Navigating Large-Scale M&A Deals and Legal Complexities

Let's face it, too many deals happen because they can happen, not because they should. Buyer led M and A flips that approach. It's about starting with intention and asking why at every step. Why does this deal make sense? Why will it create value? Why is now the right time? Instead of chasing reactive opportunities, Buyer led M and A is about leading with strategy. It's about being proactive, going after the right companies, defining the vision and building the plan to make the deal successful. Before the ink dries on the LOI at dealroom, we've worked with hundreds of M and A teams to adopt this approach, helping them align their M and A strategy with long term goals and avoiding common pitfalls. And now we've made it even more accessible with a simple framework for implementing Buyer LED M and A. This framework gives your team the tools to line, execute and deliver real value value every time. Buyer led M and A isn't about working to close a deal, it's about working to make the deal successful. Visit dealroom.net to learn more about the Buyer led M and A framework and transform your M and A process into a value driving powerhouse. Here's to the deal. I'm Kisan 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. Hello M and A Scientists. Welcome to the M and A Science Podcast where we learn from the best in M and A to uncover proven techniques for enterprise value creation. And if you're interested in learning more about how to optimize your M and A practice or want to get involved with our community of forward thinking M and a practitioners, visit mascience.com and subscribe to our free weekly newsletter. If you want to keep up with us on the go, head over to LinkedIn and follow M and A Science. I'm your host Kisan Patel, Founder and CEO at Deal Room and Chief Scientist at M and A Science. Joining me today is John Orbee, Senior Associate General Counsel M and A at Emerson, a seasoned attorney with extensive experience in managing complex large scale M and A transactions across borders. Not familiar with Emerson, Emerson delivers a range of engineering services, manufactures industrial automation equipment, precision measurement instruments, and provides software engineering solutions for industrial, commercial and consumer markets traded on NYSE under emr. Today we're going to explore the intricacies of doing large scale M and A and comparing the challenges to small scale. Have a little fun in this conversation. John, how are you doing today Great.

Good to see you. Welcome to Emerson.

Thank you for hosting in global headquarters here in St. Louis.

St. Louis, Missouri welcome.

All the magic, all the big deals happen.

That's right.

Hey, before we jump into it, I got to admit we've been working with Emerson for like six years now. And I thought this was going to be a pretty sleepy, boring, you guys would be doing some not so fun stuff. And to my surprise, I've been absolutely blown away on the deals you've done. I'm sure we'll talk a little bit about it, but there's obviously the big headliner deals. I don't know what it was. $11 billion acquisition of AspenTech. He did a $14 billion divestiture of Copeland and he did another acquisition in the several billions. He just announced one not even a week ago. Another multi billion dollar acquisition. But then you got these deals that you don't get in the news. A lot of interesting smaller deals. I was just surprised. You guys are really doing a lot of interesting deals. And the culture of the team is to my surprise, not as old school stodgy either. I feel like I'm in kind of a Silicon Valley company with just the way they are. Pretty open minded and forward thinking.

I feel very blessed as an M and a specific person, M and A lawyer to be at a company like Emerson where we're doing amazing M and A all the type of things you mentioned from public co takeovers to $14 billion divestiture of about a third of our company and all the cross border deals around the world. For a kid born and raised in St. Louis to be able to sit here in St. Louis for a Fortune 500 company and do M and A work and legitimate, interesting, challenging M and A work around the globe, all different sizes, really a blessing and I love it being M and a at Emerson Co. 130 year old company. But really M and A is backbone built up and we're always doing deals, always looking at deals. So it's a great place to be in the M and A space.

I'm like you, happy to be part of the journey. Even though I'm like a much, much smaller part of the journey. But can we kick things off with a little bit about your background?

I started my career in private practice at a big law firm, AmLaw100. How I got into M and A fell backwards into it. I graduated law school during the Great Recession and I had done a summer associateship at my firm. But as a lot of large firms were doing at the time, my Start date was deferred for quite a long time. So I was sitting there waiting to start. At the time I thought I was gonna go into litigation. It's kind of what I had been working towards in law school. It's what I thought I'd do. They called me almost a year early to start. They said, we got a spot for you. We have to do corporate M and A. Do you want it? I was like, yes, I want a job. Also. What is M and A? I vaguely knew what M and A was, of course, but it was not my bread and butter, not what I'd really been trained on. But I wanted a job, so I took it. I was in a corporate law group of this large law firm. So I did lots of stuff. General corporate work, corporate governance, commercial agreements, did capital markets, security offerings, different things, securities act compliance. But the thing that I found that I loved was the M and A work. It ended up over the course of my years there being my primary focus. I just loved the deal work, the strategy, the intellectual stimulation, the game planning, the preparation for negotiations, going into the negotiations and then you always have those last couple of days leading up to signing or closing where it's really crunch time, lots of late nights. That's when I get into the zone too. Some people don't like those high pressure situations, but that's. I feel like when I'm at my best, M and A really provided that stimulation. I just fell in love with it. So I was at my law firm for about almost eight years doing all kinds of corporate work, but mostly M and A. Over that time, Emerson was actually a client that I spent most of my time on. What happens a lot of times is with a lot of lawyers is your client then has the need. So I saw Emerson had the opening to do full time M and A. Saying for a St. Louis kid, full time M and A at a Fortune 500 in St. Louis jumped at the opportunity. So I switched from the law firm over to the in house about a little over six years ago now and have loved it, loved the time here at Emerson. So I've been doing M and a for about 14 years altogether. My background, I'm an athlete. I played football in college and they gave me that same rush again of being an athlete, working with the team, that goal in mind and then you're at the end, it comes all together like you're doing a game and then you get the result and it's just such a rush to get that deal signed or closed. And that's fun. I love it. I'm a junkie.

