Now that you've made a deal, how will you close it?

Railway Age, May, 1997 by Anthony Kruglinski

How many of you folks reading this column have spent--wasted--time working on deals that didn't close? My guess is that there are quite a few of you. Of course, speaking solely from a transactional point of view, there are many deals that don't deserve to close Structural problems. Credit problems. Timing problems. On the other hand, I'm equally convinced that there are transactions that should have closed but didn't due to predictable, foreseeable issues that were beyond the transactional skills of the participants. We've decided to devote this column to a review of some sensible precautions that can be undertaken at the outset of a deal and during its closing process to increase the chances it will close on time and in a structural and economic form that closely resembles the original objective.

First, shoot the lawyers! No don't do that. It's illegal and, in actuality, every deal needs "lawyering" to close. The problem, from our point of view, is that the "degree" of lawyering that is generally offered up by the legal profession can exceed the amount needed to close. Don't get me wrong. I am a lawyer. I've managed hundreds of lawyers and law firms during my career as a managing attorney for a large Wall Street bank and an outside financial advisor. We really need these guys! Like so many things in life, we just need them in moderation.

When I get on my soapbox on the subject of lawyers, I often describe them as akin to a gas: If left unchecked they will ultimately fill the space within which they are confined. For this reason I am an advocate of setting time limits (real or contrived) for the closing of transactions. If my law firm--or yours for that matter--knows that it has three weeks to close a deal and not three months, it may burn some midnight oil and charge a premium for that oil, but the total number of hours billed will be fewer.

Another tip on keeping lawyers and legal bills under control has to do with the role of the business people in the transaction. More specifically, they must do their jobs to keep the business points of the deal tightly organized and in the sight of--and well communicated to--the attorneys. Much as I'd like to pick on them, no lawyer is responsible for a client who doesn't really know what he or she wants from the lawyer. Get and stay focused in your dealings with your transactional lawyers Finally, if budget issues are part of the reality of the deal--no matter for whose account the legal bills are headed--get a good estimate from the law firms likely to be involved and, if possible, get as many firms as you can to agree on a cap on these legal expenses. If you find a firm that will agree to a realistic cap you will have achieved two important things: First, you will have probably found an experienced group of lawyers with enough confidence to know what is involved in closing your deal in order to quote you a cap. Second, you will most likely be dealing with a group who knows the meaning of too much lawyering and who, with this knowledge, will better serve you,

Second, get your "docs" in place. Once you begin to document your transaction you will be immediately faced with the opportunity to set the deal on a straight, efficient course to closing--or to screw it up! For instance, if you have a good understanding between the parties as to the specifics of the deal--most important, that you have a deal--we would advocate negotiating the term sheet or proposal to include as many of the terms and conditions that will be in the final document as possible. Twenty--or 40-page term sheets that are ultimately negotiated and signed-off on by all parties may be a pain to put together--which is why you want to make sure you have a deal before you try to create them. However, since they will leave fewer areas for lawyers who were not part of the business negotiations to insert their own thinking--you're better off in the long run. (You can always have your lawyer pass on the term sheet.)

Once you have a comprehensive term sheet and have found competent legal counsel who have experience closing a deal of the kind in which you are involved, you can move forward with confidence to close. Here are a few other hints that may be of assistance in the closing process:

Set up a closing schedule with key dates and individual or firm responsibilities early in the process and stick to it.

If there is to be a simultaneous due diligence to be conducted by one or more of the parties, assign an administrative person to honcho this very important process and to see that everyone's experts and professionals have the access they require and keep their appointments and schedules.

Consider transmitting drafts of documents electronically (it's often as simple as sending them to your counterpart's e-mail account).

Unless the logical place to close is Maui or Paris, ask your lawyer if you can close off-site. If this is possible, see if you can have one of the law firms escrow your signature pages in advance.

Assume that something will go wrong and build the better part of a business week into your closing process to give you time to fix what's wrong and to close.