M&A Lawyers vs. Bankers: What’s Changed and What Still Matters with Rob Kindler

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Here's to the deal.

I'm Kisam Patel and you're listening to M and A Science, where we talk.

With deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during M and A deals.

Foreign.

Welcome to the M and A Science Podcast. This podcast is part of a mission to rethink how M and A is done. The old school Settle that approach.

It's dead. Fire led.

M and A is all about strategy.

Alignment and efficiency, putting value creation at.

The center of every deal. Let's be real. It's not just about closing the deal, it's about making it successful. We uncover what truly works in M and A by learning directly from the best.

I'm your host, Kisam Patel, Founder and CEO at Deal Room and Chief Scientist.

At M and A Science. Joining me today is Rob Kindler, a.

Partner at Paul Weiss.

Rob's career spans both law and investment banking, having spent over 20 years as an M&A lawyer and 23 years an investment banker, including serving as global Head of M and A at Morgan Stanley. His unique experience gives him a deep perspective on how deals are sourced, structured and negotiated from both the legal and financial sides. Today we're going to explore the increasing role of legal teams and deal making and what makes M and A transactions succeed or fail.

Rob, how are you doing today?

Couldn't be better. Kisan, good to be here. Good to meet you.

Hey, thanks for taking time to do this live here in Manhattan. Is this Paul Weiss's headquarters?

This is Paul Weiss's headquarters in New York.

There we go. Could we kick things off a little bit about your background?

I was brought up in Queens, New York, so that's close by. I went to school in upstate New York, Colgate University. Actually. My interests back then were music. I was a classical musician. Never would have thought that I would end up doing what I'm doing. I to this day, by the way, have never taken an accounting or economics course. But I went to Colgate, majored in English, then I went to NYU Law School, then to Corvath, Swain and Moore for 21 years as an M and a lawyer, and then decided back in 2000 to try investment banking. The world is very different now than it was back in 2000 when I made the move to investment banking. But I moved to investment banking first at J.P. morgan. I was there for six years and ran the M and A group there and then moved to Morgan Stanley for 17 years where I ended up running the M and A group there. I've actually seen both sides, the legal side, the investment banking side, and also have lived through lots of different turmoils in the financial markets, including Black Monday in 1987 and a big downturn in 1991, the blow up of the tech bubble in 2000, the financial crisis. It's been an interesting 44 years.

Anything for the music discipline that carried over to help you make deals.

I actually think a lot of people who are musicians are pretty good at math. It just ends up at the same way of thinking. But I still am a musician. I actually take lessons from a member of the Philharmonic. So I'm still playing. I actually play the flute. And as you can imagine, there's most leaders in M and A are flute players and romantic poetry majors.

Awesome. That's the exact affirmation I needed to keep forcing my kids to take piano lessons. So I'm curious about that transition to go from law to investment banking and then back enact the law. What are the motivators of doing that?

Back in 2000, I had been a lawyer for 21 years and a deal lawyer. And I just felt I was age. I guess I was 46 at the time and I thought it would be good. Lots of reasons to make a change and Also, the role of lawyers then was quite different than it is now. Back then, the lawyers were basically the last people that heard about deals. The investment bankers would put the deals together, they figure out what made financial sense, and then they go to the lawyers and say, why don't you go pay for this deal? And I just didn't find that as interesting as I thought banking would be, which actually proved to be right. The practice was very different. Also, back then in 2000, most companies didn't have big business development teams. Now they do. But back 25 years ago, they really looked to investment bankers to help them source deals and analyze deals. They had very, very little in house. That's obviously changed in the last 25 years. So I went through lots of thinking about how it would be a different challenge, something different to do. Although of course, it had nothing to do with it. Bankers were making a lot more money than lawyers back then. So I remember talking to a friend of mine in the music business and explaining to him that I wanted to become a banker. Really, it wasn't because of the money. I really wanted to become a. A banker because of the challenge of it. And my friend said, we have a saying in the music business. It's not the money, it's the money. So I think that was actually a reasonable part of the motivation for a lot of people moving from law into banking. But really it was because the role of lawyers for me just wasn't as interesting as a role for bankers back then.

When you say that roles evolved back then, lawyers were last to know about it. And it sounds like it was pretty tactical in terms of putting together agreements. How's that changed today?