That's what happens when you get an M and A. Yeah. I like that analogy with sports though, because you're right, it is teamwork.

It is like high pressure game planning, doing all the work and preparation. It's a good fit.

Did you feel that? More so when you went from external counsel to in house?

Obviously you have the teamwork when you're in the law firm, but it goes up to another level when you're in house because you have so many cross functional teams and touch points. And to go back to sports analogy and football analogy, you're almost like the quarterback and you're kind of bringing it all together. Where I sit at the kind of intersection of all the different functional teams, whether it's IP or HR or tax or finance. Your teamwork and your ability to work cross functionally goes up to another level because even at the law firm, you go cross function at the law firm, but you're dealing with all lawyers here. You're dealing with people that aren't necessarily always lawyers. So that changes some of your language. Sometimes you have to explain things, not just legalese. You have to learn how to assess business risk. You're maybe more. A little bit more pragmatic when you're in the in house role. It's been a good challenge, but I think the teamwork skills go to another level when you come to in house and you're working with lots of different people, lots of different functions that aren't necessarily lawyers. It's been a real joy actually to get that experience.

Helpful contact.

Yeah.

And that lets us throw in a quick disclaimer. John's a lawyer. Anything he says is a personal opinion. Nothing associated with the companies, maybe associated or affiliated with. None of this is investment advice.

None of his legal advice.

Don't listen to any of this. This is all just made up stuff. He's also a customer of Deal Room too. I'll put that out there for like six years now.

Yeah, we got on Deal Room not long after I started here, so it's probably about six years. And we love Deal Room. We use it all the time. It's a great tool for us.

It's paid to say that. Yeah. So that's all. All disclaimers are out there. Continuing listening this podcast. You agree not to sue anybody for anything. Big deals versus small deals. You've worked on big scale multi billion dollar deals. The little transactions. What are your favorite deals to work on?

Ooh, I'm a junkie. So I kind of like all the deals. I really like cross border deals, especially when I'm dealing with a jurisdiction or a place that I haven't been before or touched before. I get to learn new things. When you have occasion to travel to a new country to work on a deal, that's really enjoyable. Love working the big deals too because they're just so complex. They get the headlines and it's fun to see something even working on pop up on the Wall Street Journal or something like that. So that's fun. But I really do like them all. They all present their own challenges. It's easy to think that the bigger deals are harder and the smaller ones are easier. Just dismiss a small one because it's small. But small ones can be harder too. Particularly if you have a counterparty who's maybe it's a founder, maybe they don't have regular counsel so they hire their buddy down the street who might be a traffic attorney or divorce attorney, not an M and A attorney. And that presents its own challenge. When you're dealing with a counterparty that doesn't know the market in M and A, what's customary and how M and A deals are done, those sometimes can draw out a process and even though it's a smaller dollar deal, sometimes they take just as much work and it can be a little frustrating. But we always get there. And that's one thing I love about M and A. Each deal is different, each one presents its own challenges and you're learning something new every time and it's always fun.

Is that the main difference between like dynamics and challenge? If you look at a large scale deal, let's take away cross border part and we'll bring that up separately. Just large scale versus a small deal. You think that's what it really comes down to is the sophistication and legal.

Counsel on the other side on the negotiation part. Yes. So I will say on a big deal, particularly on like a divestiture side, we referenced our big one we did a couple years ago. There are a lot of work, especially on the divestiture side. If you're doing a carve out, you have to get your arms around the perimeter of the transaction. Takes a lot of work to figure out what contracts are in, what assets are in and how you split out correctly. So they do take a lot of work from that perspective. More so than maybe a smaller deal where there's less in the perimeter, might be a little less prep work upfront or on the buy side. There's less diligence on A small deal versus a big deal where you're looking at lots of different things. But when it gets down to negotiation. Yeah, sometimes when you're dealing with one of these big deals, you have very sophisticated counsel and the negotiations can get heated and frustrating. But at the end of the day, all the big lawyers, big firms know what market is and you tend to go towards where things should go. And as expected, there'll be points where you disagree and you'll fight those out for sure. But it kind of goes on the right cadence as you expect it. These smaller deals with not the frequent M and A participants, they can be all over the place. And that presents its own challenge trying to corral them, make sure everybody's actually marching towards getting a deal done. And sometimes the issues that you end up fighting about, you can't believe you're fighting about this issue because it's just the issues that should be the issues aren't being discussed and they're fighting over something that's crazy. And it's always just the larger people might just not even address that because it's market. But trying to work with counsel that's maybe not as custom to it can really present a challenge sometimes this comes.

Up a lot where people like smaller deals are actually more complicated than the bigger deals. And why? Well, you mentioned one thing, the divestiture part, because you did some mega huge divestitures and you've done some small divestitures. Do you guys buy anything small?

Yeah, we do. We buy small things. We do deals of all sizes from a couple million to several billion. Another thing, I'll just go back to other sometimes complexity with the smaller deals is the big deals, it's all hands on deck. There's both sides have a full army, the full teams there. So that helps marshal on too sometimes on the smaller deals. We're Emerson, so we always have the right resources. But sometimes the other side just doesn't have the bandwidth to respond to diligence requests or do everything in a timely manner. And things can just drag on because they don't have the bandwidth to really match our M and A machine. And there's that challenge too in doing with smaller ones.

