Tessa Bernhardt:
Hello, and welcome to The LathamTech Podcast, where we survey the latest trends emerging from the world of tech and explore their impacts on your company-both the opportunities and the risks. I'm Tessa Bernhardt, a partner in Latham's M&A and Private Equity practice in the Bay area. And joining me today is my fellow partner, Kelly Fayne, who helps companies navigate the evolving global antitrust landscape. Welcome, Kelly.
Kelly Fayne:
It's a real pleasure.
Tessa Bernhardt:
In this episode, we're discussing the shifting global antitrust landscape and what that means for tech companies moving forward. So Kelly, in the past several years there's been a notable increase in regulatory activity around tech companies doing M&A deals. A lot of our clients and companies are asking, is the environment becoming more amenable to these deals, or do we expect activity to stay the same? So what are you seeing from a regulatory perspective?
Kelly Fayne:
We're definitely at an inflection point for antitrust enforcement globally and in the United States. We've seen changes in the regulators in the U.K. and the European Commission, and probably the most notably in the U.S. I think a number of commenters initially kind of speculated about whether the changes, especially in the U.S., kind of create more opportunities for companies to do deals. We are seeing that, but we are also seeing a very enforcement forward, regulatory regime out of the DOJ and the FTC. And we continue to see a lot of attention on antitrust enforcement just around the world. And that remains like a really critical part of the consideration set for companies when they're thinking about their strategic growth opportunities, figuring out how you are going to structure deals to get them done, or pursue a pipeline of investments with the global antitrust landscape, in mind, creates, a lot of challenges for companies, but also a lot of opportunities if you do it well.
Tessa Bernhardt:
And it's funny that you talk about this pipeline or this kind of looking at the future and trying to plan things. Now that we have this kind of increase in regulatory activity and all these different jurisdictions our clients have to be thinking about. And I think that has been playing itself out in and how we work together. I mean, the first time we worked together, I think it was almost ten years ago. And the first person I called on that deal was tax. That's who we used to always call and hopefully taxes isn’t watching. But now the person I talk to is you first. And sometimes we both are staffed on the deal at the same time. Like our client will reach out to you and me simultaneously and say, hey, we have this new deal and, you know, your antitrust counterparts talking to you, the Corp Dev and M&A teams talking to me. And you see now that companies are thinking much more proactively. And I think that can be really helpful. Has that integration from kind of day one on a deal, has that been helpful from an antitrust perspective for you and your team?
Kelly Fayne:
Yeah, I think it's a really valuable part of the way, as you and I and our partners at Latham provide client service on these deals, is, is we really work together hand in hand in terms of trying to figure out how we are going to take our clients kind of strategic vision, whatever that may be. It may be M&A, it may be a series of transactions, it may be certain strategic investments. How do we kind of take those goals and get them all the way from inception to closing in, kind of as efficient and as frictionless way as possible? And in, in the antitrust environment, it's very hard to do large, transformational…
Tessa Bernhardt:
…transformational – I literally was going to say, because, every pitch that I do, they say it’s a transformational deal.
Kelly Fayne:
Yeah. So with the current global antitrust landscape, it can be very hard to do a major transformational deal or series of deals when, when you go into it kind of on the back foot from an antitrust or even, global foreign direct investment, another regulatory clearance standpoint. If you play the tape forward from the very beginning and think about, well, who, where am I filing, who's going to be looking at this deal? What are the enforcement priorities of regulators around the world that are going to be looking at this transaction? What are the trends in the types of transactions that are more likely to look at and plan out an entire path from inception to end? That really takes that global consideration set into account. It is much easier both to kind of structure a path towards achieving the end goal, which may be closing, or maybe a whole bunch of deals. But to do that in a way where you kind of anticipate the important hurdles and the important investment points, from the very beginning, and there's a lot more transparency in terms of what to expect, even though the process is going to be hard.
