you as the client to clearly identify roles and responsibilities. Large companies have integrated deal teams that combine Legal, Finance, HR, perhaps CorpDev, sales, engineering, procurement or other functions. Smaller companies or entrepreneurs may have dramatically less deal-making experience. When representing emerging growth companies, Flatiron may take on responsibilities shouldered by company lawyers and deal teams at large companies. PE firms buy and sell all the time, and are looking for price optimization and low friction.

  • Building capabilities among the client teams.For a selling entrepreneur, he or she may want and need to understand more about deal-making. For a large company or serial acquirer, the client will typically be looking for ways to refine/improve its processes and train its people to handle the next deal more effectively and efficiently.

  • Keeping our heads.Every deal runs into unexpected roadblocks, emotional peaks and troughs, distractions, and just plain problems. By being clear on objectives and roles, we help clients stay on track, getting deals done when they should get done and walking away when walking away is the right answer.

We’re true M&A domain experts. Collectively we have done hundreds of transactions with a total value of many billions. We have expertise across the spectrum of legal issues and in many industries, including technology, biotechnology, health care, cloud based services and renewable energy.

  • Understanding deal drivers. Having a counsel who understands the deal drivers and the legal framework for those drivers is key. For instance, for an acqui-hire, employee retention is fundamental; we can help ensure that the necessary employee packages and incentives are negotiated and finalized on time. On the other hand, if intellectual property is the primary value driver, we will deploy most of our negotiation capital to ensuring that the client acquires a clean chain of title to the IP assets and know-how.

  • Knowing market.Most negotiating points are not resolved by reference to abstract legal concepts, but to ͞market,’ what similarly situated parties in similar situations have agreed to on various key terms like break-up fees, claw-backs, indemnifications, reps and warranties, founder non-competition covenants and others. We keep track of market and we help clients decide which terms will have the most value to them.

  • We do only what we do best. At Flatiron, we focus on what we know, M&A, private equity, venture capital and the related practices. We don’t pretend to be all things to all people. We don’t practice outside of our comfort zone. When we encounter issues outside of our core expertise, we partner with subject matter experts in our network.

  • Mature negotiators who don’t get hung up on non-core issues. The reality is that most buyers and sellers have only a limited amount of negotiation capital to deploy, after which deal fatigue sets in and deals break apart. You have to know when to push andwhen to pull back. At Flatiron, we are experts at understanding and applying leverage:

    • We can negotiate either from a position of strength or when the cards are stacked against you.We can play good cop or bad cop if and when needed

    • We are excellent at building relationships with the other side; our clients and advocates include many former deal adversaries.

Detailed Project Plans and Optimized Resources. Most businesses run today on the basis of clearly defined processes and metrics and best practices. While many law firms like to cloak deal-making in mystery, we think of it as a project like any other, and so we like to set and track project plans.

  • Project Plans

    • Clear objectives, roles and priorities, as described above;

    • Detailed scheduling with resource planning and budgeting;

    • Clear understanding of dependencies and risks to the schedule and project completion;

    • Well-articulated statement of key client milestones, such as reporting periods, sales conference, IR or press events, and others.

      Here is a sample plan for due diligence including roles and responsibilities.

Maximizing deal efficiency: Smarter, faster deals. Before we get started on a project, we break the deal down into its component parts and then allocate workflows in the way that’s most economically rational to the client by leveraging technology and best business practices and by outsourcing time-intensive, lower value added work, like due diligence, to more efficient contract providers. Unlike the traditional law firms, whose business model is premised on maximizing inefficiency by driving as many billable hours as possible, our objective is to process each transaction as efficiently as possible, while maintaining the same or even higher levels of quality, by applying the following principles:

  • Optimum Mix of People and Best Business Practices. Well-defined processes enable clear delegation of work tasks to appropriately skilled team members (neither over- skilled nor under-skilled), optimally priced for each stage of work. Under the Flatiron model, ͞mission critical͟ tasks, like complex drafting and high level negotiations, are always handled by seasoned, senior deal lawyers. You will never be left to fend for yourself with a second year associate fresh out of law school at crucial times during the negotiations. On the other hand, we delegate more commoditized work, like bulk due diligence or the preparation of ancillary documents, to lower cost lawyers.

  • Truly flex staffing. We work on a project basis with several low cost lawyers trained at the big law firms, and also have relationships with leading legal process outsourcing companies, so that we can staff up or down on the fly, as efficiently as we choose, depending upon the size and complexity of the deal. With transparent processes and sophisticated tools, we can track and ensure the performance of all resources.

  • Leveraging Cloud-Based Technology, including Smart Deal Rooms.We use smart deal room technology to track all the information that will go into your due diligence analysis, so we can do diligence faster, cheaper, more accurately, more transparently and with a better hand-off to your integration team.Other cloud-based tools include capitalization management software and electronic closing binders. We are even assisting innovative venture-backed companies in developing cloud-based transaction management software, and integrating their offerings into our practice when ready.

  • As much visibility as you want. We know different companies like to work in different ways. For some, we provide day-to-day access to the ongoing work with progress status and appropriate escalations. For others, we just tell them when the deal is done. Some GCs or deal-makers want to be the sole point of contact; others want us to help herd cats across the organization. You tell us how you want to do it and that’s the way we will work the deal. The key is to provide early recognition of potential issues and fast resolution within the client so we can make good choices and keep things on track.

  • Competitive Pricing. Our rates are lower than large firms, but we’re confident our value is considerably higher. We love to do success-based pricing arrangements, where we capture a premium for exceeding business goals on a deal or coming in under budget. Just don’t get annoyed at us when it’s time to pay that premium!

Benefits to clients. We’re confident we can deliver superior outcomes and value to clients.

  • Transactions managed by seasoned deal lawyers with decades of experience

    • We do not use a big firm leverage model

    • Critical tasks are not delegated to junior, inexperienced associates

  • Good deals get done faster

  • Clients can escalate risks to decision makers, walk away from bad deals

  • Risks identified, issues escalated appropriately and risks priced

    • Industry specific understanding

    • Client trust and transparency

    • Link, annotations between reps & warranties and diligence

  • Focused due diligence effort, not random exploration. Process is quickly handed off to next phase of integration – we see deal-making and integration as connected processes

  • Comprehensive, transparent processes that are highly defensible for boards under the Business Judgment Rule.

    • Full understanding of key issues

    • Minimize meaningful contingent liabilities

    • Understand what contingent liabilities are not meaningful

    • For strategic, repeat buyers

      • Best choice for mid-size deals

      • Possible to develop deal playbook for standardized process

      • Seamless hand-off from deal to integration

      • Possible to maintain smart deal room for relevant contract and other integration

    • For P/E Firms

      • Detailed analysis of intangible assets allows more precise pricing

      • Smart deal rooms facilitates hand-off from evaluate/buy/run/sell

      • Lower costs for blown deals

    • For sellers and their investors

      • Senior team focused on you, your interests – can see over horizon

      • Reasonable fees if deal doesn’t happen

      • Secondment of Flatiron team member in advance of the deal to help organize due diligence and assist the founder team in navigating the sale process

Tracking Performance. For every client we set up a client-specific scoring matrix to both define objectives and assess performance. And part of that process is clear hand-offs from clients, because unfocused lawyer time is often a result of unclear directions from clients.