You can have the sophistication of the council. You end up like nitpicking a lot more details where you sort of have more of an understood what's market when there's big M and A attorney, big co M and A attorney versus with big co M attorney deals. And then yeah, just smaller teams involved so things could drag out further that's exactly right. Okay. I just trying to get a sense, like, I got friends that do M and A law, and they always complain about the small deals. They don't complain about the big deals because they're too busy working on the big deal. So I don't get to talk to them.

That's right. Yeah. The big ones are a lot of work. The small ones present more headaches usually.

And how does Emerson decide which deals to pursue and allocate resources towards?

We have a whole strategy department here. That's their job, is to decide what we go after. I'm more an execution guy.

I wanted to get the legal.

Yeah, I do what they tell me. They. They pick it and I make it happen. But no, we have a certain portfolio, so we obviously look at technologies that are complimentary to that space. We're not just going to go buy something, even if it has great numbers, great ebitda, great margins. If it doesn't fit in our portfolio, we're not going to go get it. Of course. So stuff that fits in our portfolio, the numbers, the margins, the EBITDA has to be there. It has to make sense. You do the IRR calculations to make sure that it's going to be worthwhile. Our team is great. You just look at our M and A record and they're good at picking the ones to go after.

I'm impressed with them. Where you come in the picture. You mentioned business risk earlier, and this is something I'm really trying to learn too. I'm looking at deals, building our pipeline, and you get these early conversations. At what point do you want to bring legal counsel in?

Here at Emerson, we like to be in from the start. Before loi, we want to be pretty much something we want to help evaluate. The regulatory risk is something, especially in this day and age with the regulatory environment. But there's more and more regulations coming out that you have to jump through. So we want to know about the potential regulatory risks or be able to identify those for the team. We want to help negotiate the LOI to make sure that the right provisions are in there. Going back to the smaller deals. I can't tell you how often we negotiated an LOI with the counterparty, but the other counterparty didn't even use legal counsel. And then the lawyers come in, they hire counseling lawyers, like, well, they didn't have counsel for that loi. Like, try to redo it. Yeah. So to avoid that situation, we like to be involved in the LOI discussions, make sure we get all the right terms in there. The sooner you can get your M and A Council involved, legal counsel involved, the better.

I'm one of those people. I think we can be bucketed as trigger happy. I just want to get loi out. I already got the template. Yeah, I just want to go fill it out and start getting to a point and when I know you're going to grade a price and this and that. So I'm not going to do that anymore. I'm going to call my friend John, say hey, I need your. Why should you take a look at this?

Get a lawyer. My legal advice is get a lawyer.

Okay, okay. But yeah, so we'll just role play this out a little bit instead of me doing that and then you get mad at me. I call you up and tell you and probably brief you on the deal and you probably are still going to tell me. I should have told you earlier. But what would be the key things that all of a sudden you would weigh in on that loi that maybe the deal person wouldn't.

Every deal is different. Standard lawyer answer. It depends. So each deal is different. But some of the things you might want to look out for is is there going to be an escrow or holdbacks? Like the entire purchase price isn't paid at closing. What's the expectation with as far as reps and warranties or indemnities? One party thinks it's going to be an as is whereas deal with very limited recourse, the other party thought no, we're going to have an indemnity. The loi is a good time to flush that out so you're not fighting that out later. Are there going to be consulting agreements or employment agreements that are part of it and let's flush that out up front. Things like that that might be conditions to closing. If there's conditions of closing or certain assumptions underlying the deal, it's efficient to get those out at the I stage. So make sure that everybody's on the same page. So there's a couple of things that we might be looking for pointing out in an.

That makes a lot of sense escrow hold. Are you going to hold some money back? Let's clear the air on that. Yeah, there's going to be requirements around reps and warranty or expectations. The employment agreement, the people side that hey, there's going to be key people. And what are we expecting to have agreements on certain key people, things like that. We want to clear the air on that. What about the cash balances and stuff like that? Does that stuff come up or.

Yeah, that comes up. You might have set an expectation like this purchase price. This is what we're willing to offer, but it's conditioned on diligence. Showing that you have X, EBITDA or sales are on pace for this or it's good to flush out those numbers. Yes, this is our price, but we haven't actually done diligence yet. So this price is conditioned on the financials being there. No major red flag. There's not major lawsuits, outstanding, things like that. Just kind of put those assumptions on what the price is assumed on. So that way if diligence uncovers something, you can say, yeah, that was our price, we qualify it. And you didn't meet these metrics that we had in our assumptions. Let's talk about. Should we talk about the price when.

We'Re talking about the deal and the targets? Oh, we're going to have a record quarter this year and we're going to close this and then use that to push the price up a bit. I can put that in the LOI that, hey, this is expectation is you're going to close this quarter out of this certain amount.

Yeah, exactly that. Yeah, that can come in the LOI for sure.

Anything that goes, it would be pretty material for us to like want to go back and renegotiate the deal.

Yeah, I think those are good things to put in the loi. Sets the stage. You hope that those things don't come up because you hope it, whatever the assumptions are, that they are there and you just go forward on the exact terms that you put out there originally. But sometimes you have to have difficult conversations and it makes sense to put those up front so that nobody's caught off guard. A seller, if they're not hitting what they said, they can't be that offended if you say, look, we did it based on X and you're not at X, you're at Y. We needed to retalk about this.

