Trust the
Winter 2017
a publication of smith, gambrell & russell, llp
SGRLAW.com
MERGERS & ACQUISITIONS
Solving the deal-making puzzle
Trust the Winter 2017
3 Editor’s Letter 4 Legal Briefs
News and views from the offices of Smith, Gambrell & Russell.
8 Getting Letters of Intent Right
How a correctly drafted letter of intent can help buyers and sellers maximize value from an M&A deal.
14 The Interlex Group
An introduction to the association of leading law firms that provide international legal and business services.
16 Purchase Price Adjustments In Mergers & Acquisitions The key issues to consider when negotiating post-closing purchase price adjustments.
20 Preparing for M&A Litigation Before the Ink Dries
Smith,Gambrell
&Russell, llp Attorneys at Law
1230 Peachtree Street, N.E. Promenade, Suite 3100 Atlanta, GA 30309-3592 editor@sgrlaw.com editor-in-chief
Dana Richens editorial advisory board
Peter Goodman Joyce Klemmer Brett Lockwood Jim Monacell Jim Porter
sgr marketing team
Lee Watts Kathleen Rast Megan Stewart Elizabeth Thomas Mollie Werner
Advance preparation can help the resolution process and reduce costs if problems arise during an M&A deal.
Trust the Leaders is published on behalf of Smith, Gambrell & Russell, LLP by Fourth Element Creative.
24 Client Profile: Gerdau
obtained from sources believed to be reliable.
We introduce you to a sustainable steel business specializing in the construction of “long steel” products for the industrial sector.
26 Finish Line
A conversation with new SGR partner Justice Leah Ward Sears.
The information contained herein has been The content and information in this publication do not constitute legal advice, do not in all cases reflect the opinions of SGR or its attorneys and are not in all cases complete or current as of the publication date. This publication is not intended to and does not create an attorneyclient relationship or provide legal advice or legal opinion. Legal advice should be obtained from one’s legal counsel. Permission is granted to use and reproduce this publication in whole or in part for internal and personal reference, provided that proper attribution of authorship is given. Except for material in the public domain, this publication may not be further copied, modified, used or distributed, in whole or in part, in any form or by any means without the written permission of Smith, Gambrell & Russell, LLP. All other rights expressly reserved. © 2017 Smith, Gambrell & Russell, LLP. Leaders
used with permission of Leaders Magazine, Inc.
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TRUST THE LEADERS | Winter 2017 | SGRLAW.com
Editor’s Letter
Editor’s Letter Happy New Year! And welcome to the Winter 2017 issue of Trust the Leaders, the award-winning magazine of Smith, Gambrell & Russell, LLP. This issue showcases SGR’s Mergers and Acquisitions, or “M&A,” Practice. Given the breadth and sophistication of our practice, the term “mergers and acquisitions” encompasses many different types of transactions. On any given day, our M&A deal lawyers could be working on everything from the acquisition of a midsize family-owned business to the sale of a publicly held company with international facilities to a sophisticated joint venture contemplating contributions of substantial resources by the participants and an eventual buyout. As our cover imagery suggests, a successful merger or acquisition transaction, no matter the size, is about connecting many different pieces, and addressing a wide variety of issues, to complete the transaction in a way that best achieves the results desired by our clients. Along the way, our attorneys draw on the depth of their experience and problem-solving abilities to offer our clients practical, sound solutions. The articles in this issue explore several important aspects of a typical M&A transaction, including the letter of intent (p. 8), the skillful negotiation and drafting of transaction documents to provide for post-closing purchase price adjustments (p. 16), and the effective crafting of deal documents to anticipate potential litigation (p. 20). We hope this issue gives you a sense of the significant experience and value that our M&A lawyers bring to our clients every day. Enjoy!
IN THIS ISSUE
Jonathan Minnen p.8
Jonathan explains the reasons for buyers and sellers to draft precise letters of intent for M&A deals.
Tom Hong p.14
Tom introduces you to Interlex, an association of international law firms that can advise on cross-border transactions.
John Spillman p.16
John offers a selection of tips for negotiating post-closing purchase price adjustments.
Dana Richens Editor-In-Chief editor@sgrlaw.com
Colin Delaney p.20
Colin examines the various ways firms can resolve issues and control costs if problems arise during a purchase or sale.
FOLLOW
ONLINE
BLOGS: sgrlaw.com/blog TWITTER: twitter.com/sgrlaw LINKEDIN: linkedin.com/companies/27889
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LEGAL BRIEFS
THE LATEST NEWS AND UPDATES FROM THE SGR OFFICES
ATTORNEYS IN THE NEWS
SGR recognizes American Business Women’s Day
NEWS IN BRIEF
SGR was proud to recognize this annual holiday, which was established in 1986 by Congressional Proclamation and President Ronald Reagan to recognize the significant contributions of women to our economy. The Firm hosted the following events to celebrate: ● Not Your Mother’s Workplace
attorneys Dana Mark, Aleena
SGR’s Jacksonville office hosted a
Shapiro, Svetlana Zagorino and
workshop with Dr. Sharon Berquist,
Jonathan Kline spoke on estate
a practicing board-certified internist
planning and asset protection. The
John McCarthy, a
at Emory University Hospital and
guests were thrilled to try on some
partner in SGR’s New
assistant professor at the Emory
fabulous jewelry pieces (above).
York office, is the new
School of Medicine. Dr. Berquist led
chair of the Federal
a workshop on the various types of
● HERstory
stress and their impact on health.
Our Atlanta attorneys hosted clients
Litigation Section of the Federal Bar
and contacts for a cocktail party and
Association (FBA). The FBA, which operates on a national and local level
● Pearls of Wisdom
tour of the historic Margaret Mitchell
to represent federal practitioners,
In New York, we offered a cocktail
House in midtown Atlanta, where
consists of more than 18,000
reception with Stacey Lowenthal,
guests learned more about the life of
lawyers, including 1,500 judges,
a representative of jewelry design
the Pulitzer Prize-winning author of
whose work involves the federal
company Piranesi, and SGR
Gone With the Wind.
judiciary or federal agencies. The FBA is dedicated to the advancement
Atlanta partner David
of the science of jurisprudence and
Burge received the
to promoting the welfare, interests,
Boy Scouts of America
education and development of all attorneys involved in federal law. John leads a board comprised of
Whitney M. Young, Jr. Service Award. The award, named for the former Urban League
federal judges and practitioners to
president, recognizes outstanding
address such federal practice issues
service in the development and
as proposed rules of procedure
implementation of Scouting
or evidence, and advise the FBA’s
opportunities for disadvantaged
National Board of Directors on how
youth from low-income urban or
to publicly comment on them.
rural backgrounds.
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TRUST THE LEADERS | Winter 2017 | SGRLAW.com
Peter Goodman and Andy Fawbush spoke at the Merrill Lynch “DOL’s New Fiduciary Rule & Best 401(k) Practice” seminar in New York in September. The audience was primarily representatives of Japanese companies. Dana Richens, head of SGR’s Atlanta Litigation Section, was honored as a “2016 Law and Justice Woman of the Year” at a black-tie gala at the Center for Human and Civil Rights in Atlanta. The event was sponsored by Women Works Media Group. Dana joined a select group of appellate judges, in-house counsel from Fortune 500 companies and other legal professionals who received the recognition.
