By BENJAMIN MARK COLE
With many corporate mergers, there is a large cast of characters involved ranging from chief executives to shareholders to lawyers, investment bankers, publicists, proxy solicitation firms, accountants and other experts.
Though sometimes the roles overlap, or vary from sale to sale, in general most professionals have fairly set places within a typical merger.
The best professionals to start with are the investment bankers, who are often employed by large brokerage houses (though there are numerous independent investment bankers in Los Angeles).
The role of the investment banker is three-fold: Determine the value of a company to be sold, structure the deal, and arrange financing, if needed.
If financing is to be secured, the amount that is available greatly influences the ultimate value of a target company.
“You don’t want to end up with a deal, in terms of structure and price, that you can’t finance,” said John Mavredakis, managing director and investment banker with Houlihan Lokey Howard & Zukin, the Century City-based financial shop.
The structure of a deal such as whether it’s a stock swap or an all-cash offer is usually the investment banker’s domain (subject to client approval, of course).
Investment bankers are frequently deal instigators, and seek out buying and selling opportunities to present to corporations or investment funds. Or they can be prompted by a client company’s request to find acquisition targets or buyers.
Of course, in today’s world, every deal has to be vetted by the lawyers.
A lawyer’s role varies from deal to deal, ranging from trusted confidant who is consulted even before the process begins, to functionary who makes sure all the documentation is in place.
Most good M & A; lawyers are intensely involved in a deal, looking at tax consequences, and making sure particularly for public companies that the transaction adheres to Securities and Exchange Commission guidelines, corporate governance standards and company charters.
“A lawyer’s role varies, depending much on whether you had a prior relationship with the company. Sometimes we will be involved in negotiations of price, and sometimes not,” said John Hartigan, managing partner in the downtown Los Angeles offices of Morgan Lewis & Bockius.
In some cases, the lawyer will take a lead role in the actual haggling on price and structure. “Sometimes, you have to let the other side know that at a certain price, there is no deal,” is how Hartigan puts it.
But Hartigan said he more typically is looking for a way to make the deal work by finding areas of agreement or tax advantages that accrue to either side factors that enhance the deal for both parties.
Lawyers also look at a target company’s legal liabilities, and ways to reduce future risks to the buyer (if retained by buyer), or to shove those risks onto the buyer (if representing seller).
Sometimes lawyers will recommend hiring an evaluation firm basically a third party to value one or both of the companies. This is called getting a “fairness opinion” and is done to protect shareholders or other equity holders.
For example, in sales of middle-market companies, the founders may wish to retain some assets, and the value of those assets could later be disputed, unless a fairness opinion is rendered.
Outside experts also might be called to render opinions on the value of difficult-to-judge inventory, such as movie libraries, art collections, or unusual patents and technologies.
Accountants are retained to determine the value of a target company, which is a large part of the “due diligence” process. Due diligence is a required part of public-company buyouts, and usually a part of private buyouts.
For many middle-market companies, accountants also serve as de facto investment banker-type advisers. “Usually they call us in at the point they are looking at an acquisition,” said Bob Partridge, partner in the M & A; due diligence/advisory group of Ernst & Young’s Century City office.
On larger deals, accountants will work closely with investment bankers on establishing a firm’s value. Bankers usually have a better idea of what Wall Street will finance, and accountants try to make the sure the numbers used in determining a company’s value hew closely to accepted accounting principles.
Accountants also ferret through a target company’s books, looking to see that the earnings, assets and liabilities are as represented.
Many times a target company’s earnings might have been artificially boosted by inadequately reserving against potential future losses, or by including one-time events.
In public-company mergers, a “proxy solicitation” firm is usually retained.
The solicitation firm’s job is to obtain a list of shareholders in a target company which by law a publicly held company must provide to any legitimate buyout group and send letters or other correspondence to shareholders advising them of the buyout offer, and how to vote their shares.
In hostile buyouts, the solicitation firms usually handle the placement of tombstone ads in major financial publications, advising shareholders of the buyout offer.
Particularly in a hostile takeover, both the target and acquiring companies may retain public relations counsel. When a merger is imminent, a public relations firm will often try to give certain reporters for major newspapers first crack at the story, so the first news accounts of the merger may have a favorable spin on them.