What's the wildest thing you've seen in an loi?

I'm thinking of the ones I've personally done and I can't even think of anything that's that crazy. But I have heard stories of founders wanting things in the loi, like tickets to us, something that's just off base, not part of the deal requests. I don't think we would ever entertain those in an loi, but sometimes you see some things that are outside of what the actual deal is. Maybe they try to work those in. Personally, I haven't really seen anything too crazy that you wouldn't expect an loi.

What about if there was terms of. I guess you would have those in there. Like if we're going to split this between an earn out versus we're going to have owner financing, things like that or contingent on getting a third party lender. All that stuff would be in there.

Yeah. Particularly if you're like the seller and you want the deal not conditioned on financing. This deal is not going to be contingent on financing. We're only doing this buyer if you have the financing that's good thing to get out right away if there's an earn out again because those can earn outs often just invite disputes. Post closing disputes. If there's going to be an earn out is a major part of the consideration for the deal. The LOI is a great stage to start laying out the metrics because that would be a heavily negotiated point.

Binding versus non binding.

They're usually always non binding. Stuff comes up that causes change. It'll be binding provisions, confidentiality. Everything in this LOI needs to remain confidential. That's binding. Let's agree that we're not going to disclose this. Exclusivity will sometimes be binding. Sometimes people won't do an LOI unless they get an exclusivity period. Buyer's not going to spend time and resources to look at on a target. If the target can just go around and sell it to somebody else the next day.

I would make it binding then if they want.

No, I was just saying sometimes the exclusivity provision is one of the binding provisions that you have. But most of the other terms I've been talking about like the price, the assumptions usually that's non binding.

All our binding. The only there would be a binding element if it was we're asking for exclusivity.

The exclusivity provision would be binding itself. But you can have an LOI that has. It's not in binding except for these three provisions that are binding.

That makes sense. And then when do you throw breakup fees in there for big deals? Yeah, when you're just like screwed us over, waste a lot of our time.

And if it's like a deal that's going to really be transformative for a company that is going to take a lot of their resources and time. They're going to put a lot of risk out there. They reverse both termination. Reverse termination might come into the equation. They might just reference it in loi but it actually gets negotiated in the deal docs and everything like that. But LOI is also a great time to Put that out there. What expectations are right.

Case in point, I'm going to find my attorney next time before I sign. Loi, what's the legal team look like at Emerson? How do you manage sort of the variables of your deal volume?

M and A legal team is very lean considering the volume of deal work we have. It's me and one other attorney, paralegal, our assistant. So very lean team. Especially considering we have our corporate development is three times as big as us. We take on all the deals but we will flex resources. Whether that's since we do have a large internal department, whether that's bringing over an internal Emerson attorney from something else to help us for a little while or using outside Counsel on a second basis. M& A ebbs and flows, ups and downs. So it makes sense to kind of have a flexible approach like that. Like in this peak time when we're really busy, maybe we might get an external counsel as a second to come work with us. But we don't need a person year round full time on salary. So they come work with us when we're really busy. Then they'll go back to their firm. That's one way we've approached handling the peaks and valleys.

Either pull from the general legal team in the company or use an external resource.

That's right.

How do you approach augmenting that team? Is there certain tasks that you prefer to delegate out to external versus keeping in house?

We use external for a lot all our big deals keep some of our smaller deals in house. External council will on the bigger deals we're using them. They'll generally take the pain on the major transaction agreements that of course we will weigh in heavily on and help get done. One thing we're doing more and more moving in house is due diligence, low hanging fruit type. It's a expensive, especially when you're using a big amlaw firm, very expensive proposition. And it's something that we can usually be handled in house potentially or the lower cost vendors. That's something we try to take off our external council. But a lot of the diligence, especially on the for doing a divestiture, we'll do a lot of all that ourselves. Emerson has a full M and A team and we have our own tax team, HR finance. We're able to rely on our own team do a lot of the work and the outside counsel is really just helping execute the deal.

What would be like the thing that you'd really want external counsel to do on those bigger deals knowing that you're Going to get the best bang for your buck.

The transaction agreement. That's where they'll live. They'll live on helping draft, negotiate that it's a big deal. The other side will also have very sophisticated console. So we're relying on them to help steer us, help negotiate against the big players on the other side too. That's really where we get good value. And these big deals can also be very complex. We do a lot of M and A law firms, that's all they do. So they have, they see stuff even more than we do. So to help rely on their expertise and what they've seen in other deals and they know how to get it done. So relying on them to help navigate us through the complicated waters.

I can see that especially in these cross border deals as well. Having them.

Oh yeah. Then cross border is interesting too. You definitely need good outside counsel there particularly for the local law aspect. I know M and A, But I'm a U.S. attorney, I know like how to get deals done in the US I don't know the law in every single country around the world there can be specific requirements for getting a deal done in an Asia country or somewhere in Europe that would never cross my mind to even put on the checklist to do. But for having external counsel say oh no, you have to get this notarized and this has to go here and someone just helping navigate the local law requirements then also I know it's market in the US but market might be different in other countries. So relying on the external council, the local council and just jurisdictions to help us with what's standard and how to get a deal done in those places is very important.