SGR IN THE COMMUNITY
LITIGATION SUCCESSES
SGR pioneers pro bono initiative with Jacksonville Area Legal Aid
Denial of class certification in wage-and-hour case
SGR has launched a new pro bono project with Jacksonville Area Legal Aid (JALA) to provide free legal services to disadvantaged, indigent clients. This exciting new program involves SGR attorneys volunteering for one day every month to conduct intake interviews with potential clients in need of legal services in the landlord/ tenant context. SGR lawyers then help JALA Photo by Kathy Para
determine which cases JALA can take. In many instances, SGR takes on responsibility for the cases, assisting clients to resolve their issues. The program is a “win-win,” in that clients can receive the quality legal representation they need, while SGR attorneys are able to
● “We’ve long supported Jacksonville Area
gain valuable legal experience, from drafting
Legal Aid and the delivery of legal services for
pleadings, to negotiating resolutions with
the disadvantaged, but we know we can do
landlords, and getting into the courtroom on
more,” Brust explained. “We want to do the
their clients’ behalf.
right thing for our community and we also
In the Oath of Admission to the Florida Bar, each attorney must swear the following:
want to do the right thing by training our new associates. Maybe with additional pro bono involvement we can do both.”
● “I will never reject, from any consideration
● Cases involve a broad variety of issues,
personal to myself, the cause of the defenseless
including resolving disputes with landlords
or oppressed. …”
who aren’t making essential repairs, defending a wrongful eviction or suing a
● In other words, lawyers pledge to provide
landlord for causing a bogus debt to appear
legal services to those in need, regardless of
on the client’s credit report. The landlord is
their ability to pay. SGR’s commitment to
often represented by counsel while low-income
providing legal services pro bono publico
tenants are most often pro se litigants.
(“for the public good”) is not just something
Studies have demonstrated that the involvement
that is said during a swearing-in ceremony – it’s
of a lawyer in a landlord/tenant matter
practiced every day.
significantly increases the tenant’s chances of a positive outcome. In short, The Landlord/
● The project started with a conversation
Tenant Pro Bono Project is helping to level the
between Steve Brust and Kathy Para,
playing field.
JALA’s Pro Bono Director. SGR attorneys James Cummings, Jennifer Pruden and Richard
● SGR’s leadership in this new initiative will
Rivera pioneered the project and helped staff
help keep families in their homes as well as give
the intake day alongside JALA attorneys.
housing stability to children, seniors, veterans
Before long, other associates and partners
and other vulnerable people. JALA hopes
from the Jacksonville office attended training
and expects that other firms will follow SGR’s
at JALA and started conducting interviews and
leadership and join the effort by committing to
taking on cases.
participate as well.
Pat Hill, Yash Dave and Ian Jones successfully obtained denial of class certification in a wage-and-hour case in the Superior Court of Los Angeles County, California, with a potential class of current and former California employees of a North Carolinabased construction rental equipment client. Pat and Ian were also successful in having the National Labor Relations Board deny the appeal of a dismissal of an unfair labor practice charge filed against the same client in Spokane, Washington.
Judgment on the pleadings granted in Delaware
The United States District Court for the District of Delaware recently granted the defendants’ motion for judgment on the pleadings of patent invalidity and, accordingly, held that the plaintiff failed to state a claim upon which relief can be granted. Callwave Commc’ns, LLC v. AT&T Mobility, et al., C.A. Nos. 12-1701RGA, 12-1704-RGA, 12-1788-RGA (D. Del. Sept. 15, 2016). SGR’s Ed Pennington, Sid Pandit and Stephanie Scruggs represented defendant Verizon. After considering the defendants’ arguments that the patent-in-suit “claim[s] the abstract idea of relating location-related information through an intermediary,” via claims “written so broadly that they could be performed entirely by humans,” the court found that, under the Mayo/ Alice analysis, “the claims are directed to the abstract idea of relaying location information via an intermediary” and that “the claims . . . do not describe an improvement in any sort of technology.”
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LEGAL BRIEFS THE LATEST NEWS FROM THE SGR OFFICES
RECENT REPRESENTATIONS Chemical trademark opposition Elizabeth Borland and Scott Woldow successfully represented Evonik Degussa GmbH in a trademark opposition against Basic & Co. SRL before the Trademark Trial and Appeal Board of the United States Patent and Trademark Office. The Board focused its analysis on Evonik’s AEROSIL mark for agricultural, insulation and building products and found confusion between that mark and Basic’s AEROSILEX mark that was approved for publication in association with similar chemicals and building products. The marks were found to be quite similar in appearance, sound, connotation and commercial impression. Moreover, the Board ruled that consumers are likely to focus on the first part of Basic’s mark, which is identical to Evonik’s AEROSIL mark. The Board suggested that consumers may even perceive the AEROSILEX mark as a modified version of Evonik’s AEROSIL mark. These factors weighed strongly in favor of a finding of likelihood of confusion. The opposition was sustained and registration of Basic’s AEROSILEX mark was refused in all three classes.
Atlanta BeltLine work
Luminex/Nanosphere merger
SGR is proud to have been engaged by
SGR served as counsel to Luminex Corporation in its
the Atlanta BeltLine Partnership™ (ABP)
acquisition of Nanosphere, Inc., utilizing an addition to
to represent the organization on a pro bono
the Delaware merger statutes of Section 251(h), which
basis in its general legal matters. ABP secures
permits the merger of two public companies via a tender
private, corporate and philanthropic support
offer without a shareholders’ meeting. Compliance
for the Atlanta BeltLine®, an internationally
with the Hart-Scott-Rodino Antitrust Improvements Act
award-winning comprehensive transportation
(“HSR”) was required, and the firm also served as defense
and economic development effort in the City of Atlanta
counsel when strike suits challenging the merger were
that is one of the largest, most wide-ranging urban
filed. SGR partners Jonathan Minnen (M&A), Tim Elder
redevelopment programs in the United States.
and Terry Schwartz (Securities), David Newman and
ABP develops programs to raise awareness, generate
Colin Delaney (Litigation), Tom Hong (HSR), Tom Rhodes
advocacy and outreach, and ensure that the Atlanta
and Parker Sanders (Trade Regulation), and Laura
BeltLine benefits residents of all socio-economic levels.
Andrew (Health Care) represented Luminex. Associates
SGR attorneys Nick Rueter and Matt Warenzak are
Sean Rosario, Brandon Sherlinski and Harrison
leading the representation.
Anthony provided additional assistance.
®
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NEWS IN BRIEF
Greg Kirsch, head of SGR’s Intellectual Property Practice, has been named Georgia’s Patent Law “Lawyer of the Year” for 2017 by The Best Lawyers in America®. Kate Rowe, a partner in SGR’s Intellectual Property Practice, has been named vice chair of the Board of Trustees of the Whitney Laboratory for Marine Bioscience – a University of Florida research center. Alyson Graham, an associate in SGR’s Tax Practice, has been selected for the seventh class of the Philanthropic Advisor Leadership Institute, part of the Balser Professional Advisors Council’s collaboration among the Community Foundation for Greater Atlanta, the Jewish Federation of Greater Atlanta, and United Way of Greater Atlanta.
