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Corporate Transactions are a Matter of National Security

May 30, 2019, 1:21 PM

Legal Leadership in an Evolving Business Landscape: Bloomberg Law Leadership Forum Recap

On May 30, Bloomberg Law’s Leadership Forum East convened for its fifth year at Bloomberg LP in Manhattan for “Corporate Transactions: Leading the Strategy.” The conference brought legal industry leaders together to share insights about keeping businesses agile in a changing marketplace and regulatory environment, and how data and technology create new growth strategies, opportunities and risks. Topics included:

  • The impact of business on national security, and future risks to that security
  • Mitigating the risk of antitrust investigations in mergers and acquisitions
  • Security and privacy in building deal teams
  • Valuing data now and in the future
  • Preventing against and preparing for data breaches
  • Ensuring a deal makes it to closing
  • The General Counsel’s role after that close

5:20 pm Update:
Smooth Transitions, Legally

General counsel’s job doesn’t end once a deal is closed and the papers are signed. In “Post Close: The General Counsel’s Role,” in-house and outside counsel discussed what attorneys can do to help smooth out post-transaction integration issues.

“It’s very much about the business,” said Brian Campbell, Senior Vice President of Corporate Development, General Counsel and Corporate Secretary at DHI Group, Inc. “When we get to closing, the question is, where were we when we first set out of this journey? We’re not ending up with the same thing we thought we were going to get, and the question is it worth it. Sometimes the deals you don’t do are the best deals because you can walk away.”

“I’ve been in the position of being the smaller, high growth company,” said Erin Abrams, General Counsel at Via Transportation, Inc. “While we might be aligned at a high level for our vision, the way in which we execute on that can be quite different. Post close, I like to think about the universe of laws that can be applied here under the highest standards of compliance.”

Lesli Esposito, Partner and Global Co-Chair, Antitrust and Trade Regulation Group at DLA Piper, acts as outside counsel on these mergers and acquisitions. “I encourage the companies to read each other’s compliance policies,” she said. “Some companies are extremely conservative. It’s really critical in order to achieve the full benefit of the acquisition, you need to discuss what your risk tolerance is and work together to align those tolerances so you’re not totally overhauling the business practices that are in place at either company.”

The biggest problems post-close are “asymmetric access to information,” said Doug McNitt, Vice President, Legal Services and Deputy General Counsel at Cisco Systems, Inc. “What I try to do with all my teams is just try to give them as much certainty as I have not to overpromise. These are human beings, and your process has to be empathetic in that way.”

4:15 pm Update:
Getting to the Close

When deals fail, in-house counsel is often held responsible by other involved stakeholders. In “Reducing the Fail Rate: Elevating Your Role In the Deal,” attorneys discussed best practices for making sure deals make it to the close.

“Failure is a funny concept. Depending on how narrowly you look at the situation, you could think that you’ve done something well, or you can think that you’ve done something poorly,” said Alan Konevsky, Chief Legal Officer at tZERO. “If you think about what happens after signature, you could very well have a signed piece of paper but a failed deal because you missed something in due diligence. As lawyers you tend to focus on transaction failure, but you really need to think more broadly.”

John McNally, Executive Vice President of Marsh — JLT Specialty, Marsh & McLennan Companies, agreed. “If you buy a business for $100 million dollars, but there was something missed or wasn’t disclosed, that creates an issue in value because a problem emerges later on,” he said.

The theme that emerged from the discussion is that a truly successful transaction comes from a successful mesh in cultures. “The mesh between us and our clients, especially in core value, is really important,” said Michael Signer, Vice President and General Counsel of WillowTree, Inc. “There’s a nice socialization culture, when we start to talk to each other. That grows through good healthy engagement. You can draw through lines of relationships that won’t survive under stress.”

Counsel, though, can help facilitate that relationship. “I see a disconnect in the proposed synergies of a merger and the integration teams,” said F. Dario de Martino, Partner and Co-Chair of Blockchain Practice at Morrison & Foerster. “They don’t really talk until it’s too late. One of the things we can do is make sure we bridge that gap.”