Localized expertise. Working on the transaction agreement. You mentioned the due diligence, pulling that in house. Can you give me just a quick high level like what does legal due diligence entail? Because I'm just imagining, I always think of every company you have a bunch of employment contracts, bunch of customer contracts, venture vendor contracts across the board. Yeah, just reviewing all those contracts, like what else does it include?

That is probably the biggest and most time consuming piece is reviewing contracts. You're reviewing for any unusual provisions. Non compete, save you on the buy side. If you're taking up on an agreement as a non compete, you want to figure out how that's going to impact you. You're looking for things indemnities in these contracts. Depending on what space the business is in limitation caps on those liabilities can be very important. You're looking at the logistics for transfer, whether it Requires consent for assignment or change of control. So the things you have to comply with to actually move the contracts over. So it's a lot of contract review. You also will get into corporate document review. So you're looking at their governing documents basically. Sometimes maybe what they have to do, especially there's a large shareholder holder base. What are the requirements to get approval to do the deal? Look at their minutes, their board shareholder minutes because oftentimes they'll discuss issues that pop up. So you'll look at those and you might see something like, oh, you're discussing this litigation at this board meeting. What happened with that litigation is another thing. The legal team dives into the litigation profile. Somebody getting sued all the time, are they not getting sued all the time? Are there product liability risks with a certain business? Looking at the IP portfolio, have they adequately protected their IP portfolio? Is there really value in that? Are there gaps? Have you gotten the proper invention assignments from employees or third parties? Then you're looking at the employee side employment contracts, things like that, handling all the benefits and ERISA stuff and everything comes with that. Tax attorneys are weighing in. Contracts is what people really think about. But there's a lot more to it than just looking at contracts.

I'm going to stop writing off the value of legal counsel now. That's a lot of little things that really add up.

Yeah.

And some of these things you mentioned tend to be pretty cross functional. Like I can imagine the employment agreements. You start noticing some things, you got to talk to HR about it. And yeah, I was going through that.

List and I'm lucky enough here at Emerson that we have a team, that we have a lawyer in those functional areas that's dedicated to our M and A team. So I personally am not the one checking the IP portfolio. We have an IP attorney that helps us. We have tax attorneys that helps us. We have HR attorneys, we have litigators that all get involved. So not just us in the M and A Legal, they all different lawyers in different functional areas are getting involved. I'm fortunate enough to be able to rely on those other people to help.

Hey, let's talk about cross border deals.

Sure.

All these big deals you've done, are they all cross border?

Yeah, they're interesting. The main genesis of the deal is usually US based. Obviously US seller usually see US buyer or vice versa. But when you're dealing with deals of this, handling deals of this size, there's always international components because you have subsidiaries for companies all over the world. We're buying somebody. There's Often subsidiaries all around the world. So although it might be a US based US centric, there are cross border aspects coming into it for sure. I talked a little bit earlier about how important it is to have good local counsel. We augment our team with having international law firms with carve out expertise to help us navigate the waters, so to speak, helping us address all the ex U S stuff and figure out how to get those deals, that part of the deal done.

They do that. Who do you guys use? You guys go to one default firm or do you sort of bounce around between a.

We have a primary firm that we like.

You work with a large law firm, you would rely on that relationship, having that law firm help you find the localized expertise.

In many cases they actually have offices in the countries we're doing it so they, they have the localized expertise themselves. But in a rare occurrence if they don't, they'll have a network of firms and be able to get us the expertise we need.

That's good. So you're not scrambling to find local experts, right?

No, that's one of the great values that they bring. I'm not calling law firms in Timbuktu trying to figure out who's who can do M and A there. They have the network built in and rely on them.

What are the biggest complexities when it comes to doing those cross border deals? Because I feel like the people laws are always a lot more complicated outside.

The U.S. yeah, the European Works Council and the people issues are very complex. Two things that come up as complexities is I'm a U.S. attorney, I know how to do us M&A. I don't know what I don't know in those other countries. So I really rely on the local law firm to tell me if there's something that needs to happen in that country. If you're in Germany and you have to go to a notary when you're signing up your deal docs. I know that now because I've done plenty of German deals. But things like that, when there's a local law requirement and if I don't know it as US Attorney because we wouldn't do it in the US Getting the right law firm to help you navigate that. The other difficulty is just it's almost. I don't know if the right word is cultural. But when you're doing a deal that's sometimes on the other side of the world, you have time zone issues, you have language issues. We're fortunate. In the US A lot of times people will be able to Speak English to us in our negotiations and if not they'll have somebody there. We speak English, but oftentimes it's not their first language. So it can be complex trying to negotiate a complex transaction with somebody that might not be their first language. And then sometimes there's cultural norms where it can be a little difficult trying to get things done on Zoom, which is one thing that I've found is your advantage in this day post Covid a lot of stuff is done on Zoom. A lot of negotiations are Zoom. Not as in person as they used to be. I was doing a deal in Europe. We were doing negotiating it on Zoom and I found that because of the time difference and also language and just it was difficult. It drugged the negotiation out over several weeks where I thought if you we would just get in the room with them and just establish a rapport. Because you have a different rapport when you're rooming somebody, looking them in the eye than just going on the computer screen. If you just get in the room with them and get done. It would have been like a two day thing instead of two week. I do think that's still important. It's something that should still come back and I don't can Sometimes it can be costly, but it might be actually cost efficient to actually travel to someplace get in a room. You save time in the long run, save expense. We have traveled, it's come back a little bit traveling to other places. We did a deal in Asia. State time zone is just the time windows to actually negotiate turn documents which is really drag it on. But by going to a place, sitting in a room, flipping documents live, it just makes it much more efficient. The trust is a different level and you can feel out the cultural aspects. I really think it's important to still sit in a room when it calls for it. Sometimes things can still be done over Zoom and cross borders. Sometimes you kind of feel it like this is one we need to actually get in a room with these people and get it, get it done.