ATTORNEY INTERVIEW
10 minutes with…
John Ethridge Partner in SGR’s Corporate and M&A Practice, Atlanta
John has more than 25 years’ experience advising clients across a wide variety of business transactions, including acquisitions and divestitures, joint ventures, venture capital, private equity, lease financing, commercial lending, public offerings and private placements of debt and equity securities. What do you like most about being an attorney? I like the interface with clients. I enjoy interacting with people. As a corporate attorney, I am typically the one who has the privilege of referring my clients to other attorneys within SGR to solve their problems. Tell me about the most interesting deal/client you’ve handled. While not the biggest deal or most complex on which I have worked, one comes to mind. We had a client who was attempting to roll up many higher-end auction houses under one umbrella. We ended up closing the deal in a glass room while a live auction was conducted outside with a television crew filming. As we were finalizing documents, people were strolling by the glass walls holding food and drink. It was like being in a fish tank. The best career advice you have received? Mr. Gambrell used to say, “A lawyer who can’t be found is a lawyer not worth finding.” Make yourself available to your clients. I try to live by that rule to ensure my clients know that when they have a need, we will be there to help. What advice would you give a young attorney? Stay calm, listen carefully, think before you speak and make sure when you do speak that your advice is relevant and practical. Also, keep your professional life in perspective. When you finish the race and look back, will you be able to identify how you made a difference?
What do you do when you are not working? I enjoy volunteer work. I also love working in my yard when I am not in the office. I love animals and have several pets. We keep bees as well. Are there any special causes or organizations that are important to you? My wife Cindy and I are committed to a number of causes and serve on many boards for organizations that are related to our schools, church and nonprofit community. We have particular interest in nonprofits that help the underserved. I personally devote a lot of time to Wesley Woods, which operates senior living facilities that provide affordable housing to people with limited resources. I am passionate about Murphy Harpst Children’s Center, which provides housing, therapy and hope to some of Georgia’s most severely neglected and abused children. Cindy is also active with Habitat for Humanity and City of Refuge. What is the last great book you’ve read? In light of the country’s current tense political climate, I recently re-read Unbroken, the true story of Louis Zamperini. I am moved by his story and was looking for some perspective and inspiration. Mr. Zamperini faced many challenges in his life, but throughout it all, he maintained a focus on living. What have you enjoyed most about working at SGR? I have grown up at SGR. I came here when I graduated from law school and have never looked back. I am proud of the work we do and the services we offer. I have enjoyed the opportunity to work with some very talented people. However, I also like the firm culture. The firm was much smaller when I arrived, but it always feels like family.
LITIGATION SUCCESSES
Dismissal in Heroes, Inc. trademark infringement action
The U.S. District Court for the District of Maryland granted SGR client Heroes, Inc.’s motion to dismiss for lack of subject matter jurisdiction in a trademark infringement action brought pursuant to the federal Declaratory Judgment Act. Heroes, Inc. is a D.C.-based charitable organization that has provided support to the families of fallen law enforcement officers and firefighters in the D.C. metropolitan area for over 50 years. It owns multiple federal registrations for its name and mark HEROES. Heroes, Inc. was represented by SGR attorneys Jim Bikoff, Bruce McDonald and Holly Lance. The court found that plaintiff The Hogs and Heroes Foundation’s (HHF) allegations regarding “threatening” statements made in the course of settlement discussions, a pending dispute before the Trademark Trial and Appeal Board, and Heroes’ litigation history were insufficient to satisfy the “case or controversy” requirement of Article III of the U.S. Constitution. Applying the MedImmune standard established by the U.S. Supreme Court in 2007, the court found that HHF had not presented a dispute that was “definite and concrete, touching the legal relations of parties having adverse legal interests.” This decision appears to be the first of its kind in the District of Maryland.
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Letters of Intent
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GETTING THE LETTER
OF INTENT
BY JONATHAN MINNEN
RIGHT A precise letter of intent can help buyers and sellers maximize value from an M&A transaction
S
“
ure glad we got that letter of intent signed – let’s send it to the lawyers to paper the deal.” That common sentiment suggests how the letter of intent, or “LOI” (sometimes also
referred to as a “memorandum of understanding” or “MOU,” or “term sheet”), is often misperceived, especially by sellers in an M&A deal. Business parties will often use a letter of intent to confirm only the major business points of a proposed acquisition, such as the purchase price and how it will be paid, provide a period of exclusivity to the buyer, and perhaps address how long representations and warranties will survive.
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However, by not addressing in the LOI other critical issues that need to be discussed as transaction negotiations proceed, a seller risks leaving substantial economic value on the table and compromising strategic opportunities. Thus, a seller in a privatecompany sale transaction is well advised to seek legal and accounting advice in the negotiation and drafting of the LOI. Not every acquisition transaction has a letter of intent. Instead, the parties sometimes proceed straight to negotiating a definitive purchase agreement. But in transactions of significant size, the more common approach is to have a letter of intent precede the drafting of a purchase agreement. However, the strategic reasons for a letter of intent are very different for the buyer than for the seller. It is generally in the best interest of the buyer to have as short and general a letter of intent as possible, whereas a seller is usually better served by having a more comprehensive LOI. Unless the seller’s company has unique assets, such as technology, intellectual property, brand, market share or an exclusive territory, the maximum leverage of the seller likely occurs at the time when the letter of intent is being negotiated. The seller’s negotiating strength often will diminish from that point forward. This is because in private-company transactions, most LOIs contain an exclusivity clause, which means the seller will be precluded from speaking to anyone else about a possible sale during the period of exclusivity. In short, the buyer gets the target company off the market, and other potential buyers may move on to other opportunities. Once it becomes known that the seller has entered into a letter of intent (even if the terms are confidential), if the transaction does not close, the perception may arise that the buyer found something wrong and walked away. True or not, such perceptions can have an adverse impact on the ability of the seller to find a replacement buyer at the same price. Despite confidentiality clauses, word of the letter of intent can leak out, causing other complications. Employees can get nervous and start seeking other jobs. Customers may become concerned about whether the new owner will increase prices or fail to provide the same level of service. As a result, customers may become more receptive to dealing with the target company’s competitors. A seller can also get
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Letters of Intent
emotionally attached to the idea of the sale and begin thinking about ways of spending or investing the proceeds, or, if they are owner-executives, moving on to other activities (including retirement). All of these factors make it harder for a seller to resist demands from the buyer after the letter of intent is signed. The phrase “becoming wedded to the deal” is an apt one. Sophisticated buyers know this. They want to achieve this point with a seller as quickly as possible and they want to preserve maximum flexibility to draft the purchase agreement in a way that is more slanted to their favor. This is partly achieved by starting with a shorter, more general, LOI. Thus, rather than specifically addressing important topics in the LOI, the buyer’s preference is often to defer the issue by use of convenient stopgap wording in a way that can disadvantage the seller. Leaving an issue to be “as mutually agreed between Buyer and Seller in the definitive purchase agreement” is one such approach. An even more favorable phrase for the buyer is that “the definitive purchase agreement will contain representations, warranties, covenants, indemnification provisions and closing conditions customary for transactions of this nature.”
Using an LOI to maximize seller leverage If the seller signs such an LOI, without further specifying key points, the effectiveness of the seller’s legal adviser will be significantly constrained. Rather than negotiating for key points when the seller’s negotiating position is more on a par with the buyer’s, the seller’s counsel is faced with doing so when negotiating leverage is declining. For these reasons, a
Unless the seller’s company has unique assets, such as technology, intellectual property, brand, market share or an exclusive territory, the maximum leverage of the seller likely occurs at the time when the letter of intent is being negotiated.
seller is well advised to take the opportunity, before it gives up its optimal bargaining position, to insist on a more comprehensive letter of intent that addresses key transaction points. Here are a few of these key points.
