DAY 2 WASHINGTON, D.C. WEDNESDAY, MAY 15 – FRIDAY, MAY 17, 2019
RECAP FROM DAY 1 Daniel Herscovici | Partner David Nevas | Partner CEO SUMMIT 2O19
NEGOTIATION Professor Robert Bontempo Columbia University Graduate School of Business CEO SUMMIT 2O19
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PSYCHOLOGY OF PERSUASION Professor Robert Bontempo Columbia University Graduate School of Business CEO SUMMIT 2O19
SOCIAL STYLES A FRAMEWORK FOR SELF UNDERSTANDING AND INTERPERSONAL INFLUENCE Professor Robert Bontempo Columbia University Graduate School of Business CEO SUMMIT 2O19
SUCCESSFUL TRANSACTION PLANNING Andrew P. Gilbert | DLA Piper CEO SUMMIT 2O19
Ordinary Course Best Practice In an effort to ensure a smooth and successful transaction process, consider the following: • Maintain the Following Day-to-Day Practices: • Keep Good Records : Companies should make sure their records are organized and complete. Buyers will consider it a “red flag” (and the sale process will undoubtedly be slowed) if a company does not properly maintain its cap table, documentation of granted equity awards, records of board and stockholder actions and copies of executed employment and commercial agreements. • Track Proprietary Information and Inventions Assignment Agreements : Companies should ensure that every employee signs a PIIA and every non-employee consultant, contractor and developer signs an agreement containing provisions regarding confidentiality and assignment of IP rights. The most valuable asset of many companies is their IP; it is crucial to be able to demonstrate clear ownership of such IP. • Resist Contractual Restraints on Business : Companies should try to avoid agreeing to contractual clauses that would impose limitations on their ability to do business. Contractual restraints like non-competes and most favored nation clauses can chill a prospective buyer’s interest in a company. Contractual provisions triggering termination upon a change of control or limitations on contractual assignment will be problematic. • Establish Correct Employee Classifications : Properly classifying and paying employees can save companies transaction costs and reduce indemnity obligations on a sale. • Review pending and future tax liability: Monitor state sales tax compliance and support for the company’s position. www.dlapiper.com 8
Transactional Preparation • Estate planning: Founders/large individual stockholders should consider estate planning in advance of transaction. • Have the core team (management, Board, major stockholders, lawyer, banker) ready and aligned on goals • Attention to Term Sheet/Letter of Intent : Companies should assume that provisions agreed to in a term sheet will not be revisited. Thus, it is important to review any term sheet carefully with counsel before execution. Major economic matters and risk allocation should be agreed on in advance. • Set a Timetable : Companies should set a realistic timetable upfront to guide the prospective buyer and each side’s respective advisers. • Ensure Sufficient Funding : Companies should ensure they are sufficiently funded to ensure the company can get to a sale transaction. Companies should resist assuming a potential transaction is a “done deal.” • Control of Due Diligence Process : Carrying out the due diligence process in a thoughtful and organized manner can help companies mitigate disruption to their operations and keep the sale process moving forward quickly and efficiently. • Run the Waterfall and have model prepared : Know who gets what at various exit prices. www.dlapiper.com 9
What are the stages of a typical transaction? 1. Preliminary discussions A transaction usually begins with informal, preliminary and high-level discussions with one or more potential buyers. Many companies may also engage a banker to provide introductions to potentially interested buyers who may be interested and to guide you in these discussions. Deal structures are usually not been decided at this stage, which are more focused on value exploration, fit and feasibility. 