Yeah, I totally agree. It's a whole thing of what is this thing? 70, 80% body language.

Yeah. Yeah. And that's the thing I feel especially in some other cultures my body language and might be even more so than it is here in the US So it is important to get in a room with people.

Fair point. Do you have prosperity deal that you found particularly challenging? You could talk about that maybe has some interesting lessons learned from it.

I kind of actually just touched on it. It was the one that I was talking about. In Europe where the negotiation took us two weeks. Jumping on the zoom every day for three, four hours. Because then it got to the end of the day, they need to go to bed. And then it took so long that it's not to reiterate what I had just said. But the lesson learned was don't be afraid to go get in a room. It's still good way to get. Sometimes the efficient way can help you get deals get done a lot quicker sometimes to just go there, be in person on those cross border deals.

Technology is playing an increasing role in M and A. How have you guys leveraged tools like Deal Room to streamline your processes?

Deal Room has been very efficient for us. The data room aspect is great. Use it to put a ton of stuff in there. It's very user friendly for sharing the documents. Even if it's not like diligence documents. We can share all the documents in there because our whole team is on there. That's very helpful. You guys have actually rolled out a new tool, the AI that helps with diligence. We're exploring that there's some great opportunity there to help streamline a process, enhance cost efficiencies. You still need a human to do it. The AI can reduce the time to do it significantly. See some good value opportunity there. There's other things like using online platforms for integration or something like that to be a single source of truth. Instead of just passing around Excel documents and email and having everything leave an email. Having online platforms that serve as a single source of truth for diligence documents, deal docs, integration stuff. So really leveraging the software and technology space there.

I don't want to make this too big of a commercial for Deal Room but I got you here. The thing I'm really curious about, I watch you guys do 35 plus billion dollars of deals in just like the last three years. And all these deals and it's all public. There's always jpm, Goldman Sachs, Lazard, Guggenheim, top tier banks on all those deals, all those major deals you've ran through Deal room. And I always get this thing where bankers, they're always obsessed over the old school data rooms that still build per page and that's what they always want you to use. How did you convince them to go otherwise?

Bankers probably like their built in tools that they're just used to using. For us, you're a regular M and A player. Our team is fully up to speed on how to use Deal Room has all the functionality we need at the end of the day. The bankers work for us. So if we say we want to use Deal Room, in both cases they, you know, in other cases they've like tested it and like yeah, it works I guess to more directly answer your question, like if you have a tool that you really want to use, force the issue and say this is what we're going to use.

I got it. So because your adoption is so strong in the company that sort of makes it an easier leverage because you're like, hey, we don't have to worry about you got so many people in your company on the buy side that are going to be engaged in this deal. They don't have to learn something new. They already are familiar with this. This is what they know day in, day out and they can just.

That's exactly right. It's also self fulfilling where it's, we've done billions of dollars of deals using Deal Room so they can't say like you can't run a deal like this on Deal Room. We've done it, this is going to be fine, let's use this.

I'm going to quote you on that by the way. You're going to be our next ad. So anyways, I don't want to press on it too much if people are interested, just go to the website and learn more broadly though, how would you say technology, AI automations impacted the legal approach in M and A?

The biggest point is really diligence, helping with contracts and taking out that very time consuming part of a deal firms are usually having first year, second year people are out of law school doing it, but still costs a ton of money to be able to leverage AI technologies to help me bring some of that in house or lower cost sources. That's one of the biggest points. But you know, the AI revolution or whatever you want to call it is happening and we don't want to get left behind. So we're always investigating, talking to people, seeing like how we can better leverage technology. And I'm sure as it all continues to develop we become more and more intertwined in MNA process. I feel like ignoring the trends and where technology is going is to do so at your own peril. It's the future.

Sounds like you're pretty optimistic about where this is going. Just trying to play devil's advocate. I would one be concerned about accuracy. We just had an example where AI generated our interview outline and we specifically talked about things to omit from it, but it included it and my thing was like hey, somebody should have actually still done their original work. And did their review and they would have caught that mistake. Do you have concerns around that? People getting too dependent and then it ends up making mistakes.

At this stage, AI does not replace humans completely. What it does is it takes a team of instead of five or six humans reviewing, but with the AI pulling it all faster, maybe you can get down to a team of one or two humans. But then the humans do need to still one, the humans actually need to tell the AI what to do. You still need that interface and you still need people to go back and quality check, make sure that what's being spit out is accurate. Not relying 100% on AI but using it as a tool to make everything more efficient, but still having the human component to it as well is still definitely needed.

What are like the positive business outcomes that would make you motivated to adopt? Is it cutting costs? Say hey, we can save money on external legal fees or is it just getting things done faster? Like it's both.

It's. It's cutting costs in business and in a day that's the bottom line. You cut costs. That's of course going to be a great value proposition. But it also is saving time. It's freeing teams up to focus on more sophisticated tasks where they might need a higher level of thought. Things that AI can't do at least yet it brings down costs and frees up time to spend that time on more valuable projects and parts of a deal.

