Deadlines, pace and face time are among the most important tools to strike a great deal, she says.
Megan Jarvis is a partner in the corporate practice at Webber Wentzel, specialising in commercial and corporate law where she focuses primarily on the deal-making nitty gritty around mergers and acquisitions (M&A), empowerment transactions, and joint ventures. The majority of her clients fall within the mining, construction and infrastructure fields.
Before joining “Webbers” in 2010, and after her articles and initial legal experience, Megan spent ten years in legal at some of the big accounting firms that broadened their focus to include professional services. It’s a long pedigree of hand-on experience that has given her critical insight into deal-making, and the role of the CFO within deals.
Here are Megan’s six dos and don’ts for dealmaking:
1. DO set a deadline
“Technology has changed the game a lot, but it does mean that you can have several versions of transaction documents out there, and the parties can get lost in a cycle of endless changes and reverts. Given this, one of the things that's quite important is to try and draw a line in terms of a timeframe for signing as part of managing the deal-making process. This helps establish a predictable timetable.”
“If there is no deadline – and no subsequent urgency as to when the parties need to close – then the process can drag on and on. A timetable helps manage the negotiation process. It also helps keep perspective on what is critical, what the deal-breakers are, so that the parties don’t keep chasing rabbits down holes.”
2. DON’T speed through it
“The opposite is also true – you can go too fast. Sometimes it is the target company that is pushing timelines and that can be difficult to manage. When somebody wants to push a deal through very quickly – without making sufficient time for due diligence and considering all the necessary aspects – that raises a red flag for me.”
“Sometimes they don’t want you to see something, and sometimes it’s just inexperience and eagerness, perhaps from a new start-up target. That’s why having a sensible timetable that both the buyer and the seller have agreed to is so useful for structuring your deal up to signature and closing.”
3. DO have sufficient face time
“Negotiations are a lot about preparation, and being prepared for those negotiations requires having had sufficient time with your clients to understand from their perspective what the particular deal-breakers and touch points are. So, while we can, to some extent, resolve issues through the drafting process, face-to-face meetings with the client team and the other party remain critical. There are non-verbal cues that are quite important to observe and take account of in a negotiation, and face time is the only way to pick up on these.”
4. DON’T skimp on appropriate legal advice
“Another potential difficulty or stumbling block is if you have a party to a deal who doesn't appoint external legal advisors. It is always more difficult having to negotiate a deal with management or internal counsel who may not be as objective as an external third party, and might not to be equipped with all the relevant skills to effectively deal with the often complex aspects of a major M&A or similar deal.”
5. DO know what you want to achieve
“A key aspect of doing good deals lies in the client knowing what deal they want to do, and perhaps more importantly, why they want to do the deal. They need to be clear on why they think this is a good deal for them. This makes the negotiation process easier, as you have a clear view of what is acceptable and what is not, which enables you to try and come up with solutions if there are particular obstacles that are encountered.”
“Of course, you also need alignment internally on these issues, and we do see cases where there are differing views within the client team. This needs to be ironed out or resolved to move forward.”
6. DO know when to cut your losses
“It can be quite difficult when two parties are “wooing” each other and something arises that suddenly makes it clear that this actually won’t be the deal you had in mind. Perhaps something comes out during due diligence, or it seems you won’t get the returns required on investment. Perhaps there is a culture mismatch, or risks arise that make the deal less palatable.”
“For whatever reasons, when it becomes clear that you no longer want to pursue the deal, it helps to have a CFO in the process who is able to tell, and sell, that story. The CFO can be the voice of realism in the process, and you want one who can bring others around to that decision when and if there needs to be a hard decision taken not to proceed.”
The role of CFOs
Megan feels the changing role of the CFO reflects a necessary shift. “I believe this has gone from one with a strictly financial and internal focus, to seeing CFOs play a much broader role – generally and in deal-making,” she says. “Progressive and strategic CFOs tend to take a clearer stance on ‘selling’ the deal to the board, shareholders or deal-making teams.”
Beyond this, she says, it is also positive to see more CFOs being involved in the decisions around technology and systems deployment in organisations – deciding what technology is appropriate and needed, and naturally the financial aspects of implementing particular systems. These are necessary in enabling the CFO to see the bigger picture, to capture the right data points, and to drive efficiency from an operational perspective – all of which is critical when you look at integrating an acquired target company into a business, post-deal. “In this way, the CFO becomes an active caretaker of strategy, and assists the CEO in telling the story of the business vision, and the deal therein.”