“Public deals are as much about financial and strategic considerations as they are about a PR battle and a referendum on the effectiveness of incumbent management,” Konevsky said. “You have to prepare before you go down that path: do you have the fortitude to deal with that? You are going to be effectively starting a PR discussion on you versus the target. If culturally you don’t have the appetite for that sort of public discussion, which could attract scrutiny from labor, regulators, customers and the government, you may think twice about your own strategic priority. Things can still go wrong, but you’ve done the best you can to mitigate uncertainty in a trust deficit ecosystem.”

3:10 pm Update:
How Data Breaches Affect M&A Deals

“If you ask a company if they’ve had a breach and they say no, they’re either lying or they don’t know,” said Roy Iversen, Director of Security Engineering & Operations at Fortalice Solutions. Preventing data breaches is an incredibly important part of doing business in today’s climate, but those breaches still affect nearly every company. What matters, according to the experts in “Reassessing Strategy: When a Breach Threatens Your Deal,” is how a company responds to that risk that determines whether a pending deal can be saved.

“The General Data Protection Regulation has very effectively raised awareness around data and the risks surrounding it,” said Harry Valetk, Of Counsel at Baker & McKenzie LLP. “Data breach conversations are relatively new in a deal, but they’re not new in other areas.”

R. Monica Hennessy, Senior Corporate Attorney at Otsuka Pharmaceutical Development & Commercialization, Inc., said that growing awareness is changing the way her company puts together deals and working agreements.

“If we’re getting into a deal where we’re very serious about a negotiation, we want to put clauses into those agreements, where if there’s a reasonable suspicion of a security incident, we are notified so we can get involved,” she said. “You want to have a right to be at the table before they even assess it’s a breach. It could have been weeks or months since it happened. We want to be brought into that discussion at the earliest possible moment.”

Jo Ann Davaris, Global Chief Privacy Officer at Mercer, agreed: “If you don’t open up that collaborative spirit during that period so you’re both sharing that information at the earliest, you’re going to be dealing with a mess after the deal.”

“It can kill the deal,” Hennessy added.

Valetk expressed that a breach isn’t really a dealbreaker, as long as it’s handled properly. “I like to see the incident report, and who they used for forensics,” he said. “You want to see that the organization has had them, has dealt with them, has a process to deal with them. It speaks to the maturity of the organization and the risk tolerance of the organization. You can tell if the culture of the two organizations is aligned or reveals a misalignment.”

One point the panelists emphasized: it’s important to involve everyone in vigilance against breaches. “It’s a challenge for someone in legal and compliance because we should not be defining risk and risk appetite. It should be coming from the top down,” said Davaris. “We try and give people a sense of what’s at stake. Our bottom line could be directly impacted by one security breach.” Mercer implements company-wide training to handle breaches. “We hope that we will hear things immediately. That engagement from a corporate wide perspective helps with the decision making around larger deals. If they already understand the risks, it’s easier for us to get the terms in a deal we might need.”

1:55 pm Update:
Bloomberg Law: Ask an Analyst

In the opening afternoon session, three Bloomberg legal analysts addressed hot-button issues on the legal landscape.

Cannabis legislation. Though cannabis is illegal on the federal level, said Denis Demblowski, “we live in an environment where it’s becoming much more lenient on the state level.” Forty-eight of the 50 states plus DC have some sort of legislation on the use of marijuana, many of them dealing with both medical and recreational use. At the end of last year, there was a new farm bill which contained an exemption from the controlled substance list for hemp. It’s now exempted from controlled substances. CBD is now under the jurisdiction of the FDA, and is being investigated as a treatment for epilepsy.

Cryptocurrency. The SEC approved a transaction for a digital coin that no investor would want to buy, said Peter Rasmussen. “It’s basically an Amazon gift card that doesn’t have much import in the larger crypto market.”

LLC ownership. The United States is being criticized internationally for its privacy rights in establishing an LLC. “The information is extremely sparse. The US is being criticized internationally because it doesn’t public publicly the names of the people who are forming these entities, Demblowski said. This has been a debate on the federal level for a decade, where some senators are trying to establish a national database.

12:40 pm Update:
Data as an Asset Today and in the Future

On a given day, 2.5 quintillion bytes of data are exchanged around the world. “Every company is a data company,” said Kevin Fumai, Senior Managing Counsel at Oracle, “and data is a strategic asset.” Fumai moderated the discussion around “Assessing the Opportunity: Valuing Data in a Transaction,” where subject experts talked not just about how data is valued today, but how it will be valued in the future.