What about these external councils that want to raise fees every year? What's going to.

I don't know. Where do you want to start? The fees of outside lawyers keep going up and up for sure. It's tough. That's also really driving in house teams to look at what tools they can use and what things they can bring in from an outside counsel. So only use the outside counsel for the most sophisticated and pressing parts of the deal and try to bring other parts in house and help leverage the tool. So as the firms are charging more, the overall deal fees might not be in this near the same as they. People try to bring other parts that they traditionally might have put out to a law firm, try to bring them in house. I've heard from other in house colleagues at other places that they're also really looking at ways to do stuff in house and decrease the reliance on external counsel because the fees are getting very high.

Now I know who the early adopters are going to be for AI diligence products out there, especially ours.

Yeah.

Moving from law firm work to an in house role at Emerson. What strategic Changes did you have to make in that transition?

Coming in house, I talked a little bit earlier about the broader teams. A lot more cross functional exposure with people that aren't necessarily lawyers. So really building up that skill set. One of the first skill sets you get here is you got to actually figure out who everybody is, who's the right person to go to for this and that and build a rapport with all these different people outside of the legal department. I feel like you really increase your business acumen, business strategy, you get a lot more involved with. On the strategic level, we like to be viewed as business partners with our corporate development or our businesses. We want to be a business partner with them, not just a lawyer. We want to help them form strategies. We want to be pragmatic. Sometimes law firms are very conservative and risk averse and say no. We want to help get the yes. We want to be a business partner, somebody that our business team is run to instead of away. So really developing that skill set where you really take a pragmatic approach to being a lawyer instead of just saying no. Developing that skill set is another thing that's really important for in house attorneys.

How does being in house influence your role beyond doing the legal tasks?

Our corporate development team, it's one thing I love about being in house. They bring me in on strategic discussions. It's not just executing, drafting the agreement, it's how should we position this, how should this negotiation go, how should we set up the data room, what should we do at this fact point? Strategy, how are we going to go about executing this deal? There's a lot more input on the strategy part of it than just black and white executing the X's and O's of getting the deal done. It's a skill set you need to develop as an in house lawyer. But it's also one of the things that makes being in house so fun and attractive is being able to not just be the lawyer, but being able to weigh in on the strategic aspects of deals and things like that.

What's that conversation look like? If you can walk me through, we'll nomatize it. But just that first phone call, hey John, we got this deal we're working on, you know, and they'll call you.

Up, say, want to talk about a deal? You go sit in their office and just kind of spitball and bounce. The first of all, you have to earn trust of your team. Day one, they might not be having these conversations, but you get earn your trust over time that they know they can rely on you that you have sound judgment, good judgment, pragmatic judgment. I'll go sit in their office and we'll just spitball and throw things against the wall and go back and forth and play devil's advocate. As the lawyer often play devil's advocate even if it's not something I'm personally champion. Just saying how somebody else might take it. So just kind of spitball and go back and forth and maybe have a strategy session like that. Things like that happen pretty often and it's enjoyable.

This is like before we're considering throwing an LOI a company. This is more of just hey, here's some ideas of things that we're thinking about doing or even maybe just initial conversations we're having with this company and just wanted to get your thoughts on it.

Yeah, I mean that happens to an extent. I will say that's probably more at our corporate strategy level. Probably more when we're working towards possibly doing all I there's definitely some strategy brainstorming. Like I'm going to go have a discussion with them. We don't have a draft loi yet. What questions should I ask? What things should we be thinking about? Things like that getting involved at that stage.

So kind of right before they're like hey, we're ready to send this LOI out but almost of what can we do to shape and get the right information to put together. Loi.

Yep.

You got any key questions there? We talked a little bit about it. And again you're going to throw that. It depends on the deal.

That's what I was going to say. That's the default answer for a lawyer.

Now I know how to work with.

That's the answer to every law school question too. It depends.

Let's make it up. Let's make up a tech company. I like tech because I work in tech. We're looking to buy this small tech company, let's say it's in Europe, add a little extra layer to it. It's one where they got big valuation expectations and we're probably going to have to wrap some kind of earn out in there or figure something out around to bridge that valuation gap. That's what we're initial impression on at that point.

I would counsel the counterpart to try to avoid an earn out. I noticed a lot of people, and I used to do that back when I was at a law firm too is we draft earnouts pretty often. But I guess maybe my personal view is they invite disputes after the fact. People are going to fight about if you do an Earn out, they need to be very carefully drafted. But my advice in this scenario would be find a way to avoid an earn out if possible. Sometimes it's not possible and you have to go down that route and in that case you need to get very specific in your definitions and parameters and it becomes a very complex drafting process.

We're going to come back to the avoiding earn out.

So some other questions I would ask. Avoid the earn out. You said Europe. So I'd maybe want to figure out what kind of works council issues they have, what their employee base is and works council. It's a tech company, so maybe that's not an issue. It depends where they are, how many employees they have. You said it's a tech company, so I'd want to know a little bit about their IP portfolio. Is it protected? Do they own everything? Have they had any challenges challenging their patents or infringement, anything like that? Has any disputes come up in the past? I'd maybe want to know about their customers and suppliers before even getting into actually reviewing the contracts. Is your customers, is it spread across a number or do you have depending on just one customer? If it's just a small number of customers and that goes away, what's still there?

