Anyone on the buy-side, how does your firm handle CAs to get OMs/diligence docs? Specifically:
Coming from the brokerage side, on a given equity sale ($50M-$1B+ deal sizes) we'd typically see ~80% signed as-is and ~20% negotiated.
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Print, sign, send. Not worth the paper they're written on. Other than someone who is a super bad actor, I've never heard of anyone getting sued over breaching a CA on a deal...especially a marketed deal. CAs are simply a formality we all go through so our legal departments feel comfortable. I generally have my analyst sign the CAs. [edit] I did one time see a CA where the seller tried to slip in brokerage language...that should the deal consummate then buyer would pay seller's broker (friend) a fee. So you do have to at least read the CA...
Agreed, my experience is that they're difficult (bordering on impossible) to enforce in reality. Also agree you still should read them for the reason you mentioned.
Out of curiosity, roughly how many CAs does your analyst sign each week?
Could not agree more
Yeah I've seen some where the broker added a rider about exclusivity and whatnot. Didn't read that one and, well... didn't do a deal as a result. Oh well.
We pull down DD on as many opportunities as we can that are in our target markets and asset types. I'd say we're signing 3-4 CAs a week. My analysts know what to look for / what I care about ... which basically is: (1) term of the CA (should be 1yr), (2) ability to share the confidential info with those people I need to share it with, (3) no funny business (ie, the "buyer pays seller's broker friend a commission" type language). I pitch it to the analysts that reading the CA is their first "legal" training and they are responsible for / "own" the review of the CA (it is their arse on the line if a CA gets signed with terms I wouldn't like). The legal learning means getting comfort with legal jargon (for reading the denser stuff later (ie, PSAs, myriad of loan docs, leases, etc). Is a good and fairly benign way of getting an analyst comfortable with legal language and gives them a sense of ownership/responsibility --- not often does an analyst get to sign a "legal" document.
Great context. I hadn't thought about it like that before. I was tasked similarly when it came to lease abstracting; it was my butt on the line if, e.g., a termination right got missed.
Is there much of a quality of life improvement for your analysts if the CA review/sign and DD download step could be automated away? Going a step further, how about filtering down all the teasers to just those in your target markets and asset types? Is that a time suck for you/them?
I totally appreciate what you're saying about getting reps with legalese. That probably happens downstream no matter what, though, since they'll eventually need to scrub leases and loans like you said.
Analysts are not scrubbing leases and loans. That would be crazy. Only contact they have with those docs is to pull out rent info and payment terms. As for quality of life improvement...probably not much. We have our parameters fairly well dialed in with the investment sale people and are only seeing what we want to see. Further, we don't spend much time with marketed deals. For marketed deals we mostly just d/l the DD info and put the #s into a database.
Funny(?) story about this: We were marketing a large suburban office park and were between the bid date and best and final. One of the major tenants had lease language specifying that if a certain parking ratio couldn't be maintained it could terminate the lease. We had a lease abstract to this effect in the OM, but one of the finalists (an operator) clearly hadn't read it (or the underlying lease). The operator's LP gets the deal through IC and then learns about this. So I meet the operator and the president of the LP at the property for a tour -- I'm pretty junior at this point by the way -- and proceed to get my *ss chewed by the LP in front of a half-dozen people for "hiding information". And then I had to walk them around for 45 minutes. No good deed goes unpunished...
What data do you pull out of these marketed deals? And what do you use for a database?
Thanks again for the context.
I've seen larger institutional guys push back the most.
So silly. Legal counsel can be tough to deal with at times.
I don't look for anything. I just sign. Who cares. No one gets sued over that kind of stuff.
I do like the idea of analysts reviewing tho to get cozy w legal docs that are written confusingly.
Yeah I agree. I wish the industry would move on from CAs around marketed deals. It's a waste of time. If you want to sell a building, it's just life in the big city that your neighbors are going to grab the OM and look over your rent roll.
The argument is defacto vs dejure. Realistically unless something unique and egregious happens no one is litigating an OM NDA. That being said my shop still negotiates them. The #1 thing we look for is to remove any potential liability from consequential damages, then to make sure we can provide the DD info to "representatives", then it gets agreement specific.
If its a CA I've seen before I'll mark it up, if its a form we haven't seen before or I question how to respond to a specific issue it goes to legal for a quick check.
Generally I would say to just sign them. However...another prudent approach is to have a standard internal addendum to add in your firm’s desired terms...all of which would override terms within the original NDA.
People have already hit on two important terms to check: required broker fees and length of the term. Another item(s) is clarifying that publicly available information and information that can be gathered from standard analysis should not be considered confidential information.
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