Tessa Bernhardt:
Yeah. I mean, it can be so helpful to have that integration and understand, where the client is looking for it. What are their goals? And, we've had these conversations before where we're like, the agreement for this transaction is going to be filed publicly. And like other targets are going to be able to read this because of the rules in this jurisdiction. Or regulators share notes back and forth. And so, you need to really be thinking as holistically when you enter into these negotiations and when you are thinking about what who are the key targets that you're looking at and how do you want those deals to be cadence and what makes the most sense? So, I think that integration from day one, I mean helps also with various other M&A things – small plug for, you know, just are you issuing equity, what is your debt look like, governance considerations. But then of course from antitrust perspective it seems to be really helpful as well.
Kelly Fayne:
Yeah. I'm glad you brought up kind of the importance of thinking about kind of the overall deal. And for me, like, we have this one little microcosm of an M&A transaction, which is thinking about antitrust. But I really appreciate the opportunities we have to partner together to talk about things like efforts covenants. I mean, as you know, parties try to figure out, if this transaction is going to take me eight months to close, am I going to have to think about a breakup fee? Am I going to think about having to litigate with the agency? And it's helpful to have these conversations with you about, well, what do we do about allocating the risk? How are you seeing your clients approach these risk shifting questions, especially with antitrust, is such a big factor in when we're considering deals and executing on them.
Tessa Bernhardt:
I mean, it's so interesting. Obviously this is coming up in every deal, and it always has at some point. But I think ten years ago you would you would punt on antitrust. You'd say, okay, closing timeline, outside date, we'll figure that out after we sign this LOI right? And hell or high water standard when you do some diligence first. And now you're starting to see more and more of that creep in to kind of the LOI stage, an offer letter stage, because it is so important. And when you're dealing with buyers, for example, who are looking at a seller who's going under, having an auction process. Antitrust and doing your diligence from the get go can actually help you really stand out as a buyer. So from M&A perspective, I really like that we kind of frontload the antitrust assessment now earlier in the deal because we can, some deals there aren't issues. It's not like every deal there's an issue, even though, this podcast might make it sound that way, there's a lot of deals that are completely fine. And if you know that about your buyer and you know that there's really not a lot of overlap or no overlap at all, then you can say, we're okay with a hell or high water standard. And we're going to put that in our bid, and that's going to make us more competitive because we're increasing closing certainty for that deal. So I think it's really helpful. And I think sellers are requiring that that conversation earlier on to they want to understand the risks. They want to understand the likelihood of a deal going through. Of course, they don't want to, to have a failed deal.
Kelly Fayne:
I'm so glad you brought up the this idea of kind of predictability and really this concept of kind of easy deals, which, I mean, oftentimes especially kind of at a firm like Latham with some of the deals we do, we do a lot of really complex deals. But you're exactly right that a lot of what our clients want to do is unlikely to either be a very large transaction or they may be doing something that doesn't raise any antitrust issues. And then the kind of really interesting area for antitrust practices is what you do with those middle case deals. And how do you help clients kind of begin to sort? Well, what is the likelihood that this transaction is going to raise serious antitrust questions that I'm going to need to be prepared to answer? What is the likelihood that, I'm going to need to spend a lot of time? Am I going to be able to get away with the kind of short financing term on this transaction, or do I need enough time and money to litigate? And being help, being able to help, for instance, with, with a seller and an auction sort, potential buyers money kind of who creates the most risk, so that they can begin to think about where they want to make those tradeoffs is a big part of, I think, where you and I work really well together.
Tessa Bernhardt:
Yeah. And something that you brought up and I want to address too is these closing timelines. There's an expression: time kills all deals. I think that actually antitrust proves that's not the case. In fact, sometimes you do need those longer timelines to closing. That actually helps deals. But of course, there are risks that our clients have to deal with when the closing timeline is, two years out, sometimes longer than two years out, I mean, which is crazy to think about. When I got started, it was like six months outside date was the furthest you would go. And now you're seeing 24 months, sometimes 36 months, I mean, depending on the deal. There's a lot for buyers and sellers to think about there. Obviously, if you're a buyer, a lot can change in a business in two years, three years. So that's something that you have to be thinking about. And there's things that are going to protect you. The merger agreement, like the interim operating covenants, of course.