Things are dramatically different. I said, 25 years ago, in 2000, large corporations had very little by way of corporate development or business development, and they looked to investment bankers. There were house accounts that investment bankers had, and that really helped guide clients. Now there's, of course, a very valuable role for investment bankers, but it's very different because all these corporations have very large corporate development staffs, mostly with former investment bankers. So they know exactly what deals are out there and they know who to communicate with. They know what makes sense. Now bankers still have an important role. It's just a very different role than it was 25 years ago. On the other hand, it's now the lawyers who get the first call on deals. Because the first question that any CEO asks is, can I get this deal done? Can I get it done? From a regulatory perspective, I'm not going to bring the investment bankers in until I know that this actually will pass muster. And not just in the US People focus a lot on US regulatory. It's been very challenging in Europe for a very long time. And then of course there's issues. You do deals that have global implications. So now you find that clients go to the lawyers first and they say, okay, what are the regulatory issues here? What's the best way of structuring this? If stock is involved, can we issue stock of a foreign corporation in the U.S. it's really the, it's a labyrinth that people have to work their way through. Now bankers still of course have a very vital role. But what's not usually the banker's role is identifying opportunities or identifying which companies it makes sense to buy. In the 23 or four years as a banker, I really never heard a banker come up with an idea of a target company that the client hadn't already thought of. Now where did the bankers bring value? And there's a lot of value. Well, first of all, they may have market intelligence as to whether or not that company would be interested in doing a deal. They actually might have a lot more knowledge about that than a corporate development person inside of a company would have. Also the most critical thing you think about from a company side when you're doing a deal is what is this going to do to my stock? How is the market going to receive this? If you're issuing shares, that's obviously important. But even if you're not issuing shares, you really want to know. If I'm a CEO or a board member, I want to know what is this going to do to my stock? How is it going to trade? What is it going to do to my capital balance sheet, capital allocation ratings. Bankers are invaluable in that they just are coming in somewhat later time in the process.

So the legal role has really evolved where now there's things you want to address super early, like how regulators are going to look at this deal which now goes everywhere in the world, that they're very proactive about oversight on the M and A activity. And then there's the actual structure of the deal. What's the best way to do that? And just thinking about a lot of these risks early and it sounds like likewise too the banker's role has shifted to a degree where now you see corporations that have much bigger in house corporate development function that's doing a lot of the deal sourcing against their strategy. But then the lawyers are still coming in with this broader universe view of what the market looks like. Overall, they bring the relationships, but then also getting a sense of how's this transaction going to impact, what's the market perception going to be that would impact the price of the stock?

It's just a lot from a legal perspective now. And these corporations, of course, have very large legal staffs and they have very talented general counsel who they rely on. They basically have become consiglieres to the CEOs, which is great. You want to have someone inside who you can really count on. Having said that, to have a trusted outside advisor law firm that can really tell you what hurdles there are going to be to doing a deal is important. It really is important also in the banking side generally. And I wouldn't want any of my banking friends to take this the wrong way, but the corporations now use lots and lots of different bankers for large deals. They'll rotate between different bankers. It's very rare for a client to use a different law firm. I'm talking about for big deals. If Paul Weiss has a client that it does big deals, for sure that client's going to use other law firms for smaller deals or that kind of thing, but they're going to stick with that law firm. I wouldn't want to say that banking is commoditized because it's not commoditized, but there is just something of a different relationship. And there's also circumstances where it's important for a client to be using a bank that has the ability to finance a transaction. Sometimes it's very important. Often in that case, they may bring a boutique in and the boutiques are populated now with very talented bankers from former large institutions. But it is something of a different role. It is a different role. And when we look at a deal, obviously I have a. Having been a banker for almost a quarter of a century, I bring a unique aspect to it because I can. Obviously I'm not going to act as the banker, but I can bring a perspective of this deal. I don't think it's going to be well received because I think it's dilutive or it's outside of your core business or you're going to need to get shareholder approval on this. We need to structure this so you don't need shareholder approval. And that's become another hurdle. On deals, generally, you have a regulatory hurdle, but you also have a hurdle of getting shareholder approval. And if you are issuing more than this is in the U.S. obviously, if you're issuing more than 20% of your shares, you have to get shareholder approval for that. And that can be very challenging to do because activists and Arabs can get into the stock and they could vote against the deal having nothing to do with the merits of the deal. So they can be shareholders on the record date for the vote and not even be shareholders when the vote happens. They may be hedging from the other side. They may be betting against a deal happening. You need to think long and hard before you structure a deal that requires shareholder approval. In my mind is something that you really should try to avoid. Not because you're anti shareholder democracy, but because there's a lot of manipulation that can take place where people who genuinely aren't long term shareholders can dictate the outcome because of an ARB or edge strategy.

You mentioned activists and arbs. What are arbs?

It's just arbitrageurs who get into the stock short term. There's always been merger arbitrageurs who get in and bet on whether deals happen or don't happen. But that's also part of a strategy that's often used. So for example, Icahn has come in on announced deals and taken a position before the record date. So you announce a deal, but the record date for the meeting could be months away. And Carl Icahn, obviously a very smart investor, comes in and says, this deal doesn't make any sense and I'm going to vote against it. And that's deal activism. But he may not even own the shares by the time the deal gets voted on. Arbitrageurs, Arbitrageurs. They've been around forever, kids.

That's the word of the day. How have you seen this evolve? It feels like there's more activism in general. If you just look at your career over the past four decades, that it's just part of the reason why it sucks to be public nowadays.

It's actually been around for a long time. It is more prevalent now.

But now you have X and people can go and tweet all this.