2. Executing non-disclosure agreements Before engaging in any serious discussions with potential buyers, you will need to provide sensitive confidential information, and it is a best practice to require buyers to execute a non-disclosure agreement before providing. What you want to avoid is disclosing your sensitive information to prospective buyers, who suddenly walk away from the deal and then use your sensitive information for their own benefit. You should also consider requesting a non-solicit agreement, so that a prospective buyer does not seek and recruit any of your team. 3. Letter of intent / term sheet Once prospective buyers determine that they wants to move forward with a transaction, they will typically propose the terms of the acquisition in a term sheet or letter of intent. The letter of intent is a non-binding outline of the significant terms of the transaction, including transaction structure (impact on taxes now and in the future), purchase price (and its adjustments), earn-out structure, indemnification and escrow (rep and warranty insurance), special closing conditions and treatment of employees after closing. Often, the letter of intent may also contain an exclusivity or "no-shop" provision, meaning that the target may not engage in discussions with other potential buyers for a certain period of time. Legal review is crucial at this stage, because it may be difficult to reopen agreed deal points once the letter of intent has been signed. Upon signature of an LOI with exclusivity, a significant amount of leverage moves to the prospective buyer. www.dlapiper.com 10
What are the stages of a typical transaction? 4. Pre-signing period (a) Negotiation of definitive documents – Buyer, target and their respective legal counsel negotiate the terms of the definitive document. Sometimes, deal structures and terms agreed to in the letter of intent may be renegotiated. This process typically takes a few weeks, sometimes longer. (b) Completion of diligence – During this period, the potential buyer circulates a diligence list requesting certain documents from the target, including, among other matters, corporate formation documents, financing documents, key commercial contracts and a description of the intellectual property portfolio. The target typically provides this information in a virtual data room organized in folders that correspond to the requests in the buyer's list. This is the stage when the potential buyer is looking for skeletons in the closet that may impact the purchase price, result in closing conditions being added and special indemnities negotiated. (c) Population of disclosure schedules – The definitive document will contain pages of representations and warranties about the operation of the company (such as that it has no ongoing lawsuits or that it is not in breach of any of its material contracts), and if these representations are found to be untrue after closing, the potential buyer of a private company may have an indemnification claim. The disclosure schedules are designed to qualify these representations and warranties. www.dlapiper.com 11
What are the stages of a typical transaction? 5. Signing After the definitive agreement and the forms of certain important ancillary agreements are agreed upon, the documents are signed. Closing may occur simultaneously or, if certain actions must be taken prior to closing (such as obtaining government approvals or obtaining consents to assignments of key agreements), on a later date. 6. Pre-closing period If there is a period between signing and closing, the target and the buyer will prepare all closing deliverables and satisfy all closing conditions ( e.g. , obtaining government approvals and third-party consents, getting key employees to sign employment agreements with the buyer, buyer financing). The length of the pre-closing period can vary, depending on the closing conditions that need to be satisfied. 7. Closing When all the closing conditions are satisfied, the deal is ready to close and funds are exchanged. This is the moment when the transaction actually occurs. 8. Post-closing After a deal closes, the buyer goes into full-scale integration of your business and all this entails. Working capital adjustments, earn-outs and indemnification claims will need to be monitored and perhaps negotiated/resolved. www.dlapiper.com 12
LUNCH
NEGOTIATION Professor Robert Bontempo Columbia University Graduate School of Business CEO SUMMIT 2O19
SOCIAL STYLES A FRAMEWORK FOR SELF UNDERSTANDING AND INTERPERSONAL INFLUENCE Professor Robert Bontempo Columbia University Graduate School of Business CEO SUMMIT 2O19
MOLLY FLETCHER KEYNOTE SPEAKER The Molly Fletcher Company CEO SUMMIT 2O19
MOLLY FLETCHER THE MOLLY FLETCHER COMPANY @mollyfletcher | www.mollyfletcher.com
Q&A Molly Fletcher CEO SUMMIT 2O19
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PRICING FOR GROWTH Z. John Zang |The Wharton School CEO SUMMIT 2O19
Pricing for Growth Prof. Z. John Zhang Professor of Marketing Tsai-Wan Tsai Professor Director of Penn Wharton China Center zjzhang@Wharton.upenn.edu 29 Prof. Z. John Zhang
F o ur Pro fit Drive rs 30 Prof. Z. John Zhang
31 Va lue Cre a tio n vs. Va lue Ca pturing Prof. Z. John Zhang
4 Prof. Z. John Zhang
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