Closing a multi-jurisdictional cross-border transaction requires extensive planning, anticipation of key foreign law issues and significant organization. As a result, effective transaction management assumes a role of equal importance to overall legal strategy. This article focuses on practical insights into the process and management of closing cross-border deals from the perspective of the business team and its outside advisors.
This article includes contributions from Cheryl A. Reinitz, Vice President and Treasurer of H.B. Fuller Company, and Karen Park Gallivan, Vice President, General Counsel and Secretary of Graco Inc. H.B. Fuller recently consummated its acquisition of Forbo Group's industrial adhesives business, which involved 22 jurisdictions worldwide, and Graco closed its acquisition of the Illinois Tool Works Inc. finishing businesses across 10 jurisdictions on April 2, 2012. Faegre Baker Daniels was privileged to serve as lead outside counsel on both transactions.
1. Effective global management of local counsel
While lead deal counsel assumes primary responsibility for organizing all jurisdictions worldwide and pushing everyone toward closing, a highly capable team of local counsel outside the United States is also essential. The deal manager's skills in regularly and clearly communicating expectations for timing and scope of work, and in eliciting quick responses from faraway places are essential to closing on schedule. Addressing differences in legal terminology and coping with time zone differences, local holidays and client expectations for responsiveness allows local counsel to maximize efficiency and avoid miscommunications or undertake unnecessary work. Respecting local counsel by giving them adequate advance notice of timing requirements will facilitate an efficient closing process and engender their loyalty and cooperation during true emergencies.
Engaging lead outside counsel with experience in cross-border transactions and strong relationships with local counsel worldwide is imperative. Management of the local law input is also necessary to support the very significant internal efforts of the business in such transactions. Karen Park Gallivan, Vice President, General Counsel and Secretary of Graco Inc. observes, "It is very helpful to have outside counsel willing to burn the midnight oil because of all of the time zone issues. This 24/7 availability really adds value by helping a client more quickly get a transaction to close. With management already fully engaged and working through the business and operational issues, it would be difficult to layer on top of that having people up in the middle of the night trying to get these mechanical things done. So to have an external legal team capable, willing, energized by that kind of work is definitely value-added."
2. Develop a functional deal team within the business
Closing multi-jurisdictional transactions is not simply a corporate legal function or responsibility of outside counsel. It is also an activity that requires extensive, coordinated and timely input from various specialists within the business. Cheryl A. Reinitz, Vice President and Treasurer of H.B. Fuller Company, notes that the business "needs a working team in the due diligence and negotiation process, but also needs a working team to call on in the closing when issues come up."
The deal team within the business will make the myriad decisions required of the business prior to closing, be called upon to resolve last minute issues at closing and also to coordinate the activities necessary to prepare the business for post-close operations. "What outside counsel may not have visibility to is all of the work going on simultaneously with regard to strategy, issue-spotting, integration planning, valuation models, investor relations plans, and a whole bunch of other things that go on behind the scenes. None of that has to do with the technical day-to-day stuff that goes on in simply getting the transaction closed. That's what the business team was about—bringing all of those aspects together to make sure that ultimately what we deliver to our shareholders is something that is going to be of benefit to them over the long term," observes Gallivan.
It is important to develop continuity in the company's deal team throughout the transaction, to the extent possible, while also managing public company confidentiality requirements. Reinitz notes that for H.B. Fuller Company, "The people who were involved in the due diligence process were also the people that are involved in the integration. That aspect is important. Having the same team for both due diligence and integration accelerates the integration process and speed at which synergies are achieved."
3. The Step Plan – An essential working document
Closing a multi-jurisdictional cross-border deal is an exercise in precise project management and requires a detailed step plan. Step plans provide a transparent roadmap for both the legal and business teams. Step plans track all of the many tasks that need to be completed within and outside the United States in order to bring to life the closing checklist and ensure a timely closing process globally. In addition to the documents and deliverables seen on a traditional closing checklist, a step plan will set forth the local processes and country-specific timelines that are requisite to the closing in each respective jurisdiction. "Things like the work plans, the step plans and the closing checklist—all of the process documents we had were very helpful in ensuring that we had a view of what the process was and ensuring we completed all the steps of the process," Reinitz explains.
The step plan should be shared as a collaborative working document amongst the acquirer and target's legal teams, including local counsel (who should populate the plan for each jurisdiction), and must be updated regularly to stay current. Regular legal working group calls with the counterparty's primary counsel to review step plans and progress keep both parties on track and will highlight processes or jurisdictions that are in danger of affecting overall deal timing. A comprehensive step plan also helps ensure that local counsel stay on track with respect to the scope of their work and in terms of providing all necessary documents to lead counsel with sufficient cushion to avoid last minute emergencies.
