To Merge or Not To Merge PANEL DISCUSSION MODERATOR Koos Pretorius, Director, ENS (Edward Nathan Sonnenbergs Inc.) PANELISTS Robert Falvey, Senior International Counsel, Minter Ellison Rudd Watts Jeff Risius, Managing Director, Stout Risius Ross Martin Simovart, Partner, LAWIN, Estonia
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To Merge or Not To Merge PANEL DISCUSSION
MODERATOR
Koos Pretorius, Director, ENS (Edward Nathan Sonnenbergs Inc.)
PANELISTS
Robert Falvey, Senior International Counsel, Minter Ellison Rudd Watts Jeff Risius, Managing Director, Stout Risius Ross Martin Simovart, Partner, LAWIN, Estonia
To Merge or not to Merge – Lessons Learned September 20, 2013
61
Table of Contents
1. Company Background
2. Merger Considerations
3. Target Identification
4. Implementation/Integration
5. Unexpected Issues
62
Company Background – Services
63
Strategic advisory
Mergers & acquisitions
Private market financing
Distressed transaction advisory
Fairness & solvency opinions
Financial reporting
Corporate tax planning
ESOP & ERISA advisory
Succession & shareholder planning
Tangible asset valuation
Pre-litigation consulting
Forensic investigations
Discovery services
Complex damage analysis
Economic assessments for settlement and case evaluation
Expert opinions and consultations
Investment Banking
Valuation & Financial Opinions
Dispute Advisory & Forensic Services
History
64 1991: Founded in Detroit
1997: Investment Banking Group Started
1998: Dispute Group Started
1999: Restructuring Group Started
2000: Cleveland Office; 50 Employees
2001: Chicago Office
2006: Restructuring Group Sold; 135 Employees
2007: New York Office Opened; Headquarters moved to Chicago
2002: 100 Employees
2004: Washington, DC Office; ESOP Advisory Additions
2011: Los Angeles Office
2012: Atlanta Office
2012: HFBE, Inc. Merger – Dallas and Houston Offices
2013: District of Columbia Office
2005: 165 Employees
2013: 10 Offices, 275 Employees
2013: Network of 14 international affiliate offices in 9 countries
Revenue: $75 million
Revenue: $1 million
65
Segments / Industries Segments
Accountants
Boards of Directors
Corporate Attorneys
Distressed Companies
ESOPs
Family Law Attorneys
Financial Sponsors & Institutional Investors
General Counsel
Intellectual Property Professionals
Litigators
Middle Market Private Companies
Private Client
Public Sector
Public & Large Private Companies
Industries
Aerospace & Defense
Alternative Energy
Automotive
Business Services
Consulting Services
Consumer Discretionary
Financial & Insurance Services
Food & Beverage
Energy & Utilities
Medical Equipment & Pharmaceuticals
Metals & Plastics
Telecommunications
Company Background – Geography
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Merger Considerations
I. Financial
A. Accretive or dilutive to our shareholders?
B. Impact on cash flow & distributions
C. Finance, pay cash, or combination thereof?
D. Asset or stock deal?
E. Earnouts / working capital needs
F. Financial model incorporating the above
i. Do the economics fit our long-term strategy?
II. Strategic
A. Geographic implications
B. Gaining expertise in new industries
C. Cultural fit
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Target Identification
I. Considerations
A. Size
i. Revenue
ii. Employees
B. Culture
i. Must mesh well with existing
C. Geography
i. Will the acquisition allow us to enter a new market?
ii. Strengthen presence in existing market?
D. Ownership structure / motivation to sell
i. Will the business remain viable if owners retire?
ii. Is the decision to sell unanimous?
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Implementation/Integration
I. Pre-Closing Activities
A. Complete due diligence
B. Finalize terms of purchase agreement
II. Post-Closing Integration
A. Train new employees on internal processes / systems
B. Standardize work product
C. IT integration
D. Contract assignment
E. Office space consistency
F. Integrate marketing materials
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Unexpected Issues
I. Pre-Closing Issues
A. Last minute changes to the purchase agreement
II. Post-Closing Issues
A. Work product – standardizing methodologies and formatting
B. Timing of deal announcement
i. Internally
ii. Publicly
C. Establishing a reporting hierarchy
D. Revenue recognition and billing practices
E. Language in engagement letters
F. Brand
i. What to do with the target’s?
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Secrets of a Successful Merger – Lessons Learned September 20, 2013
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Questions?
Martin Simovart Partner, Head of the Baltic Corporate and M&A practice group
WSG Annual Conference (Rio de Janeiro), 20.09.2013
To Merge or Not to Merge –
Lessons Learned
The Law:
Character wins over image
LAWIN understands the importance of
making a good first impression, but we
believe that a firm’s underlying character,
integrity and values are its greatest assets.
