Dealmakers Q&A: Nossaman's Charles Fiedler
Nossaman Partner Charles Fiedler was profiled in Law360 as part of their Dealmakers Q&A series. Mr. Fiedler's full Q&A can be found below.
Charles Fiedler, a partner at Nossaman LLP, has been practicing corporate, securities, mergers and acquisitions, and general business law for over 30 years. He has extensive experience in mergers, acquisitions, and divestures, corporate reorganizations and conversions, debt and capital restructurings, corporate finance, complex loan transactions, venture capital transactions, corporate governance and securities law matters. Fiedler's clients include public and privately held corporations, general and limited partnerships, limited liability companies, investors, shareholders, executives, boards of directors, and special board committees. He regularly advises management, boards of directors and shareholder groups on complex business transactions, litigation, regulatory compliance, corporate governance matters, restructurings and avoidance of liability.
Fiedler also represents a variety of health care clients and is experienced in many aspects of health care law, including fraud and abuse and patient referral laws, provider organization and operation, the Health Insurance Portability and Accountability Act and managed health care. He advises health maintenance organizations (HMOs), independent practice associations (IPAs), preferred provider organizations (PPOs), multisystem operators (MSOs), medical groups, and other managed care companies on corporate, business and health care law matters.
As a participant in Law360's Q&A series with dealmaking movers and shakers, Charles Fiedler shared his perspective on five questions:
Q: What's the most challenging deal you've worked on, and why?
A: In 2011, I represented a privately held company that was being acquired by a large public company in a strategic transaction. The deal was very complex on a number of levels, but one of the most challenging aspects involved the parties' reluctance to have the target company hold a shareholders meeting to approve the deal despite the fact that our client was owned by several hundred shareholders (but less than the '34 Act's Section 12(g) threshold). Due to the sensitive nature of certain aspects of the transaction, neither side wanted the terms of the deal revealed prior to (or after) the completion of the deal. But maintaining the confidentiality of those terms would be impossible if they were included in proxy materials provided to the shareholders in advance of a shareholders meeting, as required by state corporate laws.
The solution we developed involved obtaining shareholder approval by written consent obtained at a series of meetings attended by subsets of the shareholders. These meetings were not technically shareholder meetings, so no notice or description of the matters to be voted on was required. The attending shareholders were required to sign nondisclosure agreements as a condition of entering the meeting and before the terms of the transaction were revealed to them, and were not permitted to take any of the disclosure documents with them when they left. Of course, these steps did not ensure absolute confidentiality, but it was a much better solution than publishing the terms of the deal by mailing out hundreds of information statements with no restrictions on disclosure.
Q: What aspects of regulation affecting your practice are in need of reform, and why?
A: I have done several strategic deals involving acquisitions or "mergers of equals" in which the shareholders of each company ended up as shareholders of the combined company. That means that both shareholder groups in effect are receiving new stock in the combined company, the issuance of which must satisfy available state and federal securities law exemptions. If the number of shareholders involved is too large for the combined company to reach a reasonable belief that all of the shareholders are accredited investors, some other exemption is needed. Some states, including California, provide for fairness hearings conducted by the state's securities law agency, allowing reliance on the federal exemption set forth in Section 3(a)(10) of the Securities Act of 1933. However, some states do not have such a procedure, and the California procedure can involve a significant delay and is lawyer-intensive (translation: expensive for the client).
In my experience, these hearings have been a waste of time and effort — no shareholders of either company have attended the hearing or objected to the terms of the deal. Some action to facilitate a better solution at the federal level in the area of private M&A transactions would be in order (and would be well-received). The exemption could be conditional on the absence of objections from at least a small minority of a particular shareholder group (but more than just one shareholder, to avoid having a sole dissident force the company to incur the expense and delay of the hearing procedure unnecessarily).
Q: What upcoming trends or under-the-radar areas of deal activity do you anticipate, and why?
A: In private-company M&A deals, we have noticed that the buyer's due diligence reviews have been showing an increasing emphasis on the target company's accounting and tax procedures, including possible failures to qualify to do business, to pay income taxes or collect sales taxes from customers in other jurisdictions. (I am by no means suggesting that these reviews are inappropriate — we are doing the same thing for our buyer clients.) The potential financial exposure in these areas can be significant, and when present, creates concern for both sides because it can be difficult to quantify. The buyer wants comfort that its holdback or escrow will be adequate to cover any losses on a worst-case basis, and the seller can be resistant to tying up more of the purchase price for a risk that (so far) has not materialized, and may never materialize.
These types of problems can also be frustrating for the lawyers because the determination of the potential exposure — both as to the dollar amount of the possible loss and the probability of its being asserted — is typically in the hands of people wearing green eye shades and who may have less motivation to find a compromise to the problem than some of the other players in the deal. This is not to say that accounting and tax issues are the only areas of possible exposure that are outside the lawyers' typical areas of expertise. However, it is necessary that these concerns be addressed in a mutually satisfactory way, and I have found myself having to become educated in the area of controversy to be able to negotiate a compromise with the bean counters.
Q: What advice would you give an aspiring dealmaker?
A: My advice to aspiring dealmakers — especially those that will be the lead representatives in their respective deals — is to try to establish a degree of camaraderie with the opposite parties early in the deal, and never (visibly) lose your cool. There are several reasons for this.
Clients frequently consider their representatives — bankers, lawyers, accountants, etc. — as extensions of themselves. Have you noticed how frequently your clients have similar personalities, styles and temperaments to yours? If the principal in the deal (who would ordinarily be your client) is a calm, rational, logical type, he/she probably expects you to be too. If you behave irrationally (even if you have a "hidden agenda" reason for doing so), you may not have that principal as a client again.
Secondly, you will need to be able to trust your opponents (to a certain degree) and to ask them for favors during the deal (and they will need to trust you and ask you for favors too). If you start screaming and yelling at them, you may undermine your ability to have a meaningful negotiation. You may also make the deal more difficult, more expensive and more time-consuming to complete. Trying to be too pushy usually does not work anyway — the other side either pushes right back or resents your aggressiveness, and looks for ways to even things up.
The overriding goal of doing a deal is to get it done. Of course, you must aggressively negotiate for your client and get the best deal terms and protection that you reasonably can. But most of the details in a deal are just details. No question they must be identified, and addressed, and resolved, but you cannot win them all, and while principals need to know what their areas of exposure may be, it is rare that a principal would blow a deal over one of those details. Even when we find ourselves on the buy side in an attractive deal, and we think we have leverage because we do not expect that there will be many deal terms that the other side's principals will consider to be deal breakers, we have to be careful not to push too hard. I have seen pushy buyers get kicked out of deals and replaced with friendlier buyers (on the same terms).
Finally, bear in mind that the principals on both sides will look at your performance critically, and you never know who your next client might be, or what they might have heard about you.
Q: Outside your firm, name a dealmaker who has impressed you, and tell us why.
A: I have been fortunate to have encountered like-minded professionals on the other side of the table in the vast majority of the deals I have worked on — individuals who were willing to work cooperatively to get our deal done without unnecessary complications, expense or delay. One individual who I thought did a particularly good job was Bob Schuchard at Davis Wright Tremaine. He represented an organization that was making a sizeable investment in my client and was initially less familiar with some of the legal restrictions applicable to the deal than I was. But he realized that, he did his homework, he got up to speed, and he ended up providing some helpful suggestions that improved the deal for both sides and improved the future investment outlook for my client at the same time.