To Merge or Not To Merge PANEL DISCUSSION

MODERATOR

Koos Pretorius, Director, ENS (Edward Nathan Sonnenbergs Inc.)

PANELISTS

Robert Falvey, Senior International Counsel, Minter Ellison Rudd Watts Jeff Risius, Managing Director, Stout Risius Ross Martin Simovart, Partner, LAWIN, Estonia

To Merge or not to Merge – Lessons Learned September 20, 2013

61

Table of Contents

1. Company Background

2. Merger Considerations

3. Target Identification

4. Implementation/Integration

5. Unexpected Issues

62

Company Background – Services

63

Strategic advisory

Mergers & acquisitions

Private market financing

Distressed transaction advisory

Fairness & solvency opinions

Financial reporting

Corporate tax planning

ESOP & ERISA advisory

Succession & shareholder planning

Tangible asset valuation

Pre-litigation consulting

Forensic investigations

Discovery services

Complex damage analysis

Economic assessments for settlement and case evaluation

Expert opinions and consultations

Investment Banking

Valuation & Financial Opinions

Dispute Advisory & Forensic Services

History

64 1991: Founded in Detroit

1997: Investment Banking Group Started

1998: Dispute Group Started

1999: Restructuring Group Started

2000: Cleveland Office; 50 Employees

2001: Chicago Office

2006: Restructuring Group Sold; 135 Employees

2007: New York Office Opened; Headquarters moved to Chicago

2002: 100 Employees

2004: Washington, DC Office; ESOP Advisory Additions

2011: Los Angeles Office

2012: Atlanta Office

2012: HFBE, Inc. Merger – Dallas and Houston Offices

2013: District of Columbia Office

2005: 165 Employees

2013: 10 Offices, 275 Employees

2013: Network of 14 international affiliate offices in 9 countries

Revenue: $75 million

Revenue: $1 million

65

Segments / Industries Segments

Accountants

Boards of Directors

Corporate Attorneys

Distressed Companies

ESOPs

Family Law Attorneys

Financial Sponsors & Institutional Investors

General Counsel

Intellectual Property Professionals

Litigators

Middle Market Private Companies

Private Client

Public Sector

Public & Large Private Companies

Industries

Aerospace & Defense

Alternative Energy

Automotive

Business Services

Consulting Services

Consumer Discretionary

Financial & Insurance Services

Food & Beverage

Energy & Utilities

Medical Equipment & Pharmaceuticals

Metals & Plastics

Telecommunications

Company Background – Geography

66

Merger Considerations

I. Financial

A. Accretive or dilutive to our shareholders?

B. Impact on cash flow & distributions

C. Finance, pay cash, or combination thereof?

D. Asset or stock deal?

E. Earnouts / working capital needs

F. Financial model incorporating the above

i. Do the economics fit our long-term strategy?

II. Strategic

A. Geographic implications

B. Gaining expertise in new industries

C. Cultural fit

67

Target Identification

I. Considerations

A. Size

i. Revenue

ii. Employees

B. Culture

i. Must mesh well with existing

C. Geography

i. Will the acquisition allow us to enter a new market?

ii. Strengthen presence in existing market?

D. Ownership structure / motivation to sell

i. Will the business remain viable if owners retire?

ii. Is the decision to sell unanimous?

68

Implementation/Integration

I. Pre-Closing Activities

A. Complete due diligence

B. Finalize terms of purchase agreement

II. Post-Closing Integration

A. Train new employees on internal processes / systems

B. Standardize work product

C. IT integration

D. Contract assignment

E. Office space consistency

F. Integrate marketing materials

69

Unexpected Issues

I. Pre-Closing Issues

A. Last minute changes to the purchase agreement

II. Post-Closing Issues

A. Work product – standardizing methodologies and formatting

B. Timing of deal announcement

i. Internally

ii. Publicly

C. Establishing a reporting hierarchy

D. Revenue recognition and billing practices

E. Language in engagement letters

F. Brand

i. What to do with the target’s?

70

Secrets of a Successful Merger – Lessons Learned September 20, 2013

71

Questions?

Martin Simovart Partner, Head of the Baltic Corporate and M&A practice group

WSG Annual Conference (Rio de Janeiro), 20.09.2013

To Merge or Not to Merge –

Lessons Learned

The Law:

Character wins over image

LAWIN understands the importance of

making a good first impression, but we

believe that a firm’s underlying character,

integrity and values are its greatest assets.

Corporate social responsibility and the

highest respect for legal ethics are at the

heart of our practice.

Local businesses and foreign investors most often now

view the Baltic region as a single market. Being highly

dynamic, the region represents investment opportunities

across various industries, however it also requires its

players to be highly flexible and proactive.