Corporate social responsibility and the
highest respect for legal ethics are at the
heart of our practice.
Local businesses and foreign investors most often now
view the Baltic region as a single market. Being highly
dynamic, the region represents investment opportunities
across various industries, however it also requires its
players to be highly flexible and proactive.
Whether your goal is to achieve or maintain leading
positions, or to explore investment opportunities, having
a law firm that both has the long-term expertise in each
country’s legal system and can provide top-notch
integrated legal assistance in the entire region is a
valuable asset for your business.
www.lawin.com 74
The Baltics
LAWIN - internationally highest ranked business law firm
in the Baltics - was launched in 2004 through integration
of Lepik & Luhaaar (Estonia), Klavins & Slaidins (Latvia)
and Lideika, Petrauskas, Valiunas ir partneriai
(Lithuania) – leading law firms in each jurisdiction since
their foundation in the beginning of the1990‘s.
LAWIN has earned its reputation by consistently being
at the heart of the largest and most complex commercial
and financial transactions in each jurisdiction and
regionally. LAWIN works with the largest foreign
investors, major local and international businesses, and
governments in the Baltics. We pride ourselves with pro
bono initiatives and active work to further the
development of the local legal environment.
www.lawin.com 75
Lawin in the Baltics
The Law: substance wins over form
.
With over 140 legal professionals working in five
practice groups, LAWIN is ideally positioned to provide
the highest calibre, specialized legal services both
domestically and on a pan-Baltic dimension.
Our specialty is law, and we know that it requires
precision and attention to details. However, our lawyers
look beyond the formal legal framework to create
solutions that are centred on achieving each client’s
business goals.
We provide consultations in all areas of business law.
When needed, we represent our clients in local and
international litigation, arbitration and administrative
hearings.
LAWIN has the capacity and internal flexibility to provide
clients with fast solutions, but it is the ability to
appreciate the full complexity of the situation facing a
client that allows us to also anticipate the possible
consequences of each course of action.
The firm‘s professionals at five practice groups enable
our cross-border teams of specialists to manage
complex projects ensuring effective and integrated
solutions.
www.lawin.com 76
What we do
The Law: the big picture wins over formality
Real Estate
Corporate
and M&A
Finance
& Tax
Industry &
Regulatory Dispute
Resolution
LAWIN
specialists
work in 5
practice
groups
While LAWIN has over 140 lawyers, it is our pan-Baltic practice group integration and teamwork that ensure
an efficient client service across the Baltics.
• Aircraft, Shipping & Other Asset Finance • Banking & Finance • Capital Markets • Finance Regulatory • Financial
•Global firms have made approaches to ME in Australia
•Local office of a global firm approached MERW
•Board of MELG aware of this exercise
•Key Driver: Economies
Objective was to increase PPU by 35% to 45%
•Combined firm from 45 and 30 partner firms in NZ
•Expected reduction in headcount post merger
Background
NZ Law Firm Merger Process
Existing partnerships are run-off and new firm formed (NewCo).
TIMETABLE:
“D1” – First “go/no go” “D2” – CEO visits “D3” – Brand Decision “D4” – Conditional Merger Agreement Executed “D5” – Final “go/no go” “D6” – Transitional plan for 90 days “D7” – Financial Integration
OUTCOMES TO BE AGREED:
• Structure of Partnership – merger agreement, constitution, partner rem and appraisal system, financial structure of NewCo, management/ governance structure
• Financial Business case – are assumptions correct
• Practice area / client compatibility / conflict management
• Legal staff fit
• Systems – knowhow. Getting the best out of both
• Premises fit
• Key merger team to meet weekly to discuss and update checklist.
