This article is the second in a two-part series by WolfBlock lawyers on Health Law. Part I, "Helping Clients Achieve Business Goals In The Health Care Arena" by John D. Fanburg, appeared in the November issue of The Metropolitan Corporate Counsel and can be found on our website, www.metrocorpcounsel.com
Transactional health care lawyers focus on the transactional and business-oriented aspects of health care matters for their clients by assisting clients in merger and acquisition (M&A) transactions, structuring and documenting loans, and facilitating capital markets transactions; furthermore, they advise clients on the day-to-day business and other issues related to their companies. This advice typically covers general corporate and commercial matters, as well as guidance related to labor, employment, or real estate problems.
Transactional health care lawyers add value for clients in several ways. Attorneys in this field help clients fully understand the processes involved in achieving their goals by ensuring that clients have considered the relevant options. The experienced transactional attorney will also be able to manage the client's expectations by helping them appreciate what is doable within a given time and how long a project is likely to take to complete. The attorney will work with the client to alleviate frustration by educating them about the steps and time involved in the process of achieving that client's goals. Once the client's goal has been framed properly, the attorney adds value by moving the process along effectively and efficiently.
Experienced transactional lawyers help frame the issues by listening carefully to their clients to understand fully their objectives, since what clients say is not always what they actually mean. For example, a client might articulate that they want to sell their business to achieve liquidity or maximize value. Sometimes, however, there is another agenda that is not being articulated; to discover it, the attorney must probe more deeply to find the underlying issue. The client in this case might actually be exiting the business because they do not have a succession management plan in place and, therefore, they believe it would be easier to sell the business, even if value is not being maximized, rather than create a new business plan and tackle the real issues during the transaction.
Transactional lawyers also add value for their clients through their experience in how to negotiate the operative transactional documents. The manner in which the documents are drafted has financial ramifications from both liability and other perspectives. An effective attorney, however, can help narrow the scope of the documents to limit potential problems and help clients avoid unintended ramifications within the context of what would be acceptable in a transaction of this type.
The experienced attorney must also help the client understand that, often if something seems too good to be true, it most likely is. Thus, if one party gets, or appears to get, too good an outcome, the other side may at some point become dissatisfied with the transaction; this poses potential adverse consequences that may either prevent the completion of the transaction or surface after the closing. Each side should strive to get the benefit of its bargain, nothing more and nothing less.
Approaches And Strategies
Lawyers develop their own personal styles in terms of how they interact with clients and the other parties involved. A good general approach is to establish your credibility with all parties from the beginning. This might mean saying things that clients do not want to hear or answering questions from the opposing party that the client would prefer were not answered; however, in each case these questions are recognized as being correct and truthful within the context of the negotiation. This builds credibility, and once both parties realize that they are working with an honest and credible individual, the whole process will proceed more smoothly. Lawyers must remember that they do not need to prove how intelligent they are to their clients, as many lawyers in negotiation sometimes feel. Clients already know that their attorneys are intelligent; that is why the client hired that attorney to begin with. Rather, lawyers need to focus on building credibility and achieving clients' goals in the most effective and efficient manner possible.
Structuring The Transactions
The first step in determining the correct strategy to use with a given client is to listen to what that client has to say. In doing this, an attorney gains a sense of the client's objectives and can determine whether there are underlying issues behind what is being said. Once a client's primary objectives have been established, the attorney then helps the client consider alternatives and possible solutions to achieve those objectives.
One must also take into account laws that might govern the transaction, such as federal and state laws. For instance, if a client's goal is to raise capital in the public markets, state and federal laws would be involved. On the other hand, if an attorney is structuring a joint venture between two companies, state laws and related regulatory components might be more dominant.
How a transaction is documented depends to a large extent on what the client's objectives are. For example, if the client is a seller, retention of proceeds and freedom from claims post-closing might be critical.