You have a platform. But look, in the 80s I worked on the other side of activists. In the 80s I advised Cummins. It's now called Cummins. It was called Cummins Engine in the 80s they had activists come after them. Twice. I advised CBS when Turner acted as an activist. This is all in the 1980s and early 90s. So activists have been around. The difference is that now they're actual funds. There are these large funds that act as activists. On balance, they've had generally there's returns all over the place. But these activist funds have had pretty good returns. And remember that the people who are invested in these activist funds are the same people invested in all of these funds. It's the same pension plans, it's the endowments of colleges, state pension plans, the California retirement plan. Certainly I don't fault activism as an investment class. They it's an investment class and it's just a different kind of fund. But yeah, you do have to be very aware of what you're thinking of doing and how an activist will react to it in any deal that you do. I actually think that's a healthy thing. We're living in an era now where there are no new conglomerates being formed. I was brought up, I started in the business in 1979 and we had these eras of conglomerates being formed like GE or Gulf and Western or they used to call it NGOLF and Western and ITT Tyco. And that's not happening anymore. Virtually all of these conglomerates have been broken up. A lot of that had to do with activism. And there's still the case that corporations. There's an expression that corporations use which is we act as our own activist. And I find that corporations do that, which is a very healthy thing to do. They basically say if an activist was going to look at us, what are our vulnerabilities? And by the way, out of that sometimes comes, often comes strategies that make sense to do. We should spin off this business, we should sell this business. I'm of the view that activism overall has been good for corporate governance and for corporations. There's obvious exceptions to that and there's obviously very notable exceptions to that where people just get it wrong. But overall I think it's been healthy.

One of the things I write a lot about is just buyer led M and A. It's what I've seen M and A functions evolve to. When they do their first deal, it could be very seller led, banker brings deal to them. Then you get a very robust. Like any of the big tech companies, they're proactively sourcing deals against their strategy and then they proactively plan on integrating the deal as early as possible. That's why you end up with all these people in house that are just very proactive about how they get this deal to get fully integrated and receive the value of it. Some of the things that align to that makes me think of how we just talked about how the role of the legal advisors has changed, role of the bankers has changed. Is there anything else that you've seen or do you even see that kind of similar evolution in terms of Buyers being more proactive in the deal process itself.

Absolutely. Even relatively small companies under a billion dollar market cap, which is now a relatively small market cap company, they all have very active corporate development staff. And they're all former bank. Well, not all, but mostly they're former bankers. For sure. They are the ones out there sourcing deals. We're in a challenging time for M and A just because it's just a lot of uncertainty in the market. But M and A is critically important to companies. There's a couple of ways of getting growth in the world. One way is you just grow your business. Organic growth, that's tough to do, particularly for tech companies, where prices actually often come down. And even for industrial companies, it isn't pricing that can increase your growth. People are looking for earnings growth, revenue growth and that kind of thing. M and A is critically important for that. So, yeah, there may be something of a slowdown of M and A this year or to date this year. But. But ultimately M and A is critical to companies. They cannot get growth without it. Just simple as that.

And with that, the better you're aligned to capturing that growth against your strategy. It's ultimately what delivers the best results.

Absolutely. These very large companies, people do pay attention to the larger deals, but they're doing, I don't know about hundreds, but they're certainly doing scores of smaller deals all the time.

How do firms decide which deals to pursue or pass on and what role law firms play in selecting the best source and transaction?

I think with law firms, it's really not strategy focused, it's really regulatory focused. There were a lot of people who believed that coming into this new administration that it would be easier to do deals than the past in the immediately preceding administration. I actually agree with that to a certain point in that what happened in the last four years is that you had an administration that was literally rejecting every deal, including on entirely new theories. Actually not even new theories on theories of antitrust that had been debunked long ago, which is that vertical mergers are a problem, et cetera, et cetera. From that perspective. Sure. On the other hand, what was very helpful about the first Trump administration and about this Trump administration is I think they take a much more practical view. So I'll just give an example. In Sprint, T Mobile, that was a deal that couldn't get done under a Democratic administration that got done under the last Trump administration. That deal with T Mobile, merging with Sprint has proved to be incredibly beneficial to consumers because now you have at least three very high quality competitors in the wireless space. But that just couldn't happen beforehand. I actually remember back in the 90s when MCI tried to merge with Sprint. It was under a Democratic administration. And you may remember MCI and Sprint, they were the long distance companies. They were the inexpensive long distance companies and the government blocked it. I was a lawyer back then. We said to the government, what are you talking about? Long distance isn't even a thing anymore. We're in the era of mobile phones and of all these regional phone companies. It doesn't even exist anymore. And of course, we were right, but they still blocked the deal. So you can see in the first Trump administration and you can see now, they approved the CAP1 deal with Discover. And that made total sense. That made total sense to have another very successful credit card company in a world where you have Visa, MasterCard and American Express. It's not that it's going to be easier in that the Trump administration, the first time and this time looked closely at the antitrust aspects of deals, as they should, but they actually were at a era now where, you know, you're going to get a practical, common sense view as to whether things are good or bad for consumers, rather than what we've had over the last four years, which is a ivory tower view that everything was bad by definition. The other thing just to note is that people focus on the US Regulatory aspects, but the European. It's been very difficult to get deals approved in Europe for a very long time. The gating item in timing actually has been Europe rather than the U.S. so the idea that there was going to be a floodgate of new transactions, of new large transactions, I never really accepted just because we had the overlay of the European Union looking at deals. So I think we're going into an era where, yes, there'll be more deal activity once we have less market volatility. Yes, you'll be able to get deals done in the US that you couldn't have gotten done before. But regulatory from a client perspective is still the single most important issue.