We're like this. The change of control provision is always one, because I've encountered that on a deal where basically every agreement had a change of control provision and that was one where it just changes everything.

Normally don't really get into the change of control provision, especially pre loi. But if this is a situation where there is one customer, that's two customers that are 80% of the business and they have change of control, you want to feel out, are they going to be an issue with a steel going down? The seller would probably say no, because why would. But if you identify that there's no way that that major customer is going to say yes to your company buying the deal, that's a major red flag. If that's all the revenue are tied up in one or two people who aren't going to approve the deal, what are you buying? So something to think about.

What if they just had it as standard in their agreement that there's a change in control provision? Wouldn't you want to know that before loi?

Oh, you mean like their form customer agreement? Yeah, pre loi. You're at a little bit higher level stage than getting into what your form agreements have as far as change of control and everything like that. Like again, I think you want to identify potential issues with major customers, suppliers too, for that matter. But I don't think you're at that stage. I don't think you're really drilling down.

Into okay, so if I came to the customer saturation and found out it's like half the revenues from one huge customer, then I would probably dig deeper and say, okay, do they have a change of control provision?

Knowing that you might ask that, is there a change of control provision or do you foresee them objecting to this deal and not consenting to it? That might be a type of thing you put in the loi. It's conditioned on their approval. So there's no surprises when you put that in the purchase agreement that we're not going to do the deal unless the customer that has 50% of revenue or something gives their consent to the deal if it's required.

What about people side? Is there anything I want to dig into there?

Yeah, I mentioned like the works council piece. You might also want to feel out who are the key people on an initial discussion like that. Is there like a key engineer or something that really makes the technology work? Are they about to retire and go away? Is there a COO type person who really makes the company tick and if they're about to get $10 million in the deal or something, are they going to go sit on a beach somewhere and company will fall apart if this person isn't there? Trying to figure out who the key people are, who you need there. That's a good early discussion point. And then also just going to Europe though, trying to get a sense for the works council and what you're going to have to do there.

Just asking them, are your employees part of the works council? Okay, so we got those. Part of the employees, knowing the key people, the IP stuff, understanding the customer base where there might be high saturation or low saturation and then the earns. How do I avoid the earn out? I always think of rollover equity is either here you pay cash or roll over equity. Instead of doing earn out, do we just roll over more equity?

That's one way. You incentivize them that way. It's not a X, y, Z formula for the earn out. Just this company does well, you're going to do well because you still have equity. So that's one way to do it. It's just a heavy negotiation. This is a fair price. And this is why there might be employment agreements that have. It's not necessarily rollover equity. You might get RSUs or something. So your bon bone bone to something like that. The extent you do End up with that. You definitely just want to make sure everything is very well defined, not open for interpretation because that's when disputes arise. And if you're arguing or not, it's very important to make it very tight and get the perimeter on it very correct.

Not based on ebitda. Yeah. With the future of M and A, how do we feel about the future? How do you see the role of legal teams at M and A evolving especially we talked about technology and sounds like more collaborative processes in general.

I'm excited about the future. I think M and A is always going to be around. It's going to be very important. For a place like Emerson, it'll be a matter of figuring out how to work with technology. My wife asked me about the AI. She's like, are you worried about AI taking your job? And I was like, no. Because somebody starts to tell the AI what to do, there's still going to be an important place in the future for an in house M and a legal counsel to work to utilize technology and help everything get done.

That's good. The optimistic view, and you're right, it gives folks more time to focus on the real people issues and connecting with people. What's the craziest thing you've seen in M and A?

It's hard to get into it. I've seen some threats and some very unprofessional emails from lawyers. I've seen people copying CEOs on random complaints. I've seen the all nighters. The one thing about M and A is sometimes it gets down to those last couple of days. You're doing very long hours. If it's taking calls at family events and stepping out. Some of the demands M and A takes or like I said, pulling the all nighters, working all night on a deal and signing it like 7 or 8 in the morning after being up all night. Some of the crazy, more stressful parts of it. But like I said, I thrive on that. Especially on the in house role. It's few and far between. They happen, but it's not every week. So it's manageable.

That's true. That can really push your limits.

Yeah.

What do you do to pull those all nighters?

A Red Bull, energy drinks, coffee. Sometimes you gotta rely on a lot of caffeine. But it's worth it to get it done. And the feeling you get when you get that deal across the finish line.

Then you go take a vacation after.

Sometimes there used to be, I say used to be. There used to be closing dinners which were pretty fun. They don't happen as much as they used to. Been to a couple fun one of those over the years and I heard even before my time. I've been doing this for about 14 years, but I heard they were even crazier back in the day. But they're fun things to look forward to after you're getting a deal done.

No big sabbatical. Just we might get a closing dinner. Yeah.

Got to get back to work.

Absolutely. The next deal's around the corner.

Exactly.

Hey John, this has been a great conversation. Thanks for taking the time helping me become a better M and A scientist.

Absolutely. Thanks for coming in.

Fellow M and A scientist tuned in. Thanks for sticking through. I'd love to hear from you. Feedback Criticism. Always welcome criticism. Want to get better at this? Reach out to me on LinkedIn. Until next time. Here's to the deal. Thank you for taking the time to explore the world of MA with our podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple Podcasts. We'd love to hear from you. If you need help standing up an M and a function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email Kisan K I S o n a science.com or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter. Again, that's mascience.com here's to the deal. Views and opinions expressed on M and A Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.