The form of the transaction If a price for the acquisition of a business is agreed to in the LOI, but the form of the transaction is not, a seller may find itself in a very different situation than it expected. Surprisingly, there are letters of intent that fail to specify this basic point. In general, a seller will want to sell its equity in the target company. The seller usually will have held the equity for a sufficient period to receive more favorable long-term capital gains
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If a price for the acquisition of a business is agreed to in the LOI, but the form of the transaction is not, a seller may find itself in a very different situation than it expected.
treatment. The seller will thus have its purchase price
(and perhaps at higher rates, too) in an asset structure,
reduced by tax only once. The amount it receives
as opposed to one level of tax at more favorable rates
for the equity, less the adjusted basis in that equity,
in a stock purchase transaction structure.
will be taxed. However, if the form of the transaction is not
Even if the form of the transaction is specified in the
equity of the target company, but rather only its assets
LOI as the acquisition of all of the equity, but not
and selected liabilities. Why? Although a detailed tax
specified further, an important topic may still be left
analysis is beyond the scope of this article, as a general
unresolved. If a buyer is willing to acquire the target
rule, if the buyer acquires assets, it receives a step-up
company through the purchase of equity, the buyer
in basis on those assets. Subject to certain exceptions,
generally insists on all of the equity being sold to it.
liabilities not assumed in the deal are left behind with
The buyer does not want to deal with holdout minority
the seller, so the buyer may have lower post-closing risk
shareholders. This is not a problem if either (a) the
of third-party claims. The target company is taxed on
shareholders have a proper shareholders’ agreement
the gain between the purchase price of the assets sold
among them that addresses this situation or (b) there
minus the adjusted basis in those assets. But in order
is only one shareholder or a very few, all of whom are
to get the money out of the target to the shareholders,
committed to sell.
some form of dividend must be made, which is then
12
Holdout equity holders
specified, many buyers will seek to acquire not the
But what about the situation where there is a
taxable income to the shareholders, and likely at a
minority shareholder, perhaps no longer actively
higher tax rate. Thus, there can be two levels of tax
engaged? For discussion purposes, assume he has a 5
TRUST THE LEADERS | Winter 2017 | SGRLAW.com
Letters of Intent
percent interest in the company. The buyer does not wish to purchase 95 percent; it wishes to purchase 100 percent. The minority shareholder will know this. Because the minority shareholder may not have that much to lose (by having only a 5 percent interest), he may decide that he doesn’t have as much to gain either. So, the 5 percent shareholder could demand an additional payment to sell his shares, and, in the absence of a proper shareholders’ agreement, he may have every right to take that position. You do not want to be dealing with this situation after a definitive purchase agreement has been fully negotiated and you are just trying to obtain signatures in order to close. The better time to deal with it is at the letter of intent stage by specifying a merger structure if possible.
Indemnification for breach of representations and warranties
different names (including “tipping,” “pour-over”
Just how long will the seller be responsible for
that functions like this: Assume a basket of $500,000.
standing behind the representations and warranties
At $480,000 of claims, the buyer receives nothing.
and any related claims? In terms of the classic bell
But if the buyer gets to $500,000 in claims, then it is
curve, a representation-and-warranty survival period
indemnified for the entire $500,000. Thus, the buyer’s
between six months and three years is arguably under
asserting $20,000 of additional claims becomes a
the curve and, thus, within “market.” Of course, a
$500,000 benefit. On the other hand, a seller will
buyer can be expected to push for the longer period.
want a basket that functions like a true deductible –
This survival period should be determined in the LOI.
$499,999 of buyer claims yields the buyer no recovery,
At the same time, buyers often want an even longer period, sometimes in perpetuity or for the
and “dollar one” baskets), a buyer prefers a basket
while $500,000 of claims yields the buyer $1.00. That’s quite a difference.
If a buyer is willing to acquire the target company through the purchase of equity, the buyer generally insists on all of the equity being sold to it.
length of the relevant statute of limitations, for certain “fundamental” representations. For a seller, the best
Conclusion
time to quantify (and limit) what will be on that list
For a seller, the letter of intent often provides the
of fundamental representations is likely during the
point of maximum negotiating leverage to insert a
negotiation of the letter of intent.
few phrases or sentences that can make a material
Claims by the buyer for indemnification are
difference in the overall transaction. Experienced
often subject to a “basket,” which provides that an
professional advisers have a highly useful role to
indemnifying party does not have an obligation to
perform, and a wise seller will take full advantage
indemnify until the amount of the indemnified party’s
of this important opportunity to maximize its strategic
losses exceed a certain agreed amount. Many letters
transaction position and thereby put more dollars in
of intent say there will be a basket, and even state
its pocket.
the amount of the basket (for example, a specified sum or a percentage of the purchase price). But a buyer typically prefers that nothing else be said on this topic. Once again, the buyer wants the LOI signed, and it wants to preserve its negotiating flexibility. Here is where a seller often leaves real money on the table. Although these baskets go by several
Jonathan Minnen is a partner in SGR’s M&A, International and Private Client practices. He has extensive experience in a wide range of U.S. and overseas business transactions, including mergers and acquisitions, ongoing transactional matters, and corporate advisory work. jminnen@sgrlaw.com.
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International Business
THE INTERLEX GROUP
Helping companies efficiently manage cross-border transactions
The client benefits SGR’s Interlex network offers clients a number of additional advantages, including the benefits of member firm autonomy, local market knowledge and enhanced value. All Interlex
A
member firms exist, operate and render their client is pursuing a
What is Interlex?
services on an autonomous basis from one
multi-jurisdictional
The Interlex Group is an association of leading
another. This is a benefit for clients because,
acquisition that
law firms around the world that cooperate
as independent firms, Interlex members will
involves a manufacturing
to provide a complete range of international
typically have fewer conflict concerns compared
plant in Brazil, a plant in
legal and business services. Founded in 1973,
with larger firms.
Mexico, and a distribution
Interlex has since grown and prospered and
network and administrative
today consists of 47 independent firms serving
firms are not saddled with maintaining a global
headquarters in the U.S.
clients across 155 cities in 59 countries. Interlex’s
back-office staff and can avoid the substantial
geographic footprint offers clients coverage
costs associated with global branding and
In this common scenario for SGR’s Mergers &
in more locations and countries than even the
marketing campaigns. Similarly, there is no
Acquisitions Practice, the client might wonder
world’s largest law firms. The Interlex Group’s
need for a very profitable satellite office to
whether they need to engage a law firm with
9,000-plus attorneys possess the professional
subsidize a less profitable one. This translates
offices in each of these different countries to
experience, local insight and cultural
into value for clients – because Interlex member
assist with such a transaction. The answer is,
understanding to successfully support a client’s
firms are not financially dependent on each
“Yes, and SGR can help you.” Not only is SGR
cross-border business legal needs.
other, they can offer service comparable to
BY TOM HONG
well versed in managing and advising on cross-
All Interlex member firms take great pride
Lastly, as a legal network, Interlex member
larger firms but at rates that are typical of midsize firms.
border transactions, our membership in the
in the quality and promptness of the services
Interlex Group enables us to enlist for a client’s
they provide, attributing their high standards to
benefit a global network of leading law firms
the strict criteria employed in the selection of
The bottom line
that is larger than any single law firm anywhere
member firms. Whether in Atlanta, Melbourne,
Regardless of deal geography or jurisdiction,
in the world. This provides great client value.
