Peter Atkins on the Evolution of M&A, in an Interview With Allison Schneirov (Audio)

Allison Schneirov (00:12):

On December 31st, 2021, Peter Atkins transitioned from being a Skadden partner to of counsel. Peter’s 54-year tenure as a Skadden lawyer, starting as a summer associate while at Harvard Law School, has spanned over two-thirds of the life of the firm. One of Joe Flom’s protégés, Peter has been a key driver of our success as a firm and in particular, in our development as an M&A powerhouse. His clients and achievements are way too numerous to mention. Suffice it to say he has probably been on more CEO speed dials than he can count. We’re so glad he’s agreed to share some of his thoughts with us. So, Peter, just jumping right in, what are some of your thoughts about the future of the M&A practice?

Peter Atkins (01:00):

M&A activity, which includes acquisitions, dispositions, joint ventures, etc., is clearly a mainstream tool for corporate growth and economic reordering generally. So obviously it’s here to stay, but as always with constant change due to innovation and external needs and pressures. The M&A legal practice is an essential enabler of this activity, and it really parallels and will continue to parallel the ups and downs of the fundamental need for M&A and the level of activity.

Allison Schneirov (01:39):

And what are some of the business matters — or the macro issues — that you see with implications for M&A and M&A as a legal service?

Peter Atkins (01:54):

There are quite a few. On a short list, the first and the most obvious one is Russia’s invasion of Ukraine and its multifaceted fallout. And that includes governmental sanctions compliance.

Also, there is the widespread focus on concerns about the broad category of environmental, social and governance — that is, ESG — matters, a hot topic in many people’s agenda these days, as a business matter. There are concerns about cybersecurity, and that’s another prominent subject, as is data protection. Supply chain disruption is a major issue these days beyond just the Ukraine fallout. And workforce matters, just to name another, have become front stage center, such as whether workforces are sufficient, stable, effective and what’s the cost of maintaining it.

So those are just a few, and each of them can affect the feasibility, the timing, the risk, and the terms and conditions of potential M&A deals. So there’s a clear interplay between the business needs and concerns that surround economic activity and how they translate into M&A deals.

Allison Schneirov (03:21):

And what about, speaking of Ukraine and some of the other items you mentioned, near-term uncertainty regarding U.S. and international affairs, how do you see that playing a role?

Peter Atkins: (03:35):

I guess if I had a crystal ball, which I wish I did, so I could actually know what’s going to happen, clearly, the near term and into what I can only describe now as an indefinite future, the state of U.S. domestic and international affairs at the macro level and at lower levels is really subject to considerable uncertainty. Uncertainty of that magnitude seems likely, directly and indirectly to dampen the level of M&A activity, at least to some extent. But as we all know, these things go in cycles, not predictable, but the cyclicality is generally there.

Obviously the U.S., Ukraine situation with its unpredictable course and consequences is the overarching uncertainty in today’s world. But even beyond that, we are, for example, seeing a rise in governmental regulation in the U.S. and abroad that will impact M&A, both as to timing and the ability to consummate certain types of transactions.

Particularly noteworthy, are expansions in the scope and enforcement of national security laws, of antitrust and competition laws, and of data privacy laws. And this is an interesting, more immediate situation, but a major component in the U.S. over the last two years of the M&A practice involving SPAC IPOs and de-SPAC transactions is facing significant headwinds now from proposed SEC regulations. So there are a range of things and the level of uncertainty about much, although clearly not all, of what goes into making up either the M&A environment generally, or certain areas, is subject to uncertainty.

Allison Schneirov (05:39):

You’ve seen major changes in the practice of law over the years, and as everyone knows, you’ve been a real driver in M&A, your primary area of expertise. Do you think that the M&A arena represents one of the most dramatic examples of change when you look at all the practice areas?

Peter Atkins (06:02):

Interesting question. I have to say that during my tenure, absolutely. In fact, when I started at Skadden, M&A was simply not known as a practice area. Transactions that might fall into the M&A category today, which back then were much fewer, vastly smaller and virtually all consensual from their inception, they were handled by general purpose so-called corporate lawyers. I was one of them.

So you might ask, how did M&A come into focus as a practice area? And I’d say that that was tied particularly to two events. The first was the adoption in, I think it was 1968, of the Williams Act amendments to the Securities and Exchange Act by providing specific federal regulatory framework. It legitimized as a legal matter unilateral cash tender offers and stock exchange offers directly to shareholders of public companies without seeking prior board approval.

The second circumstance was the launching in 1974 of the first hostile takeover using this mechanism that was supported by "legitimate financial advisors" representing the bidder. This particular transaction involved Inco, which was a foreign company proposing an unsolicited hostile cash tender offer directly to the shareholders of ESB pursuant to the Williams Act amendments that I mentioned. Notably, and this really was the key point, Inco was advised by that quintessential establishment investment bank, Morgan Stanley. An unheard of thing at that time.

Allison Schneirov (07:57):

And didn’t we represent Morgan Stanley in that deal?

Peter Atkins (08:00):

Yes, Morgan Stanley’s involvement was enabled by an upstart law firm, Skadden. Morgan Stanley’s imprimatur sort of opened the floodgates of a new era of M&A, and with it, the separate identification of M&A as an area of legal practice arrived. Initially, though, many establishment law firms shied away from active participation in these unsolicited takeovers, even to the extent that when their clients were under attack, they recommended bringing in special counsel on the defense, which most often was Skadden, led by Joe Flom, or Wachtell Lipton, led by Marty Lipton. However, over time, the threat of client relationships being frayed because other firms were now being introduced to them and, actually, the economics of the practice itself, among other things, led to establishment law firms joining this burgeoning M&A arena, even to the point ultimately of representing unsolicited bidders.