Jamie Watts

“There’s almost too much data out there. No one is ever going to be able to go through all of it and make sense of it,” said Jesse Kramer, Associate General Counsel of Mergers & Acquisitions for S&P Global. “It’s really the technology and the analytics that you’re buying and you’re valuing. When you think about valuing a company that has data, you have to look at how they’re making it bite-sized for a customer.” He also addressed the scalability of certain data assets. “Data is the type of thing you can charge a premium for, but it’s a hard thing to scale in the sense that you’re providing people with insight about their markets, and once you’ve provided it, it’s become commoditized.”

“The proliferation of tools and analytic software that’s available to solve problems that were done manually 10 years ago is really remarkable,” said Peter Hardigan, Senior Managing Director at Ankura. The real strategy comes from how to “Deal with the volume of data that’s out there, and to use the right tools to answer complicated questions.”

One kind of data that can be especially valuable, said Claudia Ray, Partner at Kirkland & Ellis, is historical data. “Some of this is thinking more broadly about IP and the protection of data, about trade secrets and what the company can do to protect them going forward,” she explained. “They may have value that nobody else can replicate because they can’t go back 10 years and create a data set.If your company is able to mine that data and come up with ways to use it, and see patterns and trends, that’s incredibly valuable.”

Both Ray and Henry Hadad, Senior Vice President and Deputy General Counsel at Bristol-Myers Squibb, discussed the costly and potentially problematic issue of protecting the value of data in the future. “You have to think of it not only as something that has value and that you can monetize, but the cost of protecting it,” she said. “If you go into a market that’s highly regulated in a different way, that cost is going to be balanced against the value.”

“Over time, data tends to want to be free,” Hadad added. “It’s difficult to truly protect data. It’s what do you do with it, and ultimately, what is the outgrowth of it? Are you in a space where you’re creating something? Is that helpful to society?”

12:00 pm Update:
Building a Leak-Proof Deal Team

Jamie Watts

In “Today’s Deals: Leveraging the Right Talent,” three experts offered differing perspectives on what makes up an ideal deal team, but one idea was of universal importance: hand-picking talent you know you can trust.

“The virtual world is becoming much faster moving. It’s the relationships that get it done,” said Brendan O’Connor, Vice President & Deputy General Counsel for Garrett Motion Inc. “Everybody measures the financial metrics. Risk mitigation is only considered when something goes wrong. I worked with someone, I saw their talent first hand. It’s a much more personal process than it is metric-based.”

Both Alex Muentz, Senior Security Officer at Leviathan Security Group, and Ahmed Shaaban, Founding Member of Fulcrum Global Technologies, provide support and talent to corporations when they’re putting together deal teams. “Typically you get those last minute calls, when there’s a discovery process that surfaced something near the end,” Shaaban said. “By next year, 15-17 states will have their own privacy rules. They come to us to look at the 2-3 year plan post-close, and how we’ll build that into the deal.”

“If we don’t take the time to look at the deal value, and look at the risks, it’s often going to be problematic,” Shaaban continued. “Today’s markets are not forgiving anymore. Investors are very savvy in what they want to see in their agreements and what their exit plans are.”

Muentz’s job as a security officer is to identify issues that could be problematic, and to advise clients to modify deals based on those findings. He said, “We go back to the buyer and ask, what’s really your concern? It’s important to make sure everyone has been communicated the risk appetite of everyone one in the deal.”

Security on the deal team was another recurring theme in the discussion. O’Connor emphasized the importance of tiered NDAs. “Just because the deal is public doesn’t mean you get to tell the ins and outs of how this deal worked,” he said. “It’s very serious from start to finish. If you build it into the culture, then people will follow it.”

“The number one thing is lack of proper tooling,” Shaaban added. “Today’s tools for maintaining privacy are underutilized. There are tools for chain of custody of all kinds of information. The best tools today are social listening tools, which is the best way to tell if you have a leak. These aren’t just tools that are picking up a name or a word, but they’re predictive and looking for trends. If the tools are in place, and there’s the proper thought, it’s really looking downstream at how this is going to pan out in the first year or the second year. You can use these tools to cut off data after a close. Those are the pieces that are lacking today, that we don’t see too much.”

