In a nutshellanchor
Corporate is sometimes defined as a catchall practice area that includes everything that isn’t litigation or tax. More commonly, though, corporate is thought to consist of mergers and acquisitions (M&A), securities or capital markets work, private equity, venture capital, and corporate governance. It’s a practice area that can involve advising clients from the cradle to the grave, from starting up and going public, to raising capital, selling, acquiring and combining businesses, to looking at the overall framework for operations and advising the board of directors on special transactions.
BigLaw firms often focus on public M&A, advising either the buyer or seller in a transaction involving a public company. Public M&A routinely provides the biggest deals, is often cross-border and can involve cash and/or stock considerations. Private M&A takes place between private companies and can also be quite complex, particularly where partnerships are involved. Private equity firms have emerged as key players in the M&A arena and will seek to acquire private and public companies (e.g. Blackstone’s $26 billion buyout of Hilton), though the financial crisis has not allowed for many deals of this magnitude of late. Venture capital work involves investing in startup companies before selling them to a private equity firm or strategic buyer, or taking them public and advising on all related matters.
Securities, or capital markets, is another important component of the practice area. Cash-hungry businesses obtain funding from different sources, including the capital markets. Securities attorneys advise companies ('the issuer') and investment banks ('the underwriter') on several different types of public offerings, with debt and equity – bonds and stocks – the most common. Within equity, there are initial public offerings (IPOs) and follow-on offerings of common and preferred stock; within debt, investment grade and high-yield ('junk bonds') issuances. Other types of offering include hybrid and mezzanine securities. Asset-backed securities are funded using assets like mortgages and credit card receivables. Josh Bonnie of Simpson Thacher confirms: “The range of capital raising that companies pursue is almost endless, and is only limited by human creativity.”
Corporate governance involves advising companies on crucial board affairs (including director duties) and their relationships with shareholders, which are paramount during transactions or shareholder disputes. Corporate lawyers often specialize in a specific area, but have knowledge in related areas too. Private equity and venture capital attorneys are more likely to remain primarily concentrated on their remit.
What corporate lawyers doanchor
Public M&A for buyer
- Identify the client’s business objectives.
- Identify the legal issues – these vary depending on factors like whether the deal is friendly or unfriendly.
- Build a 'road map' for the client from start to finish, and include a timeframe.
- Advise on deal and negotiating tactics.
- Conduct due diligence on other side.
- Determine – with the help of tax attorneys – the tax implications and if they require special structuring.
- Work with antitrust attorneys to assess regulatory obstacles, gain regulatory approval and analyze any other required regulatory approvals.
- If cross-border, work with local counsel.
- Review all the client’s contracts: business, employment, outsourcing, debt instruments, preferred stock, etc.
- Obtain third-party consents from lenders or parties to other contracts.
- Negotiate agreement, sign, announce publicly, close the deal.
- Attorneys for the target decide whether to negotiate, refuse the buyer’s overtures, sell, or do a deal with another company.
Private equity M&A
- Help structure an offer and analyze all issues relating to the acquisition.
- Assist with a letter of intent or exclusivity agreement.
- Conduct diligence, negotiate the contract, the related equity commitments and financing letters, and close the deal.
- If there’s an auction process attorneys representing the target draft the timetable and process letter.
- Draw up diligence plan – look at contracts, employee benefits, liabilities, financials.
- If the client makes it to the second auction round, the target will serve up a contract, which attorneys will mark up, return and negotiate.
- Provide equity commitments and financing letters.
- Close the deal.
Public securities offering
- Help client analyze issues associated with issuing debt or equity. The decision is largely dependent on the nature of the company, the benefits of equity versus debt and market demand.
- In a debt offering, attorneys and underwriters draft debt instruments and negotiate the terms of the securities, such as the covenants, the rate, and the tenor. This requires many commercial terms to be agreed on; underwriter’s counsel will draft the descriptions, while the borrower’s attorneys will negotiate and comment.
- If it’s a public offering, attorneys work with the client and its accounting firm to prepare and file a registration statement with the SEC.
- If it’s an IPO of common equity securities, the registration statement will contain a prospectus that provides a welter of information about the company and its finances, as well as past financial statements.
- Wait 30 days before getting initial comments from the SEC.
- Undergo multiple rounds of commentary back and forth with the SEC. This can take one or two months.
- Market any securities.
- Finalize the underwriting agreement and other documentation.
- Get the deal 'circled up' to ensure hitting the minimum target for proceeds solicited.
- If a private offering, no interaction with the SEC is necessary, but attorneys must ensure their client has the applicable exemption.
Realities of the jobanchor
- An M&A transaction can have “a whole laundry list of tactics to choose from and issues to consider, depending upon what side you’re on,” says Alison Ressler of Sullivan & Cromwell, meaning that no two deals are exactly the same.
- Due diligence will largely fall to associates and, though it can be tedious, it’s crucial for attorneys to understand what’s in the documents.
- Delaware, where many corporations are incorporated, has among the most pronounced and expansive laws on the duties of the board and rules concerning special committees, which have tremendous implications for M&A transactions and corporate governance work.
- Public companies, particularly those in the Fortune 500, are slick operations with considerable legal budgets and expertise, and usually need less handholding than smaller, less sophisticated clients.
- Auction processes often occur when a company being sold wants to have its choice of either 'strategic' (i.e. corporate) or private equity buyers before committing itself to one.
- The New York Stock Exchange and NASDAQ are the major exchanges in the US and most American public companies will be listed on one of them.