Beijing, Hamburg, Mexico City or Sao Paulo,
SGR clients can be confident they will receive
clients can be sure they will receive excellent
excellent service and value from SGR and its
and professional service. The quality of Interlex’s
Interlex Group colleagues. n
membership has been acknowledged by Chambers and Partners, the leading attorney ranking organization, through its designation of Interlex as one of only a handful of “Elite” global legal networks.
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TRUST THE LEADERS | Winter 2017 | SGRLAW.com
Tom Hong is the head of SGR’s Corporate Department and a member of the Firm’s Executive Committee. He advises on many cross-border transactions, including mergers and acquisitions, tax structuring, joint ventures and general international business transactions. thhong@sgrlaw.com.
Smith, Gambrell & Russell is honored to have served as legal counsel for our clients in these and other recent transactions
Acquired by Arsenal Capital Partners
Acquired by Cushman & Wakefield
Growth Recapitalization with East West Manufacturing
Acquired by Connecture
Acquired by Arborite
Acquired by Stephens Capital Partners
Acquisition of Nanosphere
Acquired by Virtusa Corporation
Portfolio Acquired by American Realty Healthcare
Acquired by Dwyer Franchising
Acquisition of TransACT Communications
Acquired by Synergy CHC
Majority of Beeline Subsidiary Acquired by GTCR
Acquisition of Independence Oilfield Chemicals
Acquisition of Contech Engineered Solutions
Acquired by HID Global
www.sgrlaw.com
TRUST THE LEADERS | Winter 2014 | SGRLAW.com
POST-CLOSING PURCHASE PRICE ADJUSTMENTS IN MERGERS AND ACQUISITIONS Here’s how both sides to a business acquisition can protect the value of their deal against pre-closing working capital fluctuations BY JOHN SPILLMAN
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Purchase Price Adjustments
M
ost U.S. private-company M&A deals feature some mechanism to adjust the price following closing to reflect more precisely
the agreed value of the acquired business on the closing date. Buyers, sellers, their counsel and other advisers need to give careful attention to post-closing adjustment provisions and related procedures in the purchase agreement to make sure those terms express the parties’ intentions, that language and calculation methods are clear, and that they do not open the door to disagreement and opportunistic behavior after the closing. Getting these matters right requires a team effort and careful attention to detail by all participants.
What is a Post-Closing Adjustment? Typical post-closing adjustment provisions focus on liabilities and assets of the target company that fluctuate as a result of business operations between the time the parties agree on a purchase price and the actual closing of the transaction, which could be months after the initial agreement on price. The most common adjustments are based on the difference between the target’s actual net working capital (NWC) at closing compared with an agreed target NWC amount expected at closing. For example, if the target NWC is $1,000,000 but actual working capital at closing is just $700,000, the seller would pay or credit the buyer an additional $300,000 in adjusted purchase price. Most (but not all) adjustments are “two-way” and adjust in the seller’s favor if actual NWC exceeds the NWC target. For instance, in the previous example, if closing NWC were $1,300,000, the buyer would pay the seller the $300,000 excess as an adjustment to the purchase price to account for this difference. Post-closing purchase price adjustments are sometimes based on income, expense, asset and liability items in addition to, or instead of, the standard NWC components, such as net assets. Some adjustments reward the seller with additional payments contingent on future performance of the acquired business. The following discussion focuses mainly on NWC adjustments to the purchase price.
Why Have a Post-Closing Adjustment? The main purpose of an NWC adjustment is to protect the buyer from working capital fluctuations
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17
Purchase Price Adjustments
between the time a purchase price for the target business is agreed upon and the closing. The buyer typically wants to be sure it gets an agreedupon minimum level of operating capital in exchange for the purchase price to avoid having to increase its investment to fund post-closing working capital needs. The NWC adjustment also reduces the seller’s incentive to manipulate working capital by accelerating collection of receivables, delaying payables and taking other actions to maximize cash distributable to the seller prior to closing. Finally, since most (but not all) NWC adjustment formulas require payment to the seller if closing NWC exceeds the target, the NWC adjustment protects the seller from unusually positive NWC fluctuations that would otherwise give the buyer a windfall in the form of excess working capital. This preserves the underlying assumption in most U.S. M&A deals that the business is operated for the seller’s economic benefit (and at the seller’s risk) until the closing.
Negotiating the Post-Closing Adjustment Provisions
in the adjustment, along with the accounting
Setting the right NWC adjustment target is
calculating those items. This is a critical step.
important for buyers and sellers, but reaching
Inattention to these details and mistakes can
agreement on the target can be difficult. Often,
lead to expensive post-closing disputes and
the basic idea is to determine a “normal” level of
substantial economic loss. It is critical for the
NWC, which can be more difficult and subjective
parties’ counsel, management, accountants
than it might seem. Sometimes the parties simply
and financial advisers to work closely as a team
start with average monthly NWC for the last 12
to draft and negotiate these provisions, with
months or some other relevant period. However,
careful attention being given to items that might
this may not yield a true picture of the current
be manipulated, misinterpreted or disputed in
working capital needs for the company’s normal
hindsight.
operations. The parties need to take into account, among
policies and procedures to be applied in
The NWC calculation should exclude assets and liabilities that are not being transferred in
other considerations, seasonal fluctuations,
the sale or that will have no economic value
unusual or nonrecurring events and recent
post-closing (certain tax items, for example). It
growth in the business requiring higher levels
is best to agree upon a detailed schedule
of “normal” working capital. The parties should
of accounting policies and procedures for
involve their accountants and financial advisers in
line items especially prone to disagreement,
the discussions of the NWC target amount and
such as inventory, reserves for uncollected
should be prepared with persuasive arguments as
accounts, reserves for contingent liabilities,
to what the target level of NWC should be.
accruals for paid time off and bonuses, prorated
Another important and sometimes contentious issue is defining the items included and excluded
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expenses and other problematic items unique to the target company’s industry.
The parties need to take into account, among other considerations, seasonal fluctuations, unusual or nonrecurring events and recent growth in the business requiring higher levels of “normal” working capital.
arbitration, usually by a mutually agreed-upon public accounting firm.
Resolving Disputes If an arbitrating accounting firm is engaged, the parties should consider any potential conflicts of interest and whether the designated firm’s fees would be proportionate to the anticipated amount of any disputed adjustment. The designated accounting firm’s authority should be limited only to the items in dispute and to resolving the disputed items within the range of values claimed by the parties. The arbitrating accountant’s decision on the disputed items and the amount of the adjustment normally is final and binding. Typically, the fees of the arbitrating accountant are allocated in proportion to the amount of the disputed adjustment that is resolved for and against each party. Payment of the adjustment amount is due once the adjustment amount is agreed upon or is finally determined by the arbitrating accountant. In some transactions a portion of the purchase price is escrowed to secure payment of any adjustment due from the seller. Sometimes the
schedule to the purchase agreement can also
The Mechanics of the Post-Closing Adjustment
be very helpful in minimizing disputes.
Most M&A transactions with post-closing
accruing on any unpaid adjustment amounts, to
purchase price adjustment provisions require
discourage delayed payment.