But, ultimately there are macro risks. I think tariffs are a good example of that now. If you signed a deal a year and a half ago and you're in the process of litigating it in a jurisdiction, that business might look different now than it did a year and a half ago. And if you're a seller, there's risk as well. It's not common, but you have to bring down the reps. And if things change a lot in your business, like you could see yourself not meeting some of the conditions to closing, if things change drastically for you over that time period. So there are risks, of course, to having that extended closing and one. But I do think antitrust, you can help mitigate some of these risks. And I think one risk that we're seeing is that you and I saw very recently is that, just because outside is two years from now doesn't mean that's when the deal closes.
Kelly Fayne:
Yes, it may not. And that's always our goal as antitrust lawyers. We try to plan for the worst case scenario. And we try to help our clients understand, is it beneficial to me to have a long time, to kind of go through a second request or to actually litigate a transaction. And a lot of the times we include time to litigate is because it's actually an important disciplining function for the regulators to know that if they are going to sue to block your transaction, that you're going to fight with them in court and, and many times win. And be able to continue your transaction and spend, in addition to your time and money, their time and money as well. But our ultimate goal is always to try to get the deal from side to close in a shorter period as possible. And there's a lot, we, we can do to try to you, for any given transaction, try to position the deal for its best possible path to clearance.
A lot of that begins really early. It begins even before the deal is starting to become a concept where you're talking about what's the strategic vision for the company and starting to work with the principles to articulate, what we think of as a pro-competitive story for the deal, a way to explain to the world and to regulators. Why your transaction is good for competition, good for consumers, good for partners, that narrative and that deal shaping narrative is very counterintuitive to people who spend most of their time talking about why their strategic vision is good for their shareholders and their investors, and so helping companies think, well, not only do I need to explain that this deal is great for my shareholders, but I'm going to save a bunch of money on logistics and that's going to mean lower prices for my customers, or by joining with this new partner, this long term partner of mine and bringing them into part of my company, I am going to more efficiently kind of improve my services in a way that's really beneficial for our users. And building that story around a transaction and then having it carry through your documents in the way you talk to the with the market and the way you talk to your customers about the deal is one of the best things you can do to try to speed your time from sign to close so that you're not, we may be prepared to litigate, but we certainly don't want to have to litigate because we want to explain why we've got a pro-competitive story from the outset.
Tessa Bernhardt:
So I think that's a really good point about how you help clients explain the rationale, the deal. And I think actually that, one thing that clients may not realize and people might realize is that you help explain the deal's rationale, not just in the United States, but around the world. And I really think that's one place where Latham really stands out. And I feel very lucky to be an M&A lawyer at Latham because of our global resources and how we can tackle so many things in our different offices around the world. We have regulators focus on different things. In the UK, in China to, jurisdictions that we're working a lot with. They take a different approach,. And you help kind of find that strike that balance across the UK, across China, across the US, across Europe to help kind of put the client's story in a way that is going to make sense and is going to speak to all of these different kind of counterparties. Can you speak a little bit more about what you're doing and all of the quarterbacking that you do for us, on our transactions?
Kelly Fayne:
I mean, you and I both sit in the Bay area. And we work with a number of local and global tech companies. And I think it might be very surprising to them sometimes, a new transaction comes in the door and they talk to some California-based antitrust lawyer. And the first thing out of my mouth is like, we got to think about our China strategy or, you don't actually have an HSR filing in the US, but, you have a really challenging kind of path ahead in the UK that we need to think through. Or, we've got 12 jurisdictions that we're going to need to get cleared and we're going to need to make sure that we are saying similar things to regulators in all 12 of those jurisdictions. And I think the way that we approach transactions is to really think about them from a global basis. Sometimes we really are, solving for a very specific U.S. antitrust risk. And, we're in there and in the door with the DOJ and the FTC, kind of advocating for a complex transaction, but where I think there's something often really special happening in addition is when we do that at the exact same time that, my partners in London are making very similar and coordinated arguments to the UK CMA, and we've lined up the kind of timing of the filings in those jurisdictions, in the CMA and in the US and in the EC, in the exact way we wanted to line up the timings so that the regulators are all thinking about the questions we think are most important in the order and in the time we want them to be thinking about it.