4. Signing the closing documents
In a cross-border transaction involving multiple countries, the parties should not underestimate the significant advanced planning required to execute the sheer number of closing documents in a manner compliant with local requirements. Therefore, it is advisable to obtain signing instructions from local counsel regarding which documents the client must execute and any formalities required in doing so, including whether counterpart signatures are allowed; whether the document must be notarized, apostilled and/or legalized; whether the original must be presented in the local jurisdiction; the required number of executed copies and other requirements such as pen color, paper size, application of a company seal or chops, etc.
To the extent compliant with internal signing policies, it is often most practical to empower a core group of executives to sign as many documents as possible or to select an executive as the primary signatory wherever possible. In Graco's case, "We made a decision that as many documents as possible would be signed by one person. For the actual pre-signing, we were able to send over a small team. This resulted in a very efficient process," explains Gallivan. "Sometimes you just have to be practical." Centralizing the signing process also limits the number of signatures needed to be tracked down from other sources.
Arrange a pre-closing document signing so that the core group of signing executives can execute as many documents as possible at one time across all transaction jurisdictions prior to close. "It was easy. [The lawyers] walked us through the files; we didn't have to worry we were not signing on the right spot or the right document," Reinitz notes. This pre-closing document signing also gives legal counsel the opportunity to explain any closing documents to the signing executives and answer questions, as well as assure that the signing instructions regarding the formalities for execution are followed.
5. Closing process management
The business and external deal teams should consider whether closing should be in-person or virtual. In transactions in which the counterparty's counsel is outside the U.S. or where the documents are not governed by U.S. laws, it may be worthwhile (or required) to have an in-person closing with the primary legal teams in accordance with the formalities of the jurisdiction governing the transaction. A company representative should always be present at an in-person closing to elevate issues and assist in getting the right company decision-maker involved quickly.
The number of local closings should be limited only to those where closing in front of a notary in the jurisdiction is required by local law, so that the closing with the primary deal team may be centralized to the extent possible. Local laws, such as those for certain types of companies in Germany, Italy and the Netherlands, may require the transaction to be completed in front of a public notary. If a local closing is required, the client's local counsel may be able to act in closing the transaction on behalf of the client via a power of attorney.
It is also important to determine whether consideration must be paid on the local level. Although the consideration for global transactions often passes at the top between the main buyer and seller, certain jurisdictions require consideration to pass locally. The buyer should be prepared to send several wire transfers if necessary, and banking hours and time zones for the movement of funds should be considered in the closing process.
6. Prepare to tackle the complexities of working in non-U.S. jurisdictions
The complexities and uncertainties of local law and practice make cross-border transactions unique experiences for businesses. Foreign law issues should be given early priority. "When I think about a purely domestic deal, a purely U.S. deal, it is easy because you know the law and there is so much more that is known. When you are dealing with multiple jurisdictions outside the U.S., unless the organization is really large and has robust advisory networks and finance professionals in the regions, there is so much that is unknown," observes Reinitz. Significant planning and a network of experienced advisors to assist in identifying and targeting key local law issues are necessary for harmonious completion of the transaction. Even so, cross-border transactions will inevitably present surprises.
To the extent possible, difficult legal, business and negotiating matters that arise outside the United States should be identified and addressed early in the process. For example, in those jurisdictions where local purchase agreements are necessary, it is important to finalize the local purchase agreements for each jurisdiction well in advance of closing because, as Reinitz notes, "There are areas that the business will not gain full visibility until settling the local purchase agreements." Some areas are perennially complex, such as international employment and benefits matters that often require long statutory processes. This means that commencing the foreign due diligence process early in the transaction is important so as to have as much visibility on these topics as possible in advance of close.
It is also essential to set expectations with the business and integration teams for timing of closing and post-closing acquisition-related corporate changes in directors, officers, legal names, signatories, bank accounts, and fiscal years of acquired entities outside the U.S. The urgency of the requests for internal decisions on the substance of corporate changes should be communicated early on, so they can be made in a timely manner and the business be prepared for a smooth transition to post-close operations. And it is worth noting that when the transfer of ownership of a particular business or its assets outside the United States involves an in-country approval process, such as in China, closing that part of the transaction will lag the rest as a result.
Ultimately, not all issues can be anticipated. A team of advisors with demonstrated success and extensive experience in cross-border transactions will help avoid unpleasant surprises and keep the closing process on track and in compliance with all local law requirements, worldwide. Gallivan notes that in Graco's case, "We were fortunate to have engaged very capable external advisers. Whether a financial advisor, accounting advisor, tax advisor or legal advisor, it is important that the experts you engage have the skills and the same passion as you in getting the deal done in a timely and quality manner. By the time you get to closing, you can look at what you accomplished and say ‘we did that right.'"