Attaching a sample NWC calculation as a
The parties should avoid language that simply says items shall be “determined in accordance
the seller to calculate an estimated adjustment
with GAAP” (generally accepted accounting
immediately prior to closing. This estimate is
principles), since GAAP often permits a range of
used to determine closing payments. In most
accounting policies to be used. It is important
adjustments, the buyer and its accountants
for the seller to ensure that the adjustment items
prepare a detailed calculation of the post-closing
are calculated consistent with the seller’s past
adjustment and deliver it to the seller within a
accounting practices for those items. The seller
specified time after closing.
wants an “apples to apples” comparison of
After the buyer delivers its calculation of
closing NWC and does not want the buyer to
the adjustment, the seller and its accountants
get a more favorable adjustment by changing the
normally have a specified time period to review
accounting rules.
the buyer’s calculation, request and review
The seller and its counsel also need to
supporting records and make written objections
review the language carefully to close off any
to the buyer’s calculation. If the seller does not
opportunities for the buyer to “double dip.”
send written objections by a specified date, the
Double-dipping might occur, for example, when
buyer’s calculation becomes final. On the
the buyer claims the same items in both the
other hand, if the seller submits objections,
post-closing adjustment and under the indemnity
there is usually a period for the parties to
provisions of the agreement, or includes the
negotiate and try to resolve the seller’s
same adjustment item in more than one
objections. If all objections are not resolved,
adjustment category.
most agreements provide for binding private
agreement also will provide for interest to begin
John Spillman is a partner in SGR’s Corporate Practice. He counsels on corporate and transactional matters, including mergers and acquisitions, joint ventures, emerging company issues and international transactions. jspillman@sgrlaw.com.
THE KEY TAKEAWAYS
● Post-closing adjustment provisions require close attention. Disputes are common and mistakes can be very costly.
● A team approach to negotiating these provisions is critical – the parties’ internal personnel and their respective counsel, accountants and financial advisers should all be involved.
● Ensure that the target net working capital amount is appropriate. ● Define the key terms carefully, and include a schedule of accounting policies and procedures, along with sample calculations.
● Make the closing estimate as accurate as possible to avoid big adjustment swings in the post-closing process.
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PREPARING FOR LITIGATION BY COLIN DELANEY
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BEFORE THE INK DRIES Getting key contract details right can help the resolution process and reduce costs if matters go awry in an M&A deal
TRUST THE LEADERS | Winter 2017 | SGRLAW.com
M&A Litigation
N
o matter the size of a transaction, a contract with a trustworthy and faithful partner can, as the saying goes, be written on the back of a
cocktail napkin. When the unexpected arises, the parties will work cooperatively to solve problems consistent with their initial expectations. But a deal with someone whose nature is to be adversarial will inevitably lead to disputes, no matter how carefully and thoroughly the relevant agreement is drafted. And sometimes, of course, you only discover the true nature of whom you’re dealing with when problems emerge. For that reason, having an eye on the possibility of disputes, and eventual litigation, is important even when parties to an M&A transaction are more focused on adding two and two together to create something greater than four. Business parties rarely want to see transaction issues wind up in litigation and, in the midst of negotiating an M&A deal, it’s usually hard to foresee what disputes will later arise. But having a litigator’s early perspective on the things of consequence if a dispute arises can help avoid the matter winding up in court in the first place. Alternatively, if that’s where a matter ends up, getting key contract details right can also help to control the speed, efficiency or cost of the dispute resolution process.
Approach to the Definitive Agreement Litigators often read contracts from back to front. That is, litigators start with the so-called “miscellaneous” provisions, which often appear in the last sections of an M&A purchase agreement, because those provisions define – perhaps far more than one might expect – what kind of dispute the parties may have and who may have the advantage. Neither optimism nor confidence should lull clients into minimizing these provisions that can determine the order of battle if a legal war ensues.
Choice of Forum The most obvious such provision is the choice-
CASE STUDY
ASYMMETRY WITH REPS-ANDWARRANTIES INSURANCE Insurance for breach of representations and warranties (“R&W”) in an M&A transaction has the potential to change the dynamics of how a dispute is resolved. In a case recently concluded by SGR, the full support of our clients’ R&W insurer and significant available coverage provided tremendous leverage for our clients in settlement talks. The case involved the sale of a hospitality staffing business with over $150 million in revenue. A private equity firm bought the business with plans to invest in new systems to change back-office processes and scale up operations. The sellers concerns The sellers grew concerned that the buyer might assert unfounded claims for breach of representations and warranties regarding the company’s operations to effectively claw back some of the purchase price, particularly the substantial portion that had been placed in escrow to cover post-closing adjustments. Believing firmly that there were no breaches as of the closing, the sellers nevertheless procured seller-side representations-andwarranties insurance as a precautionary measure. In our view, that decision ultimately made all the difference when, as anticipated, the buyer asserted claims against the sellers. How seller-side insurance works Seller-side R&W insurance typically includes defense costs as a covered loss. When the buyer made claims for breach of the representations, SGR represented the seller group. As SGR’s defense costs constituted covered losses, the sellers satisfied the policy’s self-insured retention – or deductible – and the R&W insurance kicked in. While the sellers were no longer financially “feeling the pain” of defending the case, the plaintiffs continued to incur substantial legal fees. Agreeing with SGR’s assessment that the underlying claims were meritless, the insurance company refused to entertain a cost-oflitigation payoff – something plaintiffs often count on to attain an easy settlement. The end result After several years of fitful efforts to sustain questionable claims, the buyer was faced with a growing abyss of costs and low prospects for recovery. In contrast, the sellers had the comfort of knowing the insurance company was behind them, managing claims and shouldering the bill. This dynamic created tremendous asymmetry in the litigation expenses and laid the groundwork for the eventual dismissal of the case.
of-forum clause, which defines where the
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21
parties’ dispute will be heard and by whom. Choosing one side’s home turf is rarely a good idea for the other side. Still, choosing a neutral jurisdiction may have its own disadvantages and may not impact both sides equally. For example, litigating in Delaware courts, a forum frequently chosen because many companies in M&A deals
By the time an M&A deal lands on a litigator’s desk, many of the most important tactical decisions have already been made.
However, arbitration is a mixed bag. Though often touted as faster and cheaper than litigation, arbitration can be anything but. Arbitration proceedings in the U.S. share many of the procedural characteristics and costs of litigation, including written discovery, document production, depositions and even pre-hearing motions practice. (International arbitrations, by
are organized under Delaware law, can be very expensive, because parties from outside
counsel to work through. Such adaptability by
contrast, differ markedly from U.S. litigation.)
Delaware will need local counsel to appear
a court may be highly desirable. It just comes
And because the rules are few and subject to
alongside their usual counsel, and Delaware
with a high price tag that may ultimately affect
the discretion of the arbitrators, the due-process
corporate litigators typically charge much higher
how willing – or able – one side or the other is to
protections of compulsory process are limited
rates than practically anywhere else.
shoulder the expense of mounting a fight.
if one side decides to stonewall, which tends to favor the side with the most ready access to
On the other hand, Delaware’s courts are very accustomed to handling disputes over acquisition
Arbitration
matters and at managing their dockets to serve
While certain M&A-related disputes – such
the needs of the parties – for example, by fast-
as resolving post-closing purchase price
Governing Law
tracking cases that might otherwise hold up a
adjustments – are frequently dealt with by
Choice of governing law will also affect
deal, or slow-tracking more complicated cases
arbitration, this approach to dispute resolution
the scope of a dispute. State contract laws
rife with evidentiary and legal issues that may
may offer the parties a better alternative to a
throughout the U.S. are broadly similar but
require additional time for the parties and their
courtroom in the appropriate situation.
differences exist that may prove good or
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information needed to prove its case.