10:50 am Update:
Mitigating Antitrust Risk in Technology-Driven Deals

In “Risk Management Alert: Antitrust Enforcement,” four industry leaders discussed strategies to anticipate potential antitrust risks and to manage them before they become major issues.

Koren Wong-Ervin, Director of Antitrust & IP Policy and Litigation at Qualcomm Incorporated, discussed how different antitrust considerations in the United States are than they are with other major global powers. “In the rest of the world, it’s believed that certain kinds of conduct by a monopolist are just presumptively bad,” she said, noting that there’s a global idea that, “you can go out and compete hard, but once you become a monopolist, there are special responsibilities and ways you need to act.”

The U.S. Supreme Court, she said, has made it clear that they’re more concerned about false positives — in interfering when they shouldn’t have — rather than false negatives, which are instances where intervention was needed but not provided.

“In the US, we focus on economics,” Wong-Ervin explained. “Whether there’s going to be a general lessening of competition for mergers.”

Thomas Bonk, Vice President of Professional Services at Epiq, discussed how proper “hygiene” in corporate procedures, like keeping your data in good order, can mitigate risks of antitrust issues.

“From a cost basis or a time basis, having a disorganized system up front will make the review process exponentially more expensive,” he said. “Learning about problematic documents at the 11th hour is not idea. Having good hygiene can mitigate that risk.”

Bonk explained that keeping your data in good order can also manage the risk of a data breach during a transaction, which can have devastating consequences. “At the end of the day, the potential use of monitoring technology as a precursor to an M&A event can help stave off issues that arise at inopportune times.”

“Sometimes business leaders are surprised to learn that after they’ve signed a deal, they can’t talk about sensitive information like pricing strategy,” explained Vanyo, Chief Competition Counsel at Marsh & McLennan Companies. “Until a deal is closed competitors remain competitors. If you’re engaging in high level conversation, you have to be very careful about pricing discussions or agreements not to go after certain customers, because it can be a criminal violation.”

“Planning the investigation, you want to think about staffing, scope, your goals and timing,” said Stacey Anne Mahoney, Partner, Morgan, Lewis & Bockius LLP. She recommended incorporating a high-level skeletal plan into your strategy from the beginning. “Best practice is to include a roadmap for that investigation in your compliance programming,” so that when an antitrust investigation arises, there is a strong strategy in place. “There are data screening tools you can use to assess whether there may be cooperation with competitors.”

Vanyo named a few things, like keeping an eye on expense reports and email monitoring for the names of competitors, as good screening tools. “Monitoring can be burdensome, expensive, invasive to your employees. You have to find the right balance,” he said. “There are all sorts of risk-based interventions you can have.”

“For compliance, it’s critical to get the senior management to buy in and explain why it’s so important,” Wong-Ervin continued. “Run things by us, and early. In antitrust, things like monopoly power or relevant market have very specific definitions that people aren’t going to know. You have to make sure you’re engaging with outside counsel and really asking them for advice, not just copying them on the email.”

9:15 am Update:

Jamie Watts

United States Attorney Richard Donoghue: Corporate Transactions are a Matter of National Security

In the keynote address of Bloomberg Law’s Leadership Forum, Richard Donoghue, United States Attorney in the U.S. Attorney’s Office in the Eastern District of New York, spoke at length about how decisions that corporations are making today can and will shape the global landscape of tomorrow.

“National security is a major focus today as it has been in the government for a long time,” Donoghue said, noting that the current administration has an enhanced understanding of how business transactions can affect national security. “If you’re looking long term, business can have as much impact on national security as planes and tanks.”

“We are very much rewiring the world’s infrastructure,” he said. “Questions of who will have access to that infrastructure and who can shape it are very much of concern to national security.” Donoghue discussed how data breach concerns, and the misuse of technology, are at the forefront of M&A transactions today. “Data breaches are and should be a major concern for a corporate leader. The general public has a greater awareness of the danger that is posed by the concentration of technology and how it can be used.”

Donoghue also discussed how his department is looking to the future in its antitrust considerations. “Technology is developing so rapidly that you have to look at not only what will this do to the market in the foreseeable future, but at their horizon 2 and horizon 3 objectives,” he said, explaining how certain transactions might not raise immediate competition concerns, but that a company’s technological advances could create future concerns. “We have to look down the road given the rapid development of technology,” he said.