The legal view is an aspect, it's big on the regulatory perspective of the likeliness of the deal actually getting done.

Yeah. At all. Weiss. We obviously have a large London office. You also have a large Brussels office. I was just in Brussels last week. And we've been fortunate enough to attract some of the leading lights in regulatory in the US in there. And that's critically important. That's what you have to have in order to really give the right advice to clients. Lawyers really don't Give strategic advice. I of course give advice on everything because I can't help myself.

How have you seen deal structures evolve in the past four decades? Depending on interest rate, you try to push for using more earnouts or bridging valuation gaps or having the owner hold financing. Is there anything different that you've seen over time that evolve or maybe fluctuate depending on how the economy's doing?

The great thing about being an M and A person is that you can argue that it's always a great time.

For M and A. I agree.

If the stock market is up, it's great. You can do stock deals. If the stock market's down, you can do cash. It's always great for M and A, except when it's not. I don't think structures fundamentally have changed. I really don't think that they've changed. It's still the case that if you have a very robust stock market with very high valuations, it's going to make sense to use stock for larger deals.

Even for private companies, I guess you can roll over equity. We've seen that become more and more common. A lot of private equity firms tend to do that.

No one should ever underestimate the ability of private equity firms to maneuver regardless of what the economy or the markets are. Because in challenging markets or challenging credit markets, these private equity firms are very skillful in buying up the debt of troubled companies or even buying up the debt of companies that they've taken private. Yeah, there are challenges right now in the market because we happen to be in a very volatile market sitting here right now. So it is difficult to transact. That will pass now. A lot of people think it's just challenging with all the political things going on. There's always been choppy markets. I've been through this thing since I was in London in 1987 with Black Monday. I've been through all of these markets. My own personal view is that the market's been very overvalued for a while. If you look at the S and P, I haven't looked at the numbers in the last week or so, but I think in the last 24 months the S&P is up 40%. So if it goes down by 20%, it's not Earth shattering. The markets are still very robust and there was going to be a correction. If you look at what the forward multiples were for companies before this latest, if you can call it a correction, market correction, they were very high. For whatever the reason that you have a volatile market, it's Very hard to do M and A in that. We are going to have something of a pause. We had a situation just last week where we put in a very high bid for a company, a public company, and they basically said, we really don't know how to value ourselves now. We really don't. There's too much flow going on. And look, the tariffs will settle out. I don't think there's anyone who doesn't believe that at some point it will all settle out. But no one knows exactly the timeframe for that. So it just becomes difficult to do deals now. I think it's going to be relatively fine, but relatively slow for the next three or four months.

Can you teach me how to negotiate? Well, you got four decades of experience. I want to shorten my learning curve here. This aspiration is the business I'm running now. We got about 48 employees. We're right at 10 million run rate. I want to do M and A. It's in my DNA, but I get excited about, but I want to evolve this business in the M and A platform. I just want to learn from you in terms of the terms. I feel like there's always a NAS bid spread on pretty much every deal. How do you structure it? Do you sit there and think about multiple scenarios? Is there a way to really get in the other person's head and figure out what it's going to take to get this deal done? You take them out, get them so many cocktails to sort of get them to teach me how to do this.

Thank you for pointing out that I've actually done this a lot over the last 44 years. I recently built a house and as you noted, I'm very well known to be one of the best negotiators in the business. And because of my skill, it only cost two and a half times what it was supposed to cost and took twice as long to build. So I'm not sure that I'm the best negotiator for myself, myself, but that's.

How it usually works.

I actually think, and there's lots written about the art of negotiation. Experience does matter, because if you know what the end of the movie should be, then you know how to approach things up front. That's really the most important aspect. I involve the negotiations all the time. My client says, well, I want to take, take this position. I say, that's fine, but you're not going to get it. But that's fine. We can do that and maybe we'll trade it for this. But of course Explaining why, being able to explain to a client why the other side, the rational reason why the other side of a transaction is not going to accept it. That's invaluable. People don't dig in on that. It is something of an art and takes time to learn. And it's the most enjoyable part of what I do. I really enjoyed my time at Morgan Stanley for lots of reasons. We had wonderful leadership under James Gorman, now wonderful leadership under Ted Pick. Part of my role there, I got there in 2006 with John Mack, was I did all the deals for Morgan Stanley. I actually advised Morgan Stanley when they took the investment from the Japanese, when they were. Who've been great partners, great partners, mufg and when they bought Smith Barney, when they bought E Trade, Eaton Vance, frankly, when they spun off Discover Financial, which now is merging with Capital One, it was an advantage to me that I had seen kind of everything and was able to guide, again, very sophisticated executives in how to negotiate that. That was the best part of my job because I was able to, for the first time, negotiate as a principal. I was negotiating for the firm. I was working for Morgan Stanley. I take every negotiation seriously. But when you're negotiating and you're a stockholder and you're an employee, it gives you an entirely different and very good perspective.