Allison Schneirov (09:10):

It’s pretty interesting to hear you describe Skadden as an upstart and talk about other law firms as establishment law firms, given where we sit today. What other developments fueled the level of M&A activity?

Peter Atkins (09:27):

One that was very prominent back in the day was the growth of the high-yield debt markets as a source of financing. Those markets, they’ve expanded and contracted over time and they keep moving around, but they are firmly in place. And clearly were very significant in an important era of M&A activity back in the ’80s and ’90s.

There also was the advent of a class of so-called corporate raiders, primarily focused on the breakup or sale of a target company. And I might say quite successful at it in many cases. Another key development was the establishment of the whole private equity field.

Allison Schneirov (10:12):

That was certainly a big one. And I’m proud to say that you and I had a really fun experience working with Blackstone, Permira, TPG and Carlyle on the Freescale take-private way back in 2006. So that was a perfect example of the way that private equity firms were coming together to really change the face of M&A, and the acquisitions of public companies.

Peter Atkins (10:43):

Couldn’t agree more. And this category started small with the formation, I think in 1976, of a small firm, KKR. And for many years, the private equity firms fundamentally focused on looking for acquisitions that could be highly leveraged and produce cost savings in the near term. They have become, as you say, a major factor in M&A, on the buy side, on the sell side, as well as in other types of M&A arrangements. And in fact, over time, some of them have grown to be huge financial institutions with multiple lines of business.

Another interesting development, important development, was the clarification of Delaware corporate law regarding the role of directors versus shareholders in M&A transactions, and the conduct of various M&A participants, particularly targets and controlling parties, in a whole range of M&A scenarios. And of course, there was and is the continuing rise of the activist shareholder, initially a number of hedge funds, that has become a major forcing function in the M&A arena. I could go on, but that’s probably a decent list.

Allison Schneirov (12:06):

That’s more than a decent list. Zooming in a little bit, and focusing on your M&A career in particular, were there any general rules of the road that you developed over time?

Peter Atkins (12:21):

Absolutely, yes, there were. I would call them practical guideposts for myself and for my teams. So let me identify some of them.

So a rather basic one is, each deal is different and should be addressed on that basis. This is true even for transactions with multiple precedents. Many deals have common characteristics, but whether they should be dealt with the same or not really depends on factors relating to the specific needs and interests of the parties. And many of them have variable terms that can’t really be dictated by precedent but have to be dictated by circumstance. Another practical guidepost is, know your client’s objectives. M&A is a means to an end, and it will work best — in fact, probably only — if you can identify the fundamental goals at the outset of your effort.

Allison Schneirov (13:22):

That seems like a guidepost that would translate well beyond M&A to everything every lawyer in our firm does.

Peter Atkins (13:30):

I think that’s fair, but I’ve applied it very specifically in the M&A world because it’s sometimes lost and the need to get it focused at the outset is quite important. There are several guideposts that relate to what you might call bidding strategy. One is the classic, don’t be penny wise and pound foolish. It actually is a real good piece of practical advice.

Allison Schneirov (14:02):

For life as well.

Peter Atkins (14:02):

Yes, indeed. A related point of some significance, in my experience anyway, is the need, when representing a buyer, to develop a pricing bidding strategy to support the client’s strategic goals. And then there is the well-known rule with my slight modification: Don’t bid against yourself, unless of course you need to.

Allison Schneirov (14:27):

Another good life lesson, by the way, not only for M&A.

Peter Atkins (14:31):

The addendum, unless you need to, is really the point. There is no hard and fast, don’t bid against yourself.

I also try to keep in mind that the other side’s team members are people, too. It seems pretty clear that the failure to understand and try to deal with the other side in human terms really can easily lead to missteps and sometimes failure to get a deal done. So it should be a top of mind subject for anybody looking to actually accomplish a transaction.

Then there are the dual "details" guideposts. And this is, the devil is in the details, but don’t get lost in the weeds. Or stated differently, the point is that specifics, i.e., details, can be quite important to achieving fundamental deal objectives. But not all specifics have that impact or effect, and the need to distinguish between the key details and the other details can make a real difference in how a transaction proceeds — and sometimes whether it proceeds.

Also, I try to be guided by the talk-and-walk-together as a deal team. That is, it’s important to establish a deal team that’s composed of company personnel, obviously, and outside advisers and specialists, the members of which can communicate and work together well.

And then there is what I would call the Yogi Berra-type truism. It’s not over till it’s over, or otherwise said, no congratulations until three days after closing.

That’s my final message. In short, stay focused, no transaction is done until closing and sometimes beyond closing. Issues continually arise — we’ve all seen it — even after signing that can negatively affect particular aspects of a deal and sometimes threaten the deal itself.

Allison Schneirov (16:36):

I’ve tried to adopt many of those rules that I’ve learned from you. I’ve certainly adhered very strictly to no congratulations until at least three days after the closing, but to many of those other rules as well.

Thank you, Peter. We’re so grateful for your insights and so grateful for everything you have done for all of us.

Peter Atkins (16:59):

Thank you.