Team work

In any corporate finance transaction, it is essential for the client to have an experienced and capable advisory team around them. The value to the client of good teamwork amongst its advisers should not be underestimated. It is vital that this team, including the client, interact, communicate regularly and work together in order for the transaction to be a success. The accountant's role, especially if acting as lead adviser, is to ensure that all channels of communication remain open.

More often than not, the accountant will become involved in the transaction before the lawyer, especially with management buy-outs (MBOs) and management buy-ins (MBIs), if, for example, valuations are required for negotiations. In such transactions, the target company will tend to use its incumbent advisers, whereas the management team needs to engage its own. The accountant is usually in a position to assess the potential complexity of the deal and the level of specialist knowledge and expertise required to appoint a corporate lawyer and point the client in the right direction. It is from this point that the teamwork should start.

Team players

When a professional team works closely together, they all know what is going on, this gives the client a competitive advantage in negotiations, especially if the 'team' on the other side is not pulling together. Good project team management comes to fruition when the same team complete numerous transactions or when the advisers have worked together before. Even if all parties are new to each other, the accountant when acting as lead adviser can maximise this advantage for the client by emphasising the critical importance of the need for timely flow of information from the outset.

This team work benefits the client and provides them with at least two experienced commercial views on any particular point of the transaction. The professionals should also recognise when, and if, specialist knowledge is required, for example, pension advisers, valuers and bank managers, and advise the client accordingly. Again, good team management should be able to extend the information flow to include these additional team members.

Completion account clauses can also be problematic, especially with definitions and accounting policies. The accountant will know what they want in practical terms and must again ensure that they liaise closely with the lawyer so that this is correctly included in the sale and purchase agreement.

Frustrations arise when the accountant does not have sight of documentation until it is virtually in final form. This does not save time or costs. By completing documentation before allowing other advisers to review it, is just storing difficulties for the future, usually coming to light on the day of completion. This can obviously lead to embarrassment at a later date especially if no caveat has been stated to say that it is subject to review by the advising corporate accountant.

One memorable completion meeting that illustrates the need for teamwork admirably involved the lawyer acting for the vendor devising a scheme to save his client some stamp duty costs. He did this without consultation with the client's accountant. The result was indeed a stamp duty saving, but at the cost of reducing the net assets and the consideration by the gross amount. We happily accepted his scheme!

The overriding message is that both the lawyer and accountant are part of the project team and have specific roles with neither role operating to the exclusion of the other. Corporate finance, when at its best, is an 'art form' designed to maximise the clients' goals and value. At its worst, a bad selection of advisers can spell disaster to the extent the 'deal' does not complete and all parties end up in acrimonious litigation.

Case study 1: complementary skills

In cases where a client embarks upon a series of transactions, one of the joys of working together closely with fellow professionals is that one begins to appreciate the different strengths and weaknesses of the individuals in the team. This has been particularly noticeable on a client which was the subject of an MBO in 2000, made its first acquisition in 2002 and has recently made a further acquisition, all transactions of which were carried out using the same team of advisers.

The accountants became involved very early in the management buy-out and assisted the managing director designate to negotiate the terms of the MBO with the vendor. They introduced the solicitors to the client, who then assisted in preparing heads of terms. Typically, the majority of the early work in an MBO is carried out by the accountants in preparing a business plan and fund-raising. In this instance, the lawyers were an integral part of the team in ensuring that the management team appreciated the legal ramifications of the transaction they were about to enter into. It must be borne in mind that many management teams, as second-tier management in companies, are extremely competent in their own areas of expertise, but are not familiar with the corporate or strategic issues that the directors have previously handled.

As is often the case, the negotiations, which had been entirely friendly, took a turn for the worse on the completion date when it appeared that the vendor did not understand the transaction into which it had entered. Because the lawyers had been involved in the process and drafted the heads of terms and because the consideration was calculated based on the net assets at a particular date, we were able as a team to show the vendor the transaction as it was understood by the management team. The lead solicitor embarked upon shuttle diplomacy between the parties and ultimately was able to bring about a satisfactory conclusion to the transaction, which may not have been possible, but for his gentle negotiating style.

In the negotiation of the first acquisition, a different style was required as towards the end of the transaction, the vendor tried to pull back from assistance it had agreed to provide. In this case, it required a very firm stance to be taken to restore the transaction to that which we had previously negotiated. This could not have been done by the lead solicitor's previously more gentle style and recognising the relative strengths of the team, he stepped back to allow others to front the negotiation. Such trust in fellow professionals is usually built up over many years of working together as otherwise it seems that both solicitors and accountants always like to keep some degree of control.

Case study 2: late-day introduction

The accountants were introduced to client one by their solicitors who had been asked to assist on structuring an MBO of the company in which the management already held a minority interest. Unusually, a transaction had already been agreed between the management team and the vendor shareholders and the finance had been agreed with a major institution. They were brought in merely to provide specific taxation advice on the effect of the MBO on the individuals of the management team increasing their shareholdings and during the process of the transaction, exercising options. We were also asked to advise on the structuring of the transaction, the broad outline of which was already agreed in principle.

It became clear as work commenced that, while we had been informed that a transaction was agreed, there was still some negotiation taking place over the consideration, which was principally being driven by the institution. This was finally settled following discussions with the lawyers and ourselves to structure a transaction that effectively ratcheted the consideration in the event of subsequent high levels of success, but guaranteed a baseline consideration for the vendors. This structure had to take into account not only legal and taxation considerations for the company and the individuals, but also the commercial requirements of the investing institutions, the latter at times being more difficult to achieve than the former.

Other areas that involved significant amounts of co-operation between the professionals were the detailed clauses in the shareholders' agreement dealing with pre-emption rights and any subsequent transfers of shares. This was principally driven by the commercial reality of the transaction, but needed all parties to understand and agree the legal documentation and the accounting consequences of any subsequent transactions in shares or perhaps a company buy back of shares.

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