Depending on the level of sophistication of the parties involved, different areas of transactions will be more or less heavily negotiated. If the parties are at different levels of sophistication, and one party has less experience in the matters at hand, issues that would not typically be negotiated will more likely end up being considered. If the parties are equally sophisticated, the areas most heavily negotiated tend to be representations, warranties, indemnity provisions, and purchase price adjustment mechanisms, among others. In such instances, one party is usually trying to put limitations on or narrow these areas, while the other is trying to make them broader in scope. If both parties approach the discussions with the objective of finding common ground during the process of negotiations, a mutually satisfactory resolution will likely be reached.
Understanding clients' expectations helps govern the area on which the attorneys need to focus most of their attention. If a client's desire is to maximize the purchase price after closing in a sale transaction, then the lawyer must pay careful attention to all issues that could adversely affect the purchase price. If the client is determined to sell the business and needs to ensure that the closing will occur, the attorney's priority is to focus on any issues related to this goal in a sale transaction. If many of the closing conditions are open-ended, this creates more opportunities for the buyer to back out or to try to use this as a proxy for renegotiation.
Understanding the environment in which the client operates also has an impact on strategy and outcomes. There are differences, for example, between goals that are reasonable for private versus public companies. Public companies' objectives must take into account market-driven factors and disclosure obligations, among others. A private company, on the other hand, might be able to take more aggressive positions or accept higher levels of risk without having to be concerned about fallout from unfavorable disclosures.
Evaluation Of The Objectives: An Ongoing Process
While working through a given transaction, attorneys consistently need to evaluate the strategy chosen and determine which issues are important and which are not, given how the negotiation is progressing. Leverage in a transaction - real or perceived - always plays a role, and if one party feels as though it can dictate the terms of the transaction, this can create a challenging dynamic; the process can become drawn out and will be frequently be more painful for everyone involved. Sometimes, in a transaction, there comes a point when the issues separating the parties are so wide that it looks like no further progress can be made. When this happens, it is often useful to take some time to step back from the negotiation and re-group. Middle ground can often be found thereafter if all parties step away from the situation to evaluate it and ascertain whether the important objectives are being lost among the details.
During this "time-out" period, attorneys should review the primary objectives with the client to see whether anything has come up during negotiations that has changed the fundamental objective. Once done, everyone can come back to the table to try to find common ground.
Sometimes during a negotiation, clients do change their objectives, based upon reevaluating their initial goals or based upon a marked shift in the dynamics of the transaction. Accordingly, the attorney may need to adopt other strategies in response to a change in the client's objectives to successfully put forward the client's revised thinking, such as conceding a prior point in order to obtain something that is now paramount.
Maintaining A Good Reputation
When working on any transaction, lawyers must bear in mind that reputations are difficult to earn and easily lost. If something does not seem right, then it probably is not. Lawyers will serve their clients well by reminding them that there are no short cuts and that, if things seem too good to be true, they probably are. When each party believes the other participants are credible and being truthful, then, although there may be disagreement about one or more issues, there will generally be a basis for discussing and often reaching a satisfactory common ground. When a party lacks credibility - such as by repeatedly insisting that given points are deal points, which turns out not to be true, or the experienced practitioner on the other side believes are unlikely to be true deal points - the other side quickly becomes wary, and if egregious enough, the issue may poison the water of the negotiations.
Effective attorneys always try to understand what is important to their clients. They also provide clients with realistic perspectives on the outcome of their matters. When clients have unrealistic expectations, attorneys need to be forthcoming and advise their clients about the likely outcomes. While it may be difficult to look a client in the eye and tell them that they are taking an unrealistic position on a given point, most clients appreciate this kind of honesty and realize that their initial position may not be one that would have yielded the best outcome. This is yet another area where health care transactional attorneys can add the value for their clients.
Leslie J. Levinson is Chair of WolfBlock's New York Corporate/Securities Practice Group and is also a partner in the firm's Health Law Practice Group. Mr. Levinson has completed more than three hundred M&A and financing transactions. While he represents a wide range of companies, Mr. Levinson concentrates his practice on transactions for clients within the health care and communications industries. He provides representation on acquisitions and dispositions, public and private offerings, securities compliance matters, secured and unsecured lending as well as many other types of commercial transactions.