OTHER DETAILS
• Business Development
• Risk Management
• Regulation
• General Insurance
• Files and storage
• Business Continuity Planning
• Environment
• Procurement and Misc
• Knowledge Management
• Information Technology
KEY SECTIONS (FRAMEWORK AND GOVERNANCE)
Partnership Details
• Merger Agreement
• Following assessment of incorporation: draft partnership deed/constitution
• Schedule of proposed partners units
• Policy statement on drawing / retention policies
• Appraisal system
• Schedule of partners capital requirements and details of loan arrangements (if any)
• Details of partner benefits e.g. insurance, sabbaticals, car parks etc, maternity leave
KEY SECTIONS (FRAMEWORK AND GOVERNANCE)
Partnership Details (cont’d)
• List of consultancies of former partners
• Name
• NewCo partner retirement policy (if any)
• Detailed Information / Recommendation Memorandum
• Due diligence room
• Details of any partner / ex-partner litigation
• Schedule of profit shares – last three years and forecast
KEY SECTIONS (FRAMEWORK AND GOVERNANCE)
Governance, Structure and Authorisations
• Decision on incorporation or otherwise
• Recommendation of initial Chair, Deputy Chair, CEO, Board, Division Leaders and Integration team including any independents
• List of all entities (both internal, e.g. service companies, and client facing) owned, controlled by, or otherwise to be associated with, the legal entities operating the business and any other relevant entities for NewCo
• For each of the above:
o any other relevant agreements in place between those legal entities
o any agreements relevant between the partners and the legal entities
• Full details of the governance structure in place for NewCo
• Details of external appointments held by partners and whether any fees, remuneration and other benefits derived from these are paid to the business. Note that these will need to be conflict checked and approved by the NewCo Board
KEY SECTIONS (FRAMEWORK AND GOVERNANCE)
Governance, Structure and Authorisations
• Details of shareholdings/significant shareholdings in client companies
• Do any lawyers act in any judicial or quasi-judicial capacity, eg arbitrator, adjudicator, mediator, tribunal chairman etc?
• How do NewCo partners supervise the work of their teams (and how is this evidenced)?
Decision:
• Other firm was in favour
• MERW declined to proceed
Reason:
• Cultural Differences
o While all other “boxes had been ticked”, ultimately a lack of respect for the technical ability of the other firm’s partners
o A lack of confidence that MERW could assimilate the other firm’s partners into our culture
Lessons Learned:
• Useful process of self-examination
• Re-organised and re-focused firm:
o In three years MERW achieved 40% growth in PPU
To Merge or Not to Merge – Lessons Learned
WSG Annual Conference (Rio de Janeiro)
20 September 2013
Koos Pretorius
table of contents
• ENS history
• brief facts on Africa
• merger rationale
• research / formal due diligence
• red lines / dealbreakers
• allocating resources
ENS history
ENS was established in 2006 as the result of a merger between two of
South Africa’s leading law firms, Edward Nathan (EN) and Sonnenberg
Hoffmann Galombik (SHG).
Both legacy firms were prominent in SA at the time of the merger, but EN
(established in 1905) had a stronger presence in the Johannesburg
market and SHG (established in 1936) were more dominant in the Cape
Town market.
ENS currently has approximately 550 practitioners, spread across 9
offices of which 6 are in South Africa namely Cape Town, Johannesburg,
Durban, Stellenbosch, Mitchells Plain and Alexandra.
ENS has established offices and a growing footprint throughout Africa
including network “friends” and fully integrated offices in Burundi,
Mauritius, Rwanda, South Africa and Uganda.
practitioner and ca executive
Property
Projects and Project Finance
Tax Employment Corporate Commercial
Corporate Commercial Litigation Tax ENS Rwanda
Mining Tax Oil and Gas
IP Employment Corporate Commercial ENS Africa
Projects and Project Finance Litigation
Telecommunications Media and Technology
ENS history (continued) – growth (practice
areas and geographically) since January 2012
* excludes internal promotions
ENS Uganda
Mine and Occupational Health and Safety
Insolvency ENS Burundi
brief facts on Africa
• SA population: 50,586,757 (Source: IFC 2013)
• SA global ranking for “Ease of Doing Business” in 2013 is 39 out of
185 countries ranked, which is a two placing improvement from 41 in
2012 (Source: World Bank 2013 ranking)
• SA GDP growth rate (Source: African Economic Outlook 2013)
•
brief facts on Africa (continued)
• Africa population is currently at 1.033 billion (Source: IFC 2013)
• Africa average GDP growth rate (Source: African Economic Outlook
2013):
• 54 countries in Africa, broadly divided in English, French and
Portuguese speaking jurisdictions (with similar legal influences)
2007 2008 2009 2010 2011 2012 2013
Africa 6.6% 5.4% 3.1% 5% 3.5% 6.6% 4.8%
merger rationale
• what are your reasons for merger?
– strategic or reactionary?
– decision to merge starts with a clear understanding of your firm’s
strategy for the next 3 to 5 years (regional, national and
international)
– access to new markets, increasing market share in traditional
market, driving deep expertise and excellence in new
practice/focus areas, increasing firm profitability, etc.
merger rationale
• why does counterparty want to merge?
– you need to be able to determine whether reasons for merger are
complimentary, or not (they don’t have to be the same)
– larger firms typically want to grow market share; smaller firms
often want access to superior infrastructure, systems,
management, brand and economies of scale, etc.
– be mindful of integration costs and the additional burden placed on
existing resources as a result of merger, particularly, in new and