Any examples of just deals where you had to get really creative in negotiating to get them done?

Most deals involve some level of that. It's hard to go into specifics without going into specific deals around it.

But we just won't name anybody or name any dates. Isn't that the legal protection? No names, no dates.

No. No names, no dates. This was actually way back when. And it's in a book called Dethroning the King.

Anheuser Busch.

Anheuser Busch.

I read the book.

It's a very interesting book. And because I've been involved in these things, I was in Dethroning the King, Too Big to Fail the Engine that Could, which was all about Cummins Engine, the Man who Owns the News, which was written about the Wall Street Journal takeover. But in Dethroning the King, which was when Anheuser Busch was subject to a hostile bid by InBev. And the way that they may have been able to avoid that was by buying Modelo, because that would have made it too big for them to be owned by InBev. And so I was advising Modelo in the first meeting that we had, which was in Mexico City, I basically told the client, said, look, it's fine for you to go down this path of negotiating to be bought by Anheuser Busch as a way of fending off InBev. But it's never going to happen. Okay, I can tell you exactly what's going to happen when they get right to the end, they're going to use you as a stalking horse to get in Biff to raise their price. And right when you think that they're going to sign up, they're going to sign a deal with you. I'm just telling you that you are never going to get this deal. Let's try to get other things. Let's try to amend our relationship with them in certain ways. And we did. We actually got some favorable changes to it. And just as I had predicted, we were literally about to sign the agreements and we got the call, oh, we're going to give InBed one more chance to bid. And anyway, this is in the first 20 pages of dethroning the King, but it's basically knowing how the movie's going to end from the client's perspective. Yeah, they were somewhat disappointed that they didn't get the deal, but they were never under any illusions they would never. And of course, the postscript to that is they ultimately did get bought by Anheuser Busch now in Bev, at a much higher price because they had leverage in other things. So it ended up being fine all around. But anyway, that's one story.

I've picked this up on some of the deals I've been looking at. Right now, doing a recapitalization is a big one. And right now I'm building the relationship with the private equity firms, getting a sense of who do I actually want to work with. But at some point, it's going to come the wire of let's negotiate some terms. At that point, that would probably be good to work with somebody that's been there, done that, and that could be a banker. The other one I found interesting too is I've seen a trend with strategics that are doing these kind of minority recaps, but obviously they want to create a call so that they can acquire the business later. So they sort of get favorable multiplier terms upfront. But again, I've seen that a good, experienced banker can negotiate that deal. So there are certain stipulations. You got to produce so much revenue to exercise that call, things of that sort. So there's some ways out of it if things didn't produce the way they wanted to.

You get to a point and you've obviously grown your business and you have A lot of people working for you. But you do get to the point where you may decide you want to have a partner. But reality is there's certain things that you don't want to do if you can avoid it. One thing you don't want to do is go public. It's hard being a public company. It's really hard. It's particularly hard being a micro cap and that's literally anything under a billion dollars. Now I know it's hard to believe, but it's anything under a billion dollars is a micro cap company. So it's hard being a public company. You don't want to sign up with a private equity firm unless you need capital. If you need capital, then they're the greatest source out there. Private equity firms have been incredibly important to our overall system. So if you didn't need the capital, you obviously wouldn't connect with a private equity firm. But if you need the capital, they're great. They really are great. My son works for private equity firm. We do the work for private equity firms. Actually, lawyers would be more valuable to you than bankers because we've seen every variation of deals where PE firms come in and take a stake. And the issues have to do with control, they have to do with exit, they have to do with all kinds of things. But can a private equity firm look, their only interest is making money for you, it's obviously for them, that's their only interest. You find the right firm, that's a winner.

I agree. He had a straight point on just you got to see what the end of the picture looks like and that way you get a sense of what's that path to get there.

And by the way, there are some people who bring in private equity firms just to do a recap and pull money out. And I'm not a. It can work, but I'm not a big fan of that. You really want a PE firm that wants to give you capital to make acquisitions.

As I say, I'd put majority of it primary to go do some deals. In fact, that's what I'm trying to do is a deal lined up and have you seen that where the goal here would be to line up a deal and to do a recap based on a post merger or forma as opposed to just raising money beforehand.

Of course, nothing wrong with taking some money off the table. You've been at this a long time. But a PE firm is also. Their motivation is to grow. Their motivation is to go out and do M and A.

What factors determine whether An M and A deal actually delivers value. And how can companies avoid becoming other fuel failure statistic?

