DealLawyers.com Blog

March 29, 2023

Time is the Deal Killer

As a fantasy and sci-fi nerd, this recent MoFo alert reminded me of a riddle from “The Hobbit”:

This thing all things devours:
Birds, beasts, trees, flowers;
Gnaws iron, bites steel;
Grinds hard stones to meal;
Slays king, ruins town,
And beats high mountain down.

The answer, of course, is time. And deals—stock-for-stock deals, especially—are yet another of its potential victims. As the alert notes, speed is the antidote to this deal risk, but rushing through diligence and negotiations presents its own risk. M&A practitioners must find the right balance. To that end, the alert presents a number of practical suggestions for signing on an accelerated basis, while running a thoughtful process. Here is an excerpt with a few of the suggestions:

– Do everything you possibly can before you engage with the other side. For a buyer, it should do all the analysis and due diligence it can before it approaches the target. As the target is publicly listed, it is required to file extensive amounts of information under securities laws. All of this information should be reviewed and understood by the buyer and its advisors. By completing a significant amount of the due diligence work before engaging, a buyer decreases the amount that needs to be done post-engagement and its now significant knowledge of the target will allow it to conduct more focused due diligence after engagement. This allows for a much quicker due diligence process while the parties negotiate the deal, without undermining the effectiveness of the buyer’s due diligence.

– If the circumstance presents itself, the buyer and target should consider first engaging shortly after quarterly earnings reports are released. This provides the parties with the benefit of the most recent information and a three-month period to reach a signing before the next earnings release.

– Consider avoiding a “testing the waters” or “small, slow concessions” approach to negotiations. These approaches will likely increase the timeline and run an increased risk of a leak.

– Meredith Ervine