This session at Transaction Advisors M&A Conference at Wharton San Francisco covered the give-and-take between buyers and sellers in negotiating key provisions as East Corporation moved to complete the acquisition of West Corporation.  

The discussion looked at the interplay between buyer size and typical 'market' deal terms.  The session also drilled into the impact of transaction insurance on traditional structured indemnity terms, escrows, and hold-back approaches.   

Moderator Larry Shapiro, Senior Vice President at Willis Towers Watson, first asked what are some of the key considerations in negotiating valuation.

Rachel Masory, Deputy General Counsel for Golden Gate Capital, noted that in an acquisition of a tech company a key factor is whether the play is for intellectual property or focused on people.  “If I really need those people, I want to structure the transaction to make sure they stick around and are motivated to do their best for us.”

Dena Acevedo, Senior Corporate Counsel at Juniper Networks, added that key considerations are what are the synergies of the acquisition, what they will do with the acquisition and what they are willing to pay for it.

Shapiro also asked how the ownership of the target might affect negotiation, with panel members responding that key issues include if the founder is still involved or has a significant equity stake in the company.

Masory said, “If the founder is still involved, it’s really a question if they are walking away or staying.  For people we want to stick around, we want them to rollover half of their stock.  … For those critical people, we really try to motivate and force them to continue.”

Nathaniel McKitterick, Partner, DLA Piper, said that it can be tricky with respect to claims when a founder has a big equity stake, “and we as a strategic buyer say that we want you to park X% in escrow.” 

The panel also considered the nature of the entity one is negotiating with, the typical length and use of exclusivity periods in current dealmaking, and the increasing use of Reps and Warranties insurance in M&A transactions.

Shapiro said that, in general, these insurance products function best for unknown exposures; and that underwriters are getting a better handle on the product as claims experience grows.

Acevedo noted that the use of Reps and Warranties “smooths the conversation,” and that its use can lower needed escrows, as well.