Whether your goal is to achieve or maintain leading

positions, or to explore investment opportunities, having

a law firm that both has the long-term expertise in each

country’s legal system and can provide top-notch

integrated legal assistance in the entire region is a

valuable asset for your business.

www.lawin.com 74

The Baltics

LAWIN - internationally highest ranked business law firm

in the Baltics - was launched in 2004 through integration

of Lepik & Luhaaar (Estonia), Klavins & Slaidins (Latvia)

and Lideika, Petrauskas, Valiunas ir partneriai

(Lithuania) – leading law firms in each jurisdiction since

their foundation in the beginning of the1990‘s.

LAWIN has earned its reputation by consistently being

at the heart of the largest and most complex commercial

and financial transactions in each jurisdiction and

regionally. LAWIN works with the largest foreign

investors, major local and international businesses, and

governments in the Baltics. We pride ourselves with pro

bono initiatives and active work to further the

development of the local legal environment.

www.lawin.com 75

Lawin in the Baltics

The Law: substance wins over form

.

With over 140 legal professionals working in five

practice groups, LAWIN is ideally positioned to provide

the highest calibre, specialized legal services both

domestically and on a pan-Baltic dimension.

Our specialty is law, and we know that it requires

precision and attention to details. However, our lawyers

look beyond the formal legal framework to create

solutions that are centred on achieving each client’s

business goals.

We provide consultations in all areas of business law.

When needed, we represent our clients in local and

international litigation, arbitration and administrative

hearings.

LAWIN has the capacity and internal flexibility to provide

clients with fast solutions, but it is the ability to

appreciate the full complexity of the situation facing a

client that allows us to also anticipate the possible

consequences of each course of action.

The firm‘s professionals at five practice groups enable

our cross-border teams of specialists to manage

complex projects ensuring effective and integrated

solutions.

www.lawin.com 76

What we do

The Law: the big picture wins over formality

Real Estate

Corporate

and M&A

Finance

& Tax

Industry &

Regulatory Dispute

Resolution

LAWIN

specialists

work in 5

practice

groups

While LAWIN has over 140 lawyers, it is our pan-Baltic practice group integration and teamwork that ensure

an efficient client service across the Baltics.

• Aircraft, Shipping & Other Asset Finance • Banking & Finance • Capital Markets • Finance Regulatory • Financial

Restructuring & Refinancing

• Funds • Insurance • Investment Services • Project Finance • Tax

• Aviation, Maritime & Other Transport

• Competition • Data Protection &

Privacy • Energy & Utilities • Food, Beverages &

Tobacco • Information Technology

& Communications • Intellectual Property • International, EU &

Domestic Trade • Life Sciences • Media, Advertising &

Entertainment • Other Regulatory

Industries • Public Procurement &

PPP

• Construction & Development

• Environment • Infrastructure • Planning & Zoning,

Land Use • Real Estate

Investment & Transactions

• Real Estate Management & Lease

• Real Estate Private Equity & Funds

• Real Estate Restructuring

• International & Domestic Arbitration

• Litigation • Mediation & Other

ADR

• Corporate Governance Executive Contracts Compensation &

• Benefits • Employee Mobility &

Business Immigration • Donation, Sponsorship,

Charity • General Corporate Advice • Joint Ventures • Labor & Employment • Mergers & Acquisitions • Private Equity • Privatization • Public M&A • Reorganization,

Insolvency, Liquidation • Restructuring

Finance & tax Industry & regulatory Real estate Dispute resolution Corporate and M&A

www.lawin.com 77

What we do

The Law: teamwork wins over numbers

Chambers Europe Award

for Excellence 2012: t

The Baltics

(Chambers Europe)

www.lawin.com 78

Recognition

Law Firm of the Year 2011:

the Baltic States

(The International

Financial Law Review award)

Law firm of the Year

2008-2013:

Latvia and Lithuania

(Who’s Who Legal award)

Law Firm of the Year:

2012, 2011 - for the Baltic

States,

2009 - for Scandinavia & the

Baltic States

(The Lawyer European awards)

Europe Women in

Business Law Award

2013: the Baltic States

(Euromoney Legal Media

Group)

Our well-established practice, sterling reputation and

satisfied clients are a testament to LAWIN’s

achievements. However, rather than resting on our

laurels, we continuously strive for new opportunities

to further improve our team and practice. The LAWIN

practices in Estonia, Latvia and Lithuania are

consistently top ranked by the preeminent legal

directories: Chambers Global, Chambers Europe

,The Legal 500 EMEA and IFLR1000.

1.Why to merge?

2.Why partial merger not full?

3.Has the partial integration model been successful?

4.What would drive towards full merger?

