The past two years have yielded a number of professional and personal highlights for Dallas corporate attorney Ethan Post.
Like many corporate lawyers, Post is in one of the busiest seasons of his young career. The senior associate at Katten has been involved in the acquisition of a new cosmetics platform for a loyal private equity client; several acquisitions across the U.S. for a private equity-backed hospice company; the sale of the solar panel division of a longtime client to an international player; and the sale of a Mediterranean restaurant chain.
Post also essentially served as the de facto general counsel to an international student recruitment company, helping his client navigate the challenges of the pandemic.
And then on top of all of that Post and his wife welcomed the birth of their third child.
The Texas Lawbook visited with Post about the rush of deals, which have continued into 2022, and the challenges that arise in such a competitive environment.
The Lawbook: 2021 was a historic year for deals. Can you put 2021 in the context of your practice/career and identify a few highlights?
Ethan Post: The past couple years were two of the busiest of my career. Businesses in every sector and industry were responding to significant disruptions caused by the COVID-19 pandemic. Many of our clients, even those historically reluctant to engage in M&A, used acquisitions and divestitures as key parts of their strategic response. Given the constantly changing nature of the pandemic, deals were more complex and completed at a much faster pace than in prior years.
In the midst of this surge, I experienced several career highlights including: (1) starting a new serial acquisition program for a chemistry/drilling technologies company and reviving a serial acquisition program for a home services company which had pressed pause for a couple years while restructuring internally (and closing several acquisitions under these programs); (2) selling the solar panel division of a longtime client to an international player; (3) acquiring a new cosmetics platform for a loyal private equity client; and (4) helping an international student recruitment company navigate the challenges of the pandemic (including travel restrictions and quarantines) in somewhat of a de facto United States general counsel role. In the midst of all that professional activity, my wife and I celebrated the birth of our third child, a true personal highlight.
The Lawbook: What are the challenges that arise in such an active and competitive environment?
Post: Deals are closing faster and terms are more complex than at any other time in my career. Clients are eager to complete a deal before the regulatory or economic situation changes and oftentimes this means closing deals on a very tight timeline — sometimes in less than 30 days. COVID-19 relief commonly received by target companies, such as PPP loans and payroll tax deferral, add a regulatory overlay to most deals, even those in lightly regulated industries. The uncertain economic situation has also provoked a dramatic increase in the use of earnouts and similar mechanisms tying portions of deal consideration to post-closing milestones and/or financial results, thereby requiring the negotiation of complex covenants regarding the operation of the acquired business during the post-closing earnout period.
The Lawbook: Your bio says you took a leading role in several key mergers and acquisitions over the past year. Can you please elaborate?
Post: As a seasoned associate in Katten’s corporate practice, I am primarily responsible for overseeing deals from start to finish. As a general matter, I take the lead in drafting and revising the purchase agreement and other key documents, managing the due diligence process, negotiating with counterparties and rep and warranty insurers, and generally ensuring that the deal progresses appropriately on the client’s desired timeline. This typically involves coordinating with the client, specialists, service providers and other members of the core M&A team and ensuring consistency, punctuality, excellent work product and outstanding client service across multiple work streams.
One of the most interesting deals I recently worked on involved the sale of a nutritional supplements business for a loyal private equity client. This transaction involved a competitive auction process and a complicated pre-closing carveout of certain business lines. It also represented the culmination of several years of acquisitions, as we assisted on the client’s initial acquisition of this portfolio company early in my career and on several add-ons throughout the years. In addition to the transactions mentioned above, I also played a leading role in a lengthy, high-pressure and hotly contested sale in the mortgage servicing industry, several acquisitions across the United States for a private equity-backed hospice company, the divestiture of a Texas chemical plant, and the sale of a Mediterranean restaurant chain.
The Lawbook: What kinds of deals are you seeing to start the year? Has the pace slowed at all?
Post: Unlike most previous years, where deal flow slowed in the beginning of the year following the typical end of year glut, my deal flow has continued to surge in 2022. Currently, I am working on several deals of widely varying sizes and structures across a diverse set of industries, including real estate brokerage, industrial services and manufacturing, med-spas and aesthetics, textiles, leak detection and urgent care.
The Lawbook: What are the important trends or key developments that your clients are keeping a close eye on?
Post: The increasing focus of the United States and other governments on antitrust and other regulatory deal review is certainly of keen interest to a number of our clients, particularly those who play in the middle or upper tiers of the middle market. Many clients are keeping a close eye on the outcome of earnouts following the dramatic increase in the use of earnouts since the start of the pandemic.
The Lawbook: What are you seeing with regard to rep and warranty insurance?
Post: Even though it is not a magic bullet and is not appropriate for every transaction, rep and warranty insurance is here to stay. While creeping increases in premiums and extended underwriting periods toward the end of 2021 caused some to doubt its long-term viability, rep and warranty insurance has become table stakes in most competitive sale processes and seems to have caught on with an increasing number of strategic buyers. Rep and warranty insurance is considered and discussed in nearly every middle-market deal, even in situations where it is ultimately not used. It is encouraging to see the innovation that is still happening in this space. For example, insurers are considering pooling as a solution to make rep and warranty insurance more available and affordable for smaller deals.
Publisher’s Note: Katten is a sponsor of The Lawbook’s Corporate Deal Tracker page. This Q&A is an associated thought leadership piece.