The Combiner

Andrew Humphrey is a mergers lawyer who last year pulled off one of his own–between Faegre & Benson and Baker & Daniels. We sat down with him in March to ask him how he did it

Published in 2012 Minnesota Super Lawyers — August 2012

Q: When did you start discussions with Baker & Daniels?

A: Discussions started about four years ago, but we really didn’t start talking about it in earnest until two years ago.

Baker & Daniels approached us because Indianapolis is a big life sciences hub and it has some significant life sciences clients. It had gone through a strategic planning process very similar to what we were going through. Both firms had identified that the way to achieve growth was to focus on key industries and practices and the needs of our clients, as opposed to saying, Well, it’d be nice to be here and put a pin on the map. That started the discussions in 2008, when economically the world was falling apart. It was probably not the best time to commence the combination.

I shared our strategic plan and began talking about our respective approaches. We found we were very aligned as far as our approach to the market. Both firms cared a lot about culture. Both firms had been around a long time—we had just celebrated our 125th anniversary and Baker & Daniel was about to celebrate its 150th—so the firms had a lot of tradition. Both of us knew enough about combinations that you have to have that type of alignment.

 

Q: Once you realize you had it, then what happened?

A: A process begun that took almost two years, where we had our respective practice leaders meet in what we called counterpart meetings to drill down on the nature of the potential value of a combination. We were remarkably successful in keeping it confidential, which is impressive in this day and age. We went through the whole due diligence process as far as looking at conflicts, and we found one that suspended talks for about six months but which worked itself out and we were able to recommence discussions.

We brought it to our partnership in August of 2011 and had a process that was identified to facilitate the partners to begin to get to know the other firm, to really understand the nature of the combination and how we really were using this as an opportunity to do something different, to take two really successful firms and say, How can we genuinely take advantage of these synergies and this ability to strengthen our place in the marketplace; and to, in the process, do something new. We looked at new ideas and asked if we’d be willing to challenge ourselves as far as structures and policies. A third-way approach, not my way and your way. But a third way that neither of us had thought about. It was just an incredibly liberating and exciting process.

And so we went through this whole process and both firms had to get, under our respective partnership agreements, 75 percent approval by the partners to approve the combination. Both firms got more than 95 percent approval, which I told my partners afterward I don’t know if I could have gotten 95 percent of them to agree on what day it is. There are a lot of different views and it was rewarding to have gotten to that point where both partnerships saw the same potential value that the leadership had identified, because so much of leading law firms is very much leading with people as opposed to telling partners to do this or that.

 

Q: How was it selling the merger to your staff?

A: We were very cognizant that lawyers as a group. The psychologists will tell you that lawyers tend to be skeptical; they tend to be resistant to change. You try and combine that with asking for a lot of change; we were cognizant we had to approach it in a very open and deliberative way. So there were a lot of partners asking a lot of questions, as they should have. It made that approval that much more satisfying, but it took a lot of time. The biggest challenge is not a surprise, but is there and, as a guy who used to do a lot of M-and-A myself, it’s integration. That’s at so many levels. There’s the structural levels of having different accounting systems, having all these different software and hardware systems. Our staff has been doing a great job on all of that; there’a punch list of thousands of things to do that are mapped out that had been planned.

We also knew that the real key to a successful integration was to capitalize on this consistent culture and make it something that is a true combined firm and that people get to know each other. So we had a firm-wide meeting of all lawyers and consultants down in Chicago in February. We had more than 700 down there. We had group meetings, practice group meetings, industry meetings, firm-wide meetings. We had panel discussions. It was just tremendous energy.

 

Q: How do you nurture and protect culture? It seems without it firms can be lost quickly.

A: I firmly believe that is true. If you lose your focus on what’s important—what really binds people together, and what your real core reason for being is—you can lose that sense of tethering to an organization.

These are our guiding principles for our combined firm: clients first; one firm; high performance. We intentionally set up as a Venn diagram because we didn’t want to say that one was more important than the other, but it’s important that they all interact. Baker & Daniels had identical core values, as well as honest and integrity. It was just reflective of how remarkably consistent we were in our approach.

 

Q: How long have you been at Faegre?

A: I clerked on the 7th  Circuit after law school and then started here. I joke with people: you blink a couple times, have a few kids, and it’s 25 years later. I’ve been really blessed. It’s a firm that has had remarkable people, mentors to me. I can’t imagine practicing anywhere else.

 

Q: Tell me more about the rough timing of the merger, in 2008.

A: Back then people were shellshocked. Everything was frozen up. You saw the steady progression over the years since then. The public markets, the M-and-A markets, the financing markets, have steadily improved. The primary thing you need for transactions is fundamental agreement in valuation. You go through such a disruptive event like the cliff we went off in December 2008. It really makes everyone consider those fundamental valuations. Everyone pulled back in a way I hadn’t experienced in my lifetime. It was a very difficult thing to go through. But it’s heartening to look back and see how things have improved.

 

Q: What surprised you about the merger?

A: It takes longer than you might expect, no matter how confident you are that you will understand all the issues. A lot of that is because of these cultural dynamics of having to make sure you allow for the organizations to get to know each other. So give yourself time. And be brutally honest. We engaged a consultant early on in the process and that was valuable. We wanted to know what were missing and we didn’t want to hear just what we wanted to hear.

There’s a natural deal tendency as you acquire deal momentum to want to get a deal done. I’ve seen that with clients and I understand it. But you have to be brutally honest and make sure you’re not missing something. We kept validating the proposition, we kept asking the tough questions—are the synergies real or too abstract? Are they really no conflicts? Once we had done that it gave the sense and the strength that can only be formed once you ask those types of questions.

 

Q: It must have been fascinating as an M-and-A lawyer to work on your own merger.

A: It was. You have to make judgment calls on what’s material and what’s not, how to deal with some new information and road bumps and how to approach it. You could see that were able to get great advice from our respective internal counsel. It was a collaborative process. It probably made me a better dealmaker having gone through it.

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