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OP I N ION BY CHERYL SATIN BANKING ON CORPORATE Smoothing the merger waters half of mergers have succeeded, cit- ing post-merger integration issues as a principal reason for failure. How can we, as lawyers, help alleviate some of these issues? A few suggestions: A Plan ahead Encourage use of the due diligence phase and pre-closing period as a time to assess, plan for, and address signifi- cant integration issues. By understand- ing the results of a thorough operational and cultural due diligence, you may negotiate better pricing and terms and design a better transaction structure, and allow your clients to create a detailed integration plan prior to close, poten- tially cutting integration time in half. An acquisition that initially appeared financially and strategically sound may fail due to the discovery, after closing, of the need to expend additional time or money to restructure and achieve intended synergies, or the inability to merge corporate cultures in a produc- tive manner. To the extent potential issues are recognized early on, the prob- ability of identifying viable solutions, mitigating the risks, and negotiating appropriate concessions and transitional measures, increases significantly. This is particuly important in today's environ- ment where businesses are more risk averse and have less margin for error with expectations of strong, consistent results. It is no coincidence that average data room sizes have increased by more than 30 per cent since the onset of the financial crisis, and that participants in competitive sale processes frequently request and receive detailed informa- tion at a level historially reserved for the successful bidder s the economy shows signs of recovery, we are seeing a gradual resur- gence of M&A activity. Historically, less than Understand the strategy Understand your client's strategic purpose(s) for the deal, and level of desired organizational integration. These goals will help you frame your collective negotiation strategy, as well as identify the critical risks to address during negotiations. Be mindful of the human element of negotiations Set the appropriate stage during nego- tiations. Senior management teams from each organization are generally heavily involved in the deal process. If negotia- tions are unduly adversarial and protract- ed, a tone of mistrust and skepticism may be set for the integration, and a false impression of the organizations' respective cultures may be formed. Be mindful of the impressions created on behalf of clients, and the feelings that may remain post- closing, affecting employee performance and behaviour. Also, as loyalties of the tar- get's senior management shift from their existing employer to their new employer over the course of a deal, advisers must strike an appropriate balance between respecting the views formed by these indi- viduals based on their knowledge of the business, and ensuring the decisions made are viable for the organization left behind. Communicate constantly Encourage frequent communication among the deal and integration teams concerning due diligence findings and integration planning. Establish a process for exchanging information at the out- set to help ensure all material expendi- tures and operational requirements for a successful integration are addressed, and all information learned during due diligence and negotiations is transferred to the team responsible for ensuring the business operates smoothly post-closing. Consider using project management tech- nology, such as the virtual data room ini- tially established for diligence purposes, to manage timelines and documentation. Sweat the small stuff Pay attention to the details and ensure you have a clear understanding of the key drivers necessary to implement an effec- tive integration plan that aligns with your client's goals. Businesses are frequently under intense pressure to "get the deal done." The deal team must ensure some- one has a thorough understanding of the details required for a smooth transition. For instance, in businesses with a signifi- cant IT component, in-depth knowledge of both parties' information systems, and the extent to which the target's systems are reliant on those of the seller, is critical for an orderly transfer and the anticipation and appropriate allocation of the time and expense involved to effect that transfer. As M&A lawyers, we are often inextri- cably linked in our clients' minds to the last deal, or series of deals, in which we acted. Accordingly, opinions of lawyers may easily be tainted by general senti- ments surrounding the deal. Ultimately, the pricing decisions, and implementa- tion of the transition and integration, is up to our clients, with accountability for achieving the expected deal value resting in their hands. However, we can help prepare them so they encounter as few surprises as possible post-closing, and are not hindered by our efforts or approach during the various phases of the deal, thereby increasing the likeli- hood of a successful transaction. At the same time, we gain a greater appre- ciation of our client's organization, and the newly combined business, thereby increasing our perceived value to the client for the future. Cheryl Satin (cheryl.satin@blakes.com) is a partner at Blake Cassels & Graydon LLP in Toronto.The opinions expressed in this article are those of the author alone. www.CANADIAN Lawyermag.com M AY 2011 15