Mark Greenfield is a partner in the global law firm Norton Rose Fulbright. He is head of corporate, M&A and securities in the Los Angeles office.
Russ Prince: Please describe your practice at Norton, Rose.
Mark Greenfield: I generally handle corporate transactions and corporate advice and counseling. My practice is focused in the areas of mergers and acquisitions, purchases and dispositions of corporate entities, capital formation, public offerings and private placements, and general advice as outside general counsel.
I am industry agnostic, covering a broad range of industries, including manufacturing, media and entertainment, hospitality, technology, biotechnology, software, medical devices, pharmaceutical, and gaming. That said, I have considerable expertise in the energy and health-care areas. A substantial amount of my work is for private equity and venture capital firms as well as family offices.
I also represent a large number of entrepreneurs exiting their businesses after successful growth. By way of example, I recently led the team that handled the sale of a third-generation family-owned business that manufactures and distributes hobby crafts products, the cross-border sale of a business that manufactures and distributes single-use manufacturing products used by the pharmaceutical industry, the acquisition of an animation company based in Germany, the cross-border acquisition of a company manufacturing environmental products, and the sale of a distributor of wire and cable products. I currently represent a U.S.-based public company that produces children’s animated programming in its acquisition of another animation company based in Canada, the platform company of a private equity fund in its acquisition of an add-on company in the insurance industry, an AI technology company in its early-stage capital raise, a physician group joint venturing with a hospital system to own and operate a surgicenter, a family selling its interest in an apparel manufacturer, and a natural resources company restructuring a joint venture.
During my career, I have also been the chairman, president, and/or CEO of three companies—in energy, hospitality and software development—so I hope to bring leadership and an entrepreneurial bent to the assignments I undertake as an attorney.
Prince: What are a few of the more common mistakes entrepreneurs make when they go to sell their companies?
Greenfield: Most entrepreneurs selling their businesses are charting new territory. They have been successful in building their enterprise but now find themselves in need of experienced advice. Generally, the entrepreneur has little concept of the structure of the deal and the market terms for similar transactions.
An early mistake an entrepreneur can make is to hire the wrong law firm. He or she wants and needs a firm that will pay attention to the transaction, provide the benefit of a senior partner, and will lead the client carefully through the process. Not a firm that has the senior person handle the selling of the assignment only to later hand off the representation to a junior person.
A frequent mistake is to accept a first offer for the business and thereby sell at a price too low. The entrepreneur may be approached by a unique buyer, and the offer is accepted when the offer seems too good to be true or provides a quick and easy exit. But, the one-stop buyer denies the entrepreneur the opportunity to test the market. I most often like to see the seller utilize, and benefit from, an auction process.
Many entrepreneurs claim deserved bragging rights to their success, but in doing so often offer too much information to a prospective buyer too early on. Sellers must jealously guard their confidentiality. If a deal doesn’t make, the entrepreneur may suffer from the loss of a competitive advantage they earlier enjoyed.
Another mistake often made, if the seller is staying on post-sale to get another bite at the apple, is to sell to the wrong buyer. There are exceptional private equity partners, and there are others that do not make good partners. The same is true with strategic buyers. I like to play a role in helping my clients select the right buyer, thereby making sure my client avoids what I call pitfalls for the unwary.
Many entrepreneurs do not understand the importance and reach of representations and warranties—reps—they will be asked to make about their company. They think the reps are required to test their veracity. But reps generally are not elicited to measure truthfulness. Rather, they provide a further foundation to support purchase value, and a base to adjust the value if there is a deviation from the base.
Prince: What are the major trends impacting the M&A business?
Greenfield: M&A activity into 2022 has remained robust. This year will be another sellers’ market, with strategic and financial buyers challenged to find acquisitions at a price that will be attractive and accretive.
The SPAC boom will also fuel deal activity. Special purpose acquisition companies accounted for over $600 billion in transactions last year, and they need to find operating companies in which to deploy that capital. The private equity surge, coupled with the SPAC activity, certainly will drive higher prices.
At the same time, we are seeing buyers who, notwithstanding the need to deploy capital, are much more disciplined and continue to be more selective. We also will continue to see an evolving due diligence process, impacted by reps and warranties insurance.
I anticipate that cross-border M&A activity will be challenged by national security considerations and certain currency fluctuations given the current uncertainty of regional and world peace and stability. In the area of cross-border acquisitions, the global regulatory market is shifting yet again. Deal scrutiny by regulators is on the rise.
Environmental, social and governance scrutiny—ESG—has taken on increasing importance. While not a major factor in many deals, 2022 will see ESG capturing additional attention in deal selection.
The pandemic heightened the use of virtual deal negotiations and due diligence. The M&A world was forced to accept, but learned and embraced, the need for a creative approach to meeting and negotiating with management or touring a facility. The world for travel and in-person meetings is reopening, but the efficiency of “virtual” will continue. In the United States, I would suspect that potential tax changes will impact the deal markets, including proposed tax surcharges on high-income individuals.
Russ Alan Prince is the executive director of Private Wealth magazine and one of the leading authorities in the private wealth industry. He consults with family offices, the wealthy, fast-tracking entrepreneurs and select professionals. Connect with him on LinkedIn.com.