- The SEC is the primary regulatory authority to vet a company’s offering prospectus. The stock exchange process is focused on submitting documentation, certification and letters that prove the client satisfies the listing requirements.
- The content and organization of prospectuses tends to be fairly standard. Nevertheless, some lawyers consider it a rewarding exercise because a good deal of creative writing is required to communicate a company’s narrative.
- The purchase (or ‘underwriting’) agreement is a lengthy contract in which the underwriter agrees to buy the securities and resell them to investors.
- As soon as a company undergoes an IPO, it will be subject to all the rules and requirements of a public company, so the necessary organizational structure must be in place before the IPO.
- Follow-on offerings of common equity are much simpler than an IPO because most of the basic disclosure has already been drafted and will only need to be updated.
- All public offerings are highly negotiated, bespoke instruments that fit a company’s particular needs and respond to market demand.
- Clients often expect transactions to be completed in a matter of days, which can mean working 18-hour days and weekends. This expectation can create an atmosphere of cooperation and expediency among parties. “You break down the walls between who’s doing what, and just dive in and do it,” Josh Bonnie of Simpson Thacher & Bartlett says.
- The broader category of corporate finance includes representing borrowers in lending transactions with banks, though most firms organize themselves so that the lawyers who advise the lenders and borrowers are part of the banking and finance team.
- The number of global mergers and acquisitions dropped slightly in 2011, but M&A deals totaled $2.18 trillion – an increase of 2.5 percent on 2010, making it the busiest year since 2008. The USA also recorded a 14.4 percent uptick on deal value on 2010 despite a small dip at the end of the year. The energy and power sector continued to shine, accounting for an impressive 25.6 percent of all global M&A deals announced in 2011.
- In 2011, deal activity within emerging markets fell 11.7 percent from its previous levels, but inbound cross-border activity into these markets rose by over 19 percent – the highest annual total on record.
- Louis Goldberg, partner at Davis Polk & Wardwell, says: “Continuing improvement in the M&A market is being fueled by strategic deals. During the crisis there was a focus on maintaining liquidity in case there was another credit collapse. But now there is less fear of that, so you see more and more of this strategic activity.”
- The Dodd-Frank Act is not having a major impact on classic M&A transactions.
- The Volcker Rule is affecting the work of M&A lawyers. The ban on proprietary trading by financial institutions means many banks may in future be unable to maintain the hedge funds and private equity part of their business, meaning they may have to spin them off into separate companies.
- IPOs have made a strong return after becoming non-existent during the financial crisis. In 2011, the US announced a total of 134 IPOs, generating $35.5 billion, compared to the previous year's high of 168 IPOs raising $39 billion. While these figures represent a 20 percent decrease in volume and a 9 percent decrease in value on 2010, they are still a vast improvement on the decade low of 31 in 2008.
- Non-US companies are now frequently listing on the London and Hong Kong exchanges instead of the New York ones, though Asian companies are still actively registering in the USA.
- Private equity investment also made a comeback in 2010 with deal volume almost doubling, staying relatively stable into 2011. Louis Goldberg tells us: “Private equity and the leveraged buyout market are also starting to improve. There’s a lot of money, which had been on the sidelines or was waiting in case it was needed for fixing companies in distress – that money is now coming back on to the scene.”
- One sector that took the stock market by storm in 2011 was technology, with internet companies making a particular impact. 24 internet companies went public in 2011, including LinkedIn, Groupon and Zynga, making it the biggest year for internet offerings in a decade. With Facebook's market debut on the horizon, this growth looks likely to continue. Bloomberg predicts the industry may raise $11 billion in 2012.
- The financial services and energy sectors snapped at the tech industry's heels, with 25 and 19 IPOs respectively. Keep an eye on these, along with the traditional stalwarts of consumer goods and healthcare – all likely to be major areas of investment in the near future.
What top corporate lawyers sayanchor
Alison Ressler, partner, Sullivan & Cromwell
“There are three primary courses that students who are interested in corporate law should take. Securities regulation is key – you need to understand securities law and what’s involved in issuing securities. A general corporate law course explains the different forms of corporate entities and how federal and state regulations affect mergers. A business combinations or mergers class teaches the case law on mergers and the difference between hostile and friendly takeovers. Two key ancillary courses are corporate income tax and accounting for lawyers.”
“Law students tend to think of us as just reading and marking up documents, but a key characteristic of a top corporate lawyer is the ability to negotiate and construct arguments on your feet.”
“The best thing law students can do in preparation is read the Financial Times and The Wall Street Journal while in law school. Those papers will really give you a sense of what’s happening in the business world.”
Josh Bonnie, partner, Simpson Thacher & Bartlett
“The IPO is the ‘ne plus ultra’ of capital markets work. The decision of whether or not to become a public company is incredibly commercial and requires a great deal of strategy. It’s unlikely the client will have IPO experience, so they will be reliant on the attorney. This allows you to get involved in a way that extends beyond what most people think; it’s not just drafting legal documents.”
“A newly minted associate will work on discrete tasks and projects. The biggest impediment to people moving successfully from the junior to mid-level is developing a genuine interest in the area. In order to do it for more than a couple of years, you must be interested in what you’re doing. Otherwise it’s impossible.”
Louis Goldberg, partner, Davis Polk & Wardwell
“I don’t think there is one style which makes you an excellent or effective M&A lawyer. There are a range of styles and skill sets, from those at one end of the spectrum who are thoughtful, determined and tactical, to those at the other end who are deal junkies: they have the charisma and love the ins and outs of the deal climate. But my ideal is someone who is somewhere in the middle and combines those styles.”