That is actually fairly complicated. And I'll tell you from different perspectives. At base, as a general proposition, this is as a general proposition, it all comes down to intrinsic value. So as a general proposition, you have to believe that present value of future cash flows, including if you're strategic, whatever synergies you can get, exceed what you're paying. Otherwise there's zero value. At the end of the day, intrinsic value is the most important measure. It really is the most important measure. It's not really as simple as that though, because there are companies that do deals and from the outside it looks like that deal was a failure. But what you couldn't judge is what would have happened had they not done the deal. Maybe they did the deal to stop a competitor from buying that company. Maybe they did a deal because they knew that their core business was extraordinarily weak. So it's almost impossible to measure where would my stock have been trading if I had never done this deal versus where it's trading having done the deal. There are reasons beyond intrinsic value that people do deals. It's pretty hard to measure. But at the end of the day, if you are a, what you call it, buyer led M and A, at the end of the day it's intrinsic value. It really is. At the end of the day, if you're out there doing serial acquisitions, you need to do the math around with the synergies. I can get. And by the way, even though the market doesn't give credit to so called revenue synergies, the market will give you credit for cost synergies, but not revenue synergies. If you really believe buying this company is going to increase the revenue. I remember when EMC bought Data Domain. I represented EMC in buying Data Domain. They paid a tremendous price based upon the historical model. But EMC had great leadership with Tucci, was brilliant and realized that with his sales force he knew he could sell that product and it was a huge success. Whereas if you had done the intrinsic value calculation without revenue synergies, you wouldn't have gotten there. Every deal is different. What is generally good is that people now are looking to do deals within their core business. So this is not one of these things where you have another Sara Lee, which owns Hanes Stockings and Oscar Mayer. Baloney. People are looking to be within their particular business. Yeah, there's some vertical aspects to it, but in their particular business and doing what we call. When I was at Morgan Stanley, we called it value math. It was quite good. It was a quite good predictor of whether you succeeded. Got to be strategic, has to be strategic.

What are surprises you've seen in deals? I know you worked on a lot of high profile deals, but I'm just always curious about the things that you can't predict or expect.

Well, I'll tell you a deal that wasn't a surprise, which is the last deal I did as a lawyer was the merger of AOL Time Warner, which was in 1999. Obviously I'm a lawyer again, so I've done deals since I've become a lawyer again. But the last deal I did when I was a lawyer before was AOL Time Warner. And I have to say that the lawyers on the deal, my partners at Cravath, we're all, we don't understand this. Why are you merging with aol? If you want to get into online, just go buy Yahoo. It's 1/20 of the price. We did the deal. I remember being in the boardroom and everyone was very excited about it because what happened, this is a matter of rationality. What happened was that AOL had actually come down in price by 50% before they did the deal. And Time Warner was getting a very big premium. So even if it went down by 50% more, it would still be an at market deal. So you understood the economics of. Well, it already come down. But for those of us, maybe it's my view about. I want to comment on crypto generally, but a lot of people's views about crypto is it just was not understandable. It just wasn't understandable. Everyone knew that online was free in most countries. So you're going to charge a subscription for it the way AOL did. So that took years to unravel. But I have to say that all my partners at Cravath and I, we weren't surprised by it. And I was a lawyer on that deal, not the banker. I really don't think anyone saw that it would be that much of a drop.

I know overshot intrinsic value on that one.

Just a little bit.

A little bit. Some of these things I don't. I had a friend that worked on the Yahoo sale. Not them. I think they sold again, like really cheap.

But the Verizon bought it.

Verizon and they sell it and then Verizon sold it. Yeah. So when Verizon bought it, he worked on that deal. I remember when it came to the wire for pricing because they had the breach during the deal and then they had to go back and renegotiate. There was persistence that it's not going to sell for less than what AOL sold for. If you look at the price, it's one tenth of a decimal place over what AOL sold for. So I'm wondering how much of this is really ego versus some real factored math. Again, it goes back to the intrinsic value. There's no highly calculated formula around it.

I remember when all of the Yellow Pages were being sold directories. And it wasn't that every single person involved in that deal didn't think that directories eventually would be displaced. It was just a question of how long it would take for the melting ice cube to fully melt. I'm not really familiar with how Yahoo is doing or not doing. So I haven't really followed that. I do remember when Lycos, because I advised Lycos, probably don't even remember Lycos, but that sold for $10 billion and I was their banker for that. And then I think it ultimately resold for $110 million. There you go. But it wasn't that people felt in the Yellow Pages business were like blind to the fact that Yellow Pages eventually wouldn't be obsolete. It was just how long could the legacy business go and how long could you run it out? So there was a degree of value math. Everyone was just wrong on how long it was.

So there's a lot of that. You got this intrinsic value, but then the long term view, because all these other factors are going to impact it and change things, which is a whole other discussion. What else is the best thing I can learn from you about doing deals?

Well, don't ever hire me to negotiate you building a house, that's one thing. I can negotiate the term.

When we do the recap, we can negotiate some of those terms. But I like to experience someone that's seen it from the end state. I'm just wondering if there's anything to shorten like making mistakes on deals. Just things that you've seen that get overlooked.