M&A Litigation
bad for one side or the other in litigation over an M&A deal. A customary clause in acquisition agreements disclaims reliance on
EXTRA-CONTRACTUAL FACTORS
of the written agreement. If enforced literally,
CONSIDERATIONS OUTSIDE THE CONTRACT CAN AFFECT A PARTY’S LITIGATION PROSPECTS
this effectively bars claims for fraud based on
Availability of Evidence and Witnesses
Insurance
extra-contractual factors is the availability
that has become increasingly important
any representations outside the four corners
anything disclosed or said during due diligence or negotiations unless it winds up as an express representation in the purchase contract. The law of some states, such as Delaware, enforces these clauses literally. Other states allow fraud claims based on misrepresentations (or omissions that are misleading) outside the deal documents, notwithstanding the disclaimer of reliance. Still others enforce the disclaimer clause to the extent it specifically identifies materials on which reliance is disclaimed. A seller trying to narrow the range of potential claims would prefer to have one of these states govern the contract, while a buyer looking for an opening to raise new issues would prefer another. When choosing among the possible states whose law could govern the contract, the party who believes it is more likely to assert or defend a misrepresentation claim will want to bear in mind this issue.
By the time an M&A deal that is headed to litigation lands on a litigator’s desk, many of the most important tactical decisions have already been made. Considering these issues from a litigator’s perspective on the front end, while negotiating the deal or making decisions about representations-and-warranties insurance, can help businesspeople arrange the field and set the terms of engagement to their advantage before the battle has been joined. And bear in mind: if you’re not thinking strategically along these lines while the deal is still being negotiated, is your future opponent?
warranties insurance. The mere presence
of documents and witnesses. Whether the
of this specialty insurance product has
target business in an M&A deal archived
the potential to dramatically change the
its documents in a readily accessible
dynamics in M&A litigation. If insurance
manner can make or break a party’s ability
stands behind the sellers by providing
to prove a claim for fraud or breach of
a defense, the buyer asserting a claim
representations and warranties. If a party
will be investing its own resources in the
believes it will be a potential plaintiff in a
litigation while the sellers, having paid the
dispute, that party should act diligently to
policy premium as part of the deal, will not
preserve documents and other evidence
take a direct financial hit after exhausting
after closing, and not wait for a dispute to
the agreed-upon retention amount (and
arise. Since the plaintiff asserting breach
or fraud bears the burden of proof, it must
always have an eye on marshaling evidence or risk a diminished case. For this reason,
time is a defendant’s friend, as documents are eventually lost and memories fade.
Access to witnesses can also be critical.
company for only a short time after an
M&A deal closes. Or the executive could retire and take vast knowledge of the
business with him, only to quickly forget it all. A selling shareholder may wind up
a partial owner of the business in its new form. A remaining shareholder might be more or less likely to cooperate with or hamper one side. For a buyer bringing a misrepresentation claim, having a seller as a
fellow shareholder – or worse, as an executive in charge
of the business now owned by the buyer – can create
Colin Delaney is a partner in the Litigation Practice. He covers a broad range of commercial litigation, primarily contract and other business disputes, including a number of reps-and-warranties claims arising from M&A transactions. cdelaney@sgrlaw.com
in recent years is representations-and-
of and access to evidence, mostly in the form
Executives often remain with the subject
The Takeaway
One extra-contractual consideration
To a litigator, one of the most important
considerable difficulties
in making the claim and can damage the buyer’s credibility with a court.
provided the coverage limit is high enough). This creates asymmetry in the cost of
continuing litigation and may give the sellers a significant advantage.
Alternatively, if buyer-side insurance
is present, the buyer gains certainty of payment on valid claims for breach of
representations and warranties, while the
seller has less of the deal proceeds tied up in an escrow, a seller note, equity in the new
company and other deal devices intended to give the buyer comfort about payment
on claims. By reducing credit and collection risk, buyer-side policies may increase the likelihood of claims being made and
give a buyer a reason to prosecute claims with special vigor. But
because the insurer will be on
the hook after the deductible is exhausted, the litigation
essentially transforms from
a Buyer v. Seller lawsuit over purchase agreement issues into an Insured v. Insurer dispute over coverage
under the policy.
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GERDAU SGR CLIENT PROFILE
A sustainable steel business that delivers value to its customers, shareholders, employees and communities
M
anufacturing has long been the backbone of the U.S. economy, fueling the Industrial Revolution and still supporting
18.5 million jobs in this country. Approximately 150,000 of those jobs are directly linked to the steel industry. Today’s U.S. steel manufacturers are predominantly electric arc furnace (EAF) producers, which produce steel products from recycled scrap metal rather than making new steel from iron ore. This process is more energy efficient than integrated mills, as it uses recycled material and requires less electricity to operate. This type of production results in 65 to 90 percent reduction in greenhouse gas production when compared to the alternative.
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Client Profile: Gerdau
Who is Gerdau?
and the “World’s Largest Fish Tank” at the
Steel Proud
Gerdau is the leading company
Georgia Aquarium in Atlanta.
Gerdau is proud to support American workers by
in the production of “long
BY JULIE SEBASTIAN
providing high-paying jobs throughout the U.S. It
steel” – products used in the
Environmental Considerations
is proud to be green and ensures that its steel is
industrial sector, particularly
Gerdau is proud of its products and how they
produced as efficiently as possible. The company is
construction and engineering,
are made. It is one of the most efficient steel rod
also proud to be socially responsible and promotes
including beams and piling,
producers in the world, and because it’s an EAF
volunteerism and the enhancement of each and
merchant bar quality, and wire
producer, is one of the nation’s top three recyclers.
every community in which it operates.
ride products – in the Americas, and one of the
At its steel mill in Jacksonville, Florida, Gerdau is
major suppliers worldwide of special bar quality
able to convert 100 truckloads per day of scrap
products, used by the automotive industry and
metal into 100 truckloads of finished rebar and
heavy equipment supply chain.
wire rods.
The company operates 18 steel mills and,
While Gerdau has a proud history and a
together with its scrap processing and downstream
significant place in the U.S. steel industry,
facilities, owns approximately 120 locations and
Gerdau and other manufacturing companies are
employs more than 11,000 people in the United
facing significant challenges to their international
States and Canada. Steel products manufactured
competitiveness in today’s economic climate.
by Gerdau can be found in the majority of cars and
Since 2010, imports of long steel products from
trucks that you see on the road today. Chevrolet,
countries like China, Japan and Turkey have
Ford and other automobile manufacturers rely on
increased from less than 15 percent of the market
steel produced by Gerdau for the parts used in
share to over 25 percent. These countries are
their engines.
able to manufacture steel at a lower cost due
The U.S. military and local police rely on
to cheaper labor and significantly less stringent
steel to manufacture everything from tanks
regulatory requirements relating to carbon
to protective vests. More than 14,000 tons
emissions in their manufacturing processes.
of Gerdau special steel can be found in
Gerdau is among the greenest and most
Harley-Davidson motorcycles and other iconic
environmentally friendly steel manufacturers
American brands. Gerdau’s long steel is a part of
worldwide. At its steel mill in Rancho Cucamonga,
famous global landmarks including the Eiffel
California, Gerdau emits just 1,374 pounds
Tower, the Panama Canal, One World Trade
of carbon per ton of steel produced, while
Center, professional sports stadiums such as
Gerdau’s overseas competitors might emit more
the Florida Marlins baseball stadium, AT&T
than 4,500 pounds of carbon per ton of steel
Stadium – the home of the Dallas Cowboys –
produced.