Table of Contents

www.lawin.com

- A strong business case to integrate

- A strong Pan-Baltic capability seen as a must

- Long cooperation among the offices

- Joint-client base

Why to merge?

www.lawin.com

- Disparity in size and profitability (difficulties in integrating

three firms into one fair remuneration system)

- Governance issues - fear of dominance (per capita vote

v percentage of ownership among equity partners)

- Goodwill payments (some founding partners claimed

goodwill payments in their firms while others not)

- Differences in cultures

Why partial merger not full?

www.lawin.com

What has been achieved:

- The Partnership (increased partner cohesion, accountability and commitment to

common goals via joint management structure and practice group structure base)

- The strongest brand in the region perceived by local, pan-Baltic market and the

international market (result of a joint efficient and integrated marketing concepts)

- Integration of support functions (joint support heads)

- Joint knowledge management (developed easily accessible joint „best practices“,

information banks and templates)

- Uniform service delivery (uniform concepts for efficient delivery of top-class service

has been achieved and performed)

Has the partial integration model been

successful?

www.lawin.com

What remain as a challenge:

- The partial structure does not fully align interests and

support joint direction

- The inevitable tendency of sub-optimization

- Hidden competitiveness

www.lawin.com

- To maintain the leading and competitive position at the Pan-Baltic

market, would inevitably mean full integration and one profit pool to

equally motivate all partners to work on common goal

Carrying elements of which are:

- Joint visions and the conviction that the common goal is paramount,

which is articulated by the partners „walking the talk“

- Uncompromised determination that the merger will actually take

place, regularly revisited

- Buy-in from all individual partners

What would drive towards full merger?

www.lawin.com

www.lawin.com

Minter Ellison Rudd Watts

To Merge or Not to Merge – Lessons Learned WSG Annual Conference

(Rio de Janeiro)

20 September 2013

Robert Falvey

•MERW is part of the MELG

•Operationally integrated, financially independent

•Global firms have made approaches to ME in Australia

•Local office of a global firm approached MERW

•Board of MELG aware of this exercise

•Key Driver: Economies

Objective was to increase PPU by 35% to 45%

•Combined firm from 45 and 30 partner firms in NZ

•Expected reduction in headcount post merger

Background

NZ Law Firm Merger Process

Existing partnerships are run-off and new firm formed (NewCo).

TIMETABLE:

“D1” – First “go/no go” “D2” – CEO visits “D3” – Brand Decision “D4” – Conditional Merger Agreement Executed “D5” – Final “go/no go” “D6” – Transitional plan for 90 days “D7” – Financial Integration

OUTCOMES TO BE AGREED:

• Structure of Partnership – merger agreement, constitution, partner rem and appraisal system, financial structure of NewCo, management/ governance structure

• Financial Business case – are assumptions correct

• Practice area / client compatibility / conflict management

• Legal staff fit

• Systems – knowhow. Getting the best out of both

• Premises fit

• Key merger team to meet weekly to discuss and update checklist.

OTHER DETAILS

• Business Development

• Risk Management

• Regulation

• General Insurance

• Files and storage

• Business Continuity Planning

• Environment

• Procurement and Misc

• Knowledge Management

• Information Technology

KEY SECTIONS (FRAMEWORK AND GOVERNANCE)

Partnership Details

• Merger Agreement

• Following assessment of incorporation: draft partnership deed/constitution

• Schedule of proposed partners units

• Policy statement on drawing / retention policies

• Appraisal system

• Schedule of partners capital requirements and details of loan arrangements (if any)

• Details of partner benefits e.g. insurance, sabbaticals, car parks etc, maternity leave

KEY SECTIONS (FRAMEWORK AND GOVERNANCE)

Partnership Details (cont’d)

• List of consultancies of former partners

• Name

• NewCo partner retirement policy (if any)

• Detailed Information / Recommendation Memorandum

• Due diligence room

• Details of any partner / ex-partner litigation

• Schedule of profit shares – last three years and forecast

KEY SECTIONS (FRAMEWORK AND GOVERNANCE)

Governance, Structure and Authorisations

• Decision on incorporation or otherwise

• Recommendation of initial Chair, Deputy Chair, CEO, Board, Division Leaders and Integration team including any independents

• List of all entities (both internal, e.g. service companies, and client facing) owned, controlled by, or otherwise to be associated with, the legal entities operating the business and any other relevant entities for NewCo

• For each of the above:

o any other relevant agreements in place between those legal entities

o any agreements relevant between the partners and the legal entities

• Full details of the governance structure in place for NewCo

• Details of external appointments held by partners and whether any fees, remuneration and other benefits derived from these are paid to the business. Note that these will need to be conflict checked and approved by the NewCo Board

KEY SECTIONS (FRAMEWORK AND GOVERNANCE)

Governance, Structure and Authorisations

• Details of shareholdings/significant shareholdings in client companies

• Do any lawyers act in any judicial or quasi-judicial capacity, eg arbitrator, adjudicator, mediator, tribunal chairman etc?