For instance, we often. and this could be unusual, we often like when we set up a deal so that we're sure that the SEC is kind of running out ahead of the pack. Sometimes we purposefully structure a transaction so that we get a little headway with the U.S. regulators, because we think we're going to get to clearance quickly, and that will be informative and persuasive to, I mean, who knows, a regulator in Singapore. And part of what we do from the very beginning is to just plan out the map and plan out the kind of strategic and pro-competitive narrative for the deal so that we know how we're getting from beginning to end. Both from a kind of logistical filing standpoint, but also from a substantive standpoint.
Tessa Bernhardt:
I mean, I'm lucky enough to be a fly on the wall in some of those conversations with our colleagues around the world, and it's fascinating and I've really felt like we have the best of the best. And I'm very lucky that, as you know, I always drag you to pitches and talk about your pitches and, it really pays off when the full team comes together. And I think it always impresses everyone, how we are so interconnected and how well we know our colleagues globally and how we can call them up, sometimes unfortunately at any hour of the day, and get a really helpful response. So, I mean, I really do think that sets us apart. And it's super important in, in the landscape that we're in right now.
Kelly Fayne:
Yeah. I mean, it's especially surprising. I mean, you say you say we have a great team. I am constantly surprised – we have more than 200 antitrust professionals working around the world, in our practice. And it very much feels like a, well, a kind of a very healthy family, but also hybrid. But we work really well together, partly because, we are we are one big global practice that works well with our M&A teams and some of our other teams, kind of on the timelines that best suit our clients.
Tessa Bernhardt:
So, Kelly, I think what you're saying is the days of jamming the antitrust team with the HSR filing on the day of signing are long, long past us. And in fact, to be a good M&A lawyer now, you need to be coordinated with your antitrust team as early as possible on a deal. And, luckily for me, it's very easy to do that. I talk to you every day, and so it's not lost on me how critical working with an antitrust team like the one we have at Latham. And with yourself and all our colleagues around the world, how helpful that is to our clients. And so, what are the key takeaways that you have now for tech companies, our clients watching this now, thinking about doing transactions, whether it's small transactions or transformational ones?
Kelly Fayne:
So first, you've reminded me that I need to remind everybody else, you certainly can't jam anybody with HSR anymore. For those who haven't heard the HSR forum, which is the filing that's required, for a number of transactions in the U.S., anything over 125 million, usually. That form has gotten a lot longer, a lot more complicated, and a lot more substantive in the last six months. I think the key takeaways for anyone thinking about, doing deals in today's current regulatory environment, first is that they are getting done and they can be done. The vast majority of deals that are that are filed and reported in the U.S. are cleared. And the same is true for a number of jurisdictions around the world.
That said, it is never too soon to start talking about antitrust. The worst thing that could happen is that you think about antitrust and other global regulatory clearances too late, or that you find yourself surprised by a jurisdiction. Many times we will have an early conversation with our clients, and we will talk about antitrust, and the conversation will be quick and done, and everybody will move on to clearing their deals and require no further work from us. But sometimes we will be able to take steps in the early days that really make the path to clearance much smoother, much more predictable. Deals can get done – you should start early and you should think globally.
Tessa Bernhardt:
Well, I personally have not had any deals been blocked and I you're my good luck charm, I guess. So, thank you for all the advice, not just on this podcast, but on a daily basis when I call you. I'm sure I'll be calling you again later today. This has been really helpful. I think that's a good place to wrap up our conversation. Thank you so much for joining us.
Kelly Fayne:
It's been a pleasure.
Tessa Bernhardt:
And thank you for tuning in to this episode of The LathamTech Podcast. You can subscribe and watch or listen to new and archived episodes of Latham's podcast at lw.com, YouTube, Apple Podcasts, Spotify, or wherever you get your podcasts. If you'd like more information about the topics in this podcast, please email us from links located in the show description. We hope you'll join us again next time.