SGR AND GERDAU: BUSINESS PARTNERS SINCE 1999 SGR began its relationship with Gerdau in 1999 when Jay Schwartz, a partner in SGR’s Corporate Mergers and Acquisitions Practice, represented Kyoei Steel, Ltd. in its sale of Ameristeel Corporation to Gerdau’s parent entity. Jay’s experience with the steel industry and the relationships he formed with the Gerdau and Ameristeel Corporation team in this transaction led to the long-term relationship between Gerdau and SGR that continues to this day. Julie Sebastian, also a partner in SGR’s Corporate Mergers and Acquisitions Practice, began her career with SGR on September 12, 2004. Less than one month later, Julie, Jay and a team of other SGR attorneys assisted Gerdau with the closing of its acquisition of Cargill, Inc.’s North Star Steel unit. Throughout their careers, Julie and Jay have worked extensively with the Gerdau team on over 20 acquisition transactions.
TRUST THE LEADERS | Winter 2017 | SGRLAW.com
25
MEET
LEAH WARD SEARS The former Chief Justice of the Georgia Supreme Court joins SGR
BY DANA RICHENS
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TRUST THE LEADERS | Winter 2017 | SGRLAW.com
Finish Line
S
GR is pleased to welcome Leah Ward Sears, former Chief Justice of the Georgia Supreme Court, as a partner. In 1992,
after four years as a Fulton County Superior Court judge and at just 36 years old, Sears became the first woman and the youngest justice appointed to the Supreme Court of Georgia. In 2005, Sears was elected by her
“I think of lawyers as leaders. Every lawyer needs to do more than just make money. We have a lot to give.”
peers as Chief Justice, becoming the first African-
direction to go in and I’ll back you up on it.’”
American woman to serve as chief justice of any
Sears brings the invaluable perspective of
state supreme court in the United States.
scheduled to be interviewed by President Obama. “He wanted me to come up on a Sunday, the same day my daughter Brennan was graduating from Spelman College,” Sears says. Brennan had struggled at times with her coursework, and Sears had spent many weekend hours helping to tutor her. “She was a late bloomer, but bloom she finally did. So, I really needed to be there when she graduated!” Sears’s eyes fill with tears as she finishes the
someone who spent 17 years on Georgia’s
story. “I told the people in Washington, ‘I don’t
highest court. “I know how many judges think
have Air Force One. This is my only daughter. I’m
working seven years in the Atlanta office of a
and what motivates them,” Sears says. “During
so sorry – I can see the President on Monday or
Chicago-based firm, Justice Sears has made her
oral argument, I can tell from the questioning
Tuesday.’” Sears remembers her husband telling
way to SGR – ready to put down roots in an
how things are going. I know what judges want
her, “If you were a man, you’d be going to
Atlanta-based law firm. “I have wanted to be in
to read and what they want to hear and don’t
Washington,” concluding, with a mother’s pride,
a law firm’s ‘mother ship,’” Sears explains.
want to read and hear. I know that not all judges
“but Brennan has never forgotten it.”
“Plus, while I’m well known nationally, I’m
think the same – some work off of hunches;
known best, and my sphere of influence is
others are influenced by emotions or politics –
Diversity and Inclusion
greater, I believe, in the South.”
and I know the way they solve problems.”
Sears is not one to shy away from issues relating
After stepping down from the bench, and
SGR began as an Atlanta firm that now has
to women and minorities in the workplace. Her
grown to AmLaw 200 status encompassing a
Giving Back
firm stance on gender equality extends even to
national, and even international, client base.
SGR has a long and rich tradition of giving back
how she is addressed. “Let’s say I was sitting next
Justice Sears’ practice has a similar footprint:
to the community. E. Smythe Gambrell, one of
to [former U.S. Attorney General] Griffin Bell. He
grounded in Atlanta but with a presence
the firm’s name partners, was an early champion
had less judicial experience than I had, but no
reaching far beyond the region. “My appellate
of legal assistance for the poor and founded the
one called him ‘Griffin.’ But they’d call me, the
practice is a national practice with a lot of
Atlanta Legal Aid Society in 1924. Justice Sears
woman, ‘Leah.’ Or I will be sitting with my [male]
local action,” notes Sears. “I’ve worked on the
similarly believes in the importance of service to
former colleagues and it will be ‘Justice Fletcher,’
World Trade Center litigation out of New York;
the community. “I think of lawyers as leaders,”
‘Justice Carly’ and then ‘Leah.’ I was one of the
I’ve worked on a large global-warming matter
she observes. “Every lawyer needs to do more
first female retired justices – there are going to
where an island is melting off the coast of Alaska
than just make money. We have a lot to give.”
be a lot more – and they don’t deserve to be
and insurance companies were arguing in the
She currently serves on the Board of Trustees for
called any differently than the guys are. I’m just
Supreme Court of Virginia about who has to
Emory University, The Carter Center, the Oakland
asking for the same due as everyone else.”
pay for that. I’ve worked on asbestos-related
Cemetery Foundation, the Georgia Historical
appellate work across the country, and I’ve done
Society, and the Boy Scouts of America (Atlanta
believes the key is in active mentorship. “There
work for the Atlanta Braves baseball team.”
Area Council). “When I volunteer time, it is
has to be a conscious effort and program to
something I have a passion for,” explains Sears.
bring people along. It can’t be ad hoc, get them
A “Trusted Adviser”
As for minority retention and success, Sears
in and see if they make it or not,” she says.
Justice Sears views her role with clients as one of
Family First
“That kind of guidance is what did it for me.
trusted adviser. “It’s being up front and honest
Spend only a few minutes with Sears, and
As with a baby, you can’t just say, ‘Here is your
with your client, good or bad,” she explains. “It’s
you will quickly appreciate how important her
bottle, good luck, see you in 18 years,’” Sears
like being a good wife or husband. It is being
husband of 17 years, Haskell Ward, and her two
says. “If you open the door and make a real
so invested in the well-being of your client, like
adult children, Addison and Brennan, are to her.
effort and investment, the right people will
you are their confidant. It’s a relationship where
When asked about having twice been on the
show up and they will succeed.”
you might say, ‘I spent some time to find this for
short list of potential nominees to fill vacancies
you, and it’s a little bit different than what you
on the U.S. Supreme Court, Sears recounts
were thinking about, but I think this is a better
how, after weeks of intensive vetting, she was
Dana Richens is the editor of Trust the Leaders and the head of SGR’s Atlanta Litigation Section.
TRUST THE LEADERS | Winter 2017 | SGRLAW.com
27
Trust the Leaders is printed on recycled paper
Trust the
Winter 2017
a publication of smith, gambrell & russell, llp
SGRLAW.com
MERGERS & ACQUISITIONS
Solving the deal-making puzzle