• How do NewCo partners supervise the work of their teams (and how is this evidenced)?

Decision:

• Other firm was in favour

• MERW declined to proceed

Reason:

• Cultural Differences

o While all other “boxes had been ticked”, ultimately a lack of respect for the technical ability of the other firm’s partners

o A lack of confidence that MERW could assimilate the other firm’s partners into our culture

Lessons Learned:

• Useful process of self-examination

• Re-organised and re-focused firm:

o In three years MERW achieved 40% growth in PPU

To Merge or Not to Merge – Lessons Learned

WSG Annual Conference (Rio de Janeiro)

20 September 2013

Koos Pretorius

table of contents

• ENS history

• brief facts on Africa

• merger rationale

• research / formal due diligence

• red lines / dealbreakers

• allocating resources

ENS history

ENS was established in 2006 as the result of a merger between two of

South Africa’s leading law firms, Edward Nathan (EN) and Sonnenberg

Hoffmann Galombik (SHG).

Both legacy firms were prominent in SA at the time of the merger, but EN

(established in 1905) had a stronger presence in the Johannesburg

market and SHG (established in 1936) were more dominant in the Cape

Town market.

ENS currently has approximately 550 practitioners, spread across 9

offices of which 6 are in South Africa namely Cape Town, Johannesburg,

Durban, Stellenbosch, Mitchells Plain and Alexandra.

ENS has established offices and a growing footprint throughout Africa

including network “friends” and fully integrated offices in Burundi,

Mauritius, Rwanda, South Africa and Uganda.

practitioner and ca executive

Property

Projects and Project Finance

Tax Employment Corporate Commercial

Corporate Commercial Litigation Tax ENS Rwanda

Mining Tax Oil and Gas

IP Employment Corporate Commercial ENS Africa

Projects and Project Finance Litigation

Telecommunications Media and Technology

ENS history (continued) – growth (practice

areas and geographically) since January 2012

* excludes internal promotions

ENS Uganda

Mine and Occupational Health and Safety

Insolvency ENS Burundi

brief facts on Africa

• SA population: 50,586,757 (Source: IFC 2013)

• SA global ranking for “Ease of Doing Business” in 2013 is 39 out of

185 countries ranked, which is a two placing improvement from 41 in

2012 (Source: World Bank 2013 ranking)

• SA GDP growth rate (Source: African Economic Outlook 2013)

•

brief facts on Africa (continued)

• Africa population is currently at 1.033 billion (Source: IFC 2013)

• Africa average GDP growth rate (Source: African Economic Outlook

2013):

• 54 countries in Africa, broadly divided in English, French and

Portuguese speaking jurisdictions (with similar legal influences)

2007 2008 2009 2010 2011 2012 2013

Africa 6.6% 5.4% 3.1% 5% 3.5% 6.6% 4.8%

merger rationale

• what are your reasons for merger?

– strategic or reactionary?

– decision to merge starts with a clear understanding of your firm’s

strategy for the next 3 to 5 years (regional, national and

international)

– access to new markets, increasing market share in traditional

market, driving deep expertise and excellence in new

practice/focus areas, increasing firm profitability, etc.

merger rationale

• why does counterparty want to merge?

– you need to be able to determine whether reasons for merger are

complimentary, or not (they don’t have to be the same)

– larger firms typically want to grow market share; smaller firms

often want access to superior infrastructure, systems,

management, brand and economies of scale, etc.

– be mindful of integration costs and the additional burden placed on

existing resources as a result of merger, particularly, in new and

remote markets – requires proper post-merger profitability

projection

research/formal due diligence

• undertake proper research/formal due diligence on

target

– first priority to find the right firm, culturally

– analyse remuneration system (this remains the biggest driver of

behaviour inside any firm)

– then assess quality of the people and client base of target

– are revenue streams and profits sustainable?

– actual and potential liabilities of target inform merger structure

– premises and long term lease commitments

red lines / dealbreakers

• identify your “red lines” or dealbreakers early on

– one integrated firm

• financial

• branding

• compensation system

– is partial integration an option (as an intermediate step)?

– consumption or investment oriented?

– capital payments or not?

merger resources

• dedicate resources to merger

– to identify prospective targets (research function or word-of-mouth)

– to negotiate the merger and undertake proper due diligence

– to deal with merger integration

– costs of unsuccessful merger are significant (failure not a option)

– dedicated team comprising of non fee-earning firm leaders, fee-

earning dealmakers and external advisors/consultants to assist

with merger integration process

thank you