I am teaching M&A for the first time this semester as a stand-alone course. (I had taught some of the material in a course here called "Publicly Held Corporations" twice before.) I have enjoyed the luxury of including more topics, including a section on due diligence. I am using Bill Carney's book, which is suiting the course well, and chapter 7 covers due diligence. I do think this intro from the teacher's manual is interesting: "This chapter introduces the kinds of skills that are typically reserved for after graduation -- understanding what kinds of information a buyer wants before committing, and how contracting and verification are used in this process. Those who wish to teach this as a corporate and securities law course may wish to skip this chapter."
I think it's the most important chapter in the book exactly because it introduces the kinds of skills that are actually needed after graduation. I love the economics of M&A, and I love to explore the topics of synergy and whether the merger will increase share value. However, as an associate, no one ever asked me whether I thought a proposed deal would create value. I was sent to the data room to kick the tires. And no one really ever told me what I was looking for in that data room. Due diligence is like an issue-spotter exam except that few associates have the background to be able to see many of the issues. As a junior associate, I erred on the side of caution and basically wrote down everything I saw, then ran my list by someone more senior: "I saw a contract for janitorial services? Is this important? It didn't have a change of control clause." But, as a senior associate I often suspected junior associates just sort of thumbed through documents and said, "looks good." Even in opinion writing, I would have stacks of minute books sent to me with the marching orders to look through them and make sure they are in order. I would have to run to a more senior associate to ask "And if they aren't in order, I would know that because. . . .?"
So, I've never been in favor of turning law school into a vocational school, but I do feel an obligation to at least graduate corporate law attorneys a little more prepared than I was!
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1. Posted by Robert Schwartz on March 23, 2006 @ 21:26 | Permalink
"However, as an associate, no one ever asked me whether I thought a proposed deal would create value."
You were creating value -- for the law firm partners. Lawyers opinons of deal values are, by definition, unimportant. Heck, even as a senior partner my opinion on deals was unwelcome and unlistened to, even though they did blow up in the buyer's face in short order.
More importantly, there is quite a bit of case law on a connected issue, breach of representations and when the buyer can walk.
2. Posted by Jeff McFarland on March 27, 2006 @ 10:12 | Permalink
Excellent post Christine. I take this approach in my M&A class also. I used Oesterle's book last time, but I'm considering Carney for this fall.
I'd also echo Robert's comments: an M&A attorney who does too much evaluation of the business side of the deal (e.g., increasing shareholder value) is probably considered a nuisance, not a facilitator of the transaction.
The issue of transaction value is helpful only to the extent it informs the legal analysis and drafting. It is still useful information to impart to students, as it gives them a better understanding of client motivations. The better you understand your client, the better lawyer you will be for that client. So in classroom discussions of value, I think it is important for students to use their understanding of value in the proper way: not as a means to second guess (or even comment upon) the wisdom of the transaction from a business point-of-view, but in a way that furthers the relationship with the client and informs some of the legal decisionmaking.
3. Posted by ukexpat on March 28, 2006 @ 14:18 | Permalink
On the other hand, as an in-house M&A lawyer, I (and more importantly mu boss) view it as part of my role to question the value of a transaction, where the business reasoning is at fault. Often prospective deals gain their own momentum and become pet projects of the business team working on them. There is a place for the in-house lawyer to question alleged synergies and other "value drivers" or even often overlooked matters like the external reaction to a particular deal.
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