The most important thing when you're doing a deal is to be commercial. And I find that the lawyers and bankers who are most commercial and recognize what's really important and what's not important, they do the best for their client. My protege, Scott Barche, who's here at Paul Weiss and used to work with me, used to work for me at Prevath. He is just such a commercial lawyer. He cuts through it right away. He'll say to the client, this is what should matter to you. And this is what shouldn't. And the problem with less effective lawyers is that they focus on things that just don't matter, and they die on hills that just don't matter. And it ends up that negotiations become far too torturous. And I'm not belittling things, though. Maybe different things matter to different people. But you got to keep an eye on what's the most important thing in the deal. I've always prided myself on doing that. And Paul Weiss is filled with lawyers just like Scott. That's their focus.

How do I make sure I got that right? Representation I'm working with. There are certain things that you want. I feel like this almost like any professional you hire, you sort of ask people for referrals, which is one thing, but just to have your own peace of mind, there are things that you could ask to get a sense. If they're like the person you described, very commercially oriented versus one that'll get caught up in the weeds negotiating pointless deal points.

You ask around enough, you'll end up with the same few names. I really think you will. I can't tell you how frustrating it can be when you have lawyers who literally are caught up in things that if they either had more experience or more common sense. Some of them have a lot of experience, but not a lot of common sense clients. They're not looking for swashbuckling lawyers. They are looking for lawyers who are very careful and can keep them out of trouble, but knows what's important. This is not looking for someone that isn't extraordinarily careful, but again, knowing what matters in negotiations. Yes, sometimes you throw things out that, you know, don't really matter to you, but they're going to matter to the other side, so you can trade them later. It's just an art of doing it. I remember a long time ago, this was back in 1985, and a client, I was negotiating a deal, and the client said, you go and tell the other side, unless they do this, the deal is off. So I dutifully. I wasn't a partner yet. I dutifully went over and told the other side, unless you do this, the deal's off. And they said, okay, well, the deal's off. And I went back and reported to my client, and they were like, you're kidding me. The deal is off. I was like, how could you have done? I said, well, you told me to do that. And by the way, what they asked me to tell them that the deal was off on didn't make sense to me. So I learned a very valuable lesson. Now, we did put the deal back together and all of that, but I learned a valuable lesson is, first of all, when clients ask me to do that, I tell them, you call them up and tell them the deal is off. Because I don't want to have any miscommunications.

Back to you. Yeah.

On how I delivered it or didn't deliver it. It's also important in deals that you literally mean what you say. I tell this to clients all the time. If you're taking the position, which I understand you're going to take, you need to. And I understand it's a logical position, it's an important position, that's your position, and you have to be willing to lose the deal over it. And that's okay. There are lots and lots of deals that don't get done, and that's just fine.

You've worked on some largest, most complex deals. Take me in the boardroom. What's the magic to managing the high stakes? Ego tension.

Everything with boards is keeping boards prepared. If you're going into a board meeting on an important deal and you haven't been in front of that board already three or four times, you've made a mistake. This is serious stuff. And the board really has to understand what they're doing. So when you get to the final board meeting, the board again, you go through all the issues again, but nothing should be surprising to the board. I didn't really understand this. I didn't know this. I did a deal last year where we were getting a very small premium. And from the very first board meeting, I just said to the board, I said, look, you have to understand the premium to market is a meaningless concept. Markets go up, markets go down. That's not. Your job is to decide whether a 5% premium, 10% premium or no premium. You need to look at the fundamental value of the business and where it's going to be in five years and all of that. And by the way, early on, I said to the board, because again, from my banking experience, there's no way this buyer is going to pay more than X. No buyer similarly situated is going to pay more than X, by the way, that's going to be a small premium. And the board from right on signed off on it because they understood the math. I went through with the banker, who's an excellent banker, and she went through all with the board, explaining what the buyer could pay, explaining this so that a board was fully comfortable by the end of the process. Doing a deal with A very low premium. And by the way, the market loved it and the thing got overwhelmingly approved and everyone was happy. But if we hadn't done the job from literally the first board meeting, there would have been a lot of board members saying, hold on a second. How can we agree to a 5% premium? How could we do that? They knew exactly what they were doing. No surprises for the board. Making sure the board is really informed.

Do you just start picking at people one by one on the board and getting that alignment before you present to the whole group or. I'm just trying to get a sense of.

What I do when I advise the board is I always say any board member can call me separately if you have any questions about anything. You do not need to go through the CEO. You do not need to go through the chairman. If you have any questions, please call me. By the way, it's pretty rare, but I think them knowing that they can call. There's never been a time when I've gotten a call where I couldn't say, okay, let me go through it with you, let me explain it to you, and let's share this all with the full board. There's never been a time where there wasn't something that I would share with the full board. But it's not a question. Sometimes you suggest to the CEO that they go person by person to sense where they're coming from. Because sometimes people don't want to speak up in a big meeting. But you want to make sure that each director is comfortable. If there's anything that's of concern, that we address it.

What separates good versus great deals at the strategic level?

Sometimes it's luck, to be honest with you. Just having vision is very important. James Gorman was a great CEO and Ted Pick is a great CEO because they had a vision. They basically said, investment banking is very volatile and I want to get into much more stable businesses, which is asset management and wealth management. The vision didn't come after they did the deals. The vision came before they did the deals. And they didn't look out. And I remember so many times with James making a decision, do I write this off? Don't write this off. That would affect a quarter. And he would always say, I don't care about the quarter. We disclose everything. We do everything. I'm looking out five years from now. That is what makes great deals, is basically doing something not for the sake of doing the deal, but because it's consistent with your vision with that line.

