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Disciplined Process Improves Predictability and Diversity on M&A Deals

By Jennifer J. Salopek

Through its "Deal 360: Taking Aim @ Microsoft's M&A Deal Management" initiative, Microsoft Corporation has—successfully—brought improved predictability to one of the most unpredictable areas of corporate law through process improvement. Mergers and acquisitions tend to be large, important, unique transactions; many times, budget expectations go right out the window. By regrouping around classic project management principles, Associate General Counsel Keith Dolliver has managed to shine light on the "dark art" of budgeting for M&A transactions.

"Value has been a focus of Microsoft's legal department for several years," says Dolliver. "We believe that financial information plus the right staffing and the right relationships leads to results."

One such partnership is with the Seattle-based law firm of Perkins Coie. Business Practice Chair Stewart Landefeld said Dolliver's efforts are on trend.

Keith Dolliver

"We have seen a 10-year rise in the quest for value on the part of our clients," he says. "Microsoft leads the way in its real openness and willingness to consider new approaches.

Deal 360 was launched in 2009 in an effort to improve deal predictability, enhance process efficiency, and ensure clear communication. Perkins Coie partnered with Microsoft to roll out a holistic deal management approach in two phases. The first phase consisted of creating an initial deal budget and staffing plan. Each deal is evaluated according to 26 weighted factors that typically drive costs in M&A transactions.  Deal complexity is determined based on size, location, and target characteristics. Heavily weighted items include a target with more than 10 years of operating history, operating in a highly regulated field, and with more than 100 commercial agreements.

The matrix was Perkins Coie's idea, Dolliver says. "We talked about what the cost drivers were, and incorporated some Microsoft-specific practices that we thought likely affected legal budgets. But the Perkins Coie folks figured out how to make it work.

"Formerly, we handled budgeting via conversations with outside counsel based on how big the target company was, how many employees it had, and so forth. But that calculation to some degree was just a finger in the wind. We didn't write it all down together, and we weren't as rigorous as we should have been about measuring performance against budget," he says.

Once the size and complexity of the deal are determined, Perkins Coie prepares an initial budget and staffing plan for four key work streams: due diligence, preparation and negotiation of primary transaction documents, securities law and corporate governance advice, and preparing closing documents and closing the transaction. "By organizing and streamlining those key work streams, the billing tells you things about the deal," Dolliver says.

Perkins Coie also participates in Microsoft's Law Firm Diversity Program, a pay-for-performance initiative to promote diversity in the legal profession; diversity goals are incorporated into the staffing process.

Stuart Landefeld

"This is truly innovative," says Landefeld. "Many commercial businesses and law firms put a value on diversity, but in this case the staffing plan actually reflects diversity on the deal, including the qualifying number of hours worked. Further, we can review those diversity staffing numbers midstream and make adjustments. It's a very unusual way of looking at diversity on a transaction basis."

Dolliver says that the approach benefits legal outcomes. "These diverse teams have brought a wider range of ideas to bear on overall deal management and to process improvements," he says.

The second phase of the project was designed to track its success. Microsoft and Perkins Coie meet every other week to discuss the docket of pending M&A deals, progress, budget, and any issues. For new deals, they discuss the drivers of the deal, the anticipated structure, likely areas of focus for due diligence, team diversity, and geographic focus.

"We like this practice because it adapts to the nature of M&A work," says Dolliver, who agrees with the "dark art" characterization. "It's not prescriptive; it's flexible. We set expectations, then we iterate when adjustments are needed." Microsoft does eight to twelve deals with Perkins Coie annually and between 10 and 20 total. "Volume makes the system better by creating more precedents that facilitate predictability," Dolliver says.

"The semi-weekly check-in evidences Microsoft's realization that making adjustments midstream gives you much more leverage than a post-deal analysis," says Landefeld. "Only by having done a prediction can you shift."

Andrew Moore

Several process improvements have arisen from these regular conversations, including identifying team leads for each core substantive area, who manage their respective teams and reduce unnecessary churn in communication. They also developed standard operating procedures and a protocols checklist for intellectual property in M&A deals.

Although not a cost-cutting move initially, Deal 360 has enabled Perkins Coie to maintain time charges that were 17 to 40 percent under budget on deals in 2013. Budget predictability has been greatly enhanced; in fact, forecasting accuracy has increased by 30 percentage points, according to Dolliver.

Even so, the team hasn't achieved the degree of predictability it would like. "We thought that if we had enough volume of the same sort of transaction, we could create a highly predictive model for budgeting; and that would enable a fixed fee, which ensures absolute predictability," says Landefeld.

"Variability is driven by circumstances around the target," Dolliver explains. "The matrix doesn't capture elements such as the personal feelings of stakeholders or variability on the Microsoft side.

"Every deal is still different because the people involved are different."

Click here to view the Deal Pricing Matrix.

From the Judges

"I've never seen anyone talk openly about breaking M&A down before; it's unusual in this specialty, whose usual focus is only on the price of the acquired company. I was impressed with Microsoft's ability to get predictability in M&A : Over budget one year to under budget the next is rare."

"Although it is sometimes argued that M&A transactions are immune from value-based techniques, Microsoft & Perkins Coie prove this wrong.  Value concepts work everywhere and on any matter type."