Other thing I was going to ask is what do you see that top CEOs get about M and A that others don't.

If you look historically, people have to see M and A as part of a growth of your core business or extension of your core business, rather than, as I said, the conglomerate mindset. I don't think we're seeing a lot of that anymore, but that's what you're getting into.

So that ties back to that vision. You got to have this really compelling long term vision and then the pieces of M and A fit into it.

Then you find people who do acquisitions that literally are financial engineering. Anytime anything is financial engineering, meaning I can pay this, I can get this amount of synergies. So therefore the math will get me here. Anything that smacks of financial engineering just doesn't end well. Obviously Jack Welsh was A and masterful in many ways, but many ways. And he trained some incredible CEOs, but that was not a sustainable model. Now everything Jack Walsh did, which was buying companies over, reserving, releasing reserves, was all out in the open. He didn't do anything that wasn't known to the world, but it wasn't a sustainable long term strategy. It was really a lot of financial engineering. Again, he built many wonderful companies and he had many wonderful leadership skills. But if you're doing things that really are not part of a vision for the long term, just to give another example, a lot of people make mistakes when they do large stock repurchases because they look at it and they think, oh, here's the math. If I lever up and buy my stock back, I'm increasing my earnings by X. And so if I keep the same multiple, my stock's going to go up. The reality is that never works. It's not a strategy. Sure, if you have excess cash that you don't need for building factories or doing M and A, if you truly have excess cash, of course buying back stock makes sense. Or if you are issuing a lot of stock every year to employees, of course it makes sense to buy back stock. But buying back stock as a strategy makes no sense. It never has made sense.

What do you believe about M and A that most professionals would disagree with?

Well, I don't know that most professionals would disagree with it.

But trying to get your controversial views here. That or give me like a rule. You'd rewrite in M and A in the last.

I can't believe I'm saying this. The last 45 years I've seen it all. You can tell when a deal really doesn't make sense. You really can tell. You can tell whether it's a Hail Mary for a CEO who believes it's going to give them more Runway, that it's someone who's. Otherwise, their strategy is failing. And I personally have never been shy about expressing that. I just never have been. Maybe easier said than done and maybe I've been very fortunate to be able to do that. But you can see it. You really can. Not always. Obviously not always. But you can sense when a deal doesn't make sense, being on the alert for that's important. There's a lot of times when someone goes to a banker and says, I'd like to buy. I'm in the corn harvesting business and I'd really like to buy a television set company. And the bankers should say, are you out of your mind? And sometimes again, most bankers, particularly at these large institutions are very good. But too often they say, oh, what's our fee in doing that? But the good bankers to have longevity don't. They really don't. Sometimes bankers get a bad reputation. But the bankers that I know at these firms, the Goldman Sachs, Morgan Stanley, JP Morgan, and then at the boutiques like Paul Tauman's firm and Blair Ephron and Ken Molis, these are high quality people who really do look for the long term. But as a practitioner, generally, you know, when it's a bad deal.

Yeah, that's a fair point. What's the craziest thing you've seen in M and A, Rob?

Back in the early 90s, I was negotiating a deal and the other side was a Midwest law firm and I was negotiating at a point and they said, you think we fell off a turnip truck? You really think we fell off a turnip truck? And then we had a meeting the next day, this was at Cravath, and I brought in 300 pounds of turnips and I put them on the conference table. And I have to say, from that moment on, it was great. Because no, I didn't think they fell off the turnip truck. There's great lawyers wherever you're from. I always try to have fun. My brother's a comedian and I always try to do things with humor. Humor works. People who've known me for the last years know that I always try to be funny on deals to break the tension and try to be funny.

Really good thing.

I remember I was on a conference call with the CEO of a company and I had my team behind me and they didn't know that I had muted the phone and he made a comment and I said, you are an idiot. That is the stupidest thing I've ever heard. What kind of moron are you? How do you even stay in business? Are you really running this company? And behind me they're in total shock. Obviously I had the mute button on. But try to have fun. That's what life's all about. And my brother Andy really is totally hilarious. He really is hilarious. Andy Kindler, give a little plug to my brother.

I know Andy has a good influence on each other.

He is. He is. You know, we did a podcast together in Bloomberg a long time ago. I pointed out that when my brother was little, he was in the backyard. You always saw him playing ball and he would pretend he was part of the Mets and he was playing catch and running around and I would be out there and all I ever wanted to be was an M and a lawyer and banker even when I was 8 years old.

We keep adding to this crazy year. Rob this has been a great conversation. Thank you so much for taking the time helping me become a better M and A Scientist. Those of you still listening, fellow M and A Scientists, thank you. Love to hear from you. Connect with me on LinkedIn like getting feedback on this content, some ideas, topics I should be covering, or criticism. I get that once in a while. I'll take it so I get better at this. Till next time. Here's to the deal.

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