Katten corporate partner Wade Glover is wearing many hats these days.
The young Dallas partner is navigating the additional responsibilities at work since being elected to the partnership two years ago and living through one of the most active deal environments in history.
And then at home, he is following his wife’s lead in homeschooling their five young children since the beginning of the pandemic.
Glover, who led Mid America Pet Food’s acquisition of Nature’s Logic in August, talked with The Texas Lawbook about the evolution of his practice and what he is seeing in the market in this Q&A.
The Lawbook: What are one or two of the most interesting transactions you have handled over the past year? Why were they interesting?
Wade Glover: In summer/fall of 2020, I worked with the Katten bankruptcy team in advising Aurify Brands on the acquisition of two separate restaurant brands out of bankruptcy. The first was the acquisition of assets of Le Pain Quotidien which won the “Consumer Staples Deal of the Year” in the 15th annual Turnaround Awards by The M&A Advisor. The second acquisition was the assets of Maison Kayser. Both acquisitions occurred in the midst of the pandemic and the restaurant space was hit hard by the pandemic. All 363 Bankruptcy sales tend to have their own “flavor” and intrigue, but the overlay of the pandemic, negotiations with landlords for going-forward leases and addressing issues raised by other vendors caused some unique negotiation points and tactics.
The Lawbook: You led the Mid America Pet Food acquisition of Nature’s Logic that was announced in August. Can you talk about any unique challenges to that deal?
Glover: Deal dynamics required a swift transaction and close. Both sides wanted to hit a pretty aggressive timeline which we were able to achieve.
The Lawbook: How did you end up leading that deal?
Glover: Katten represented Trinity Hunt Partners in their sale of Mid America Pet Food at the end of 2020. Given our relationship with the company’s management team, we were asked to represent Mid America Pet Food in this acquisition.
The Lawbook: Can you describe a recent deal you handled that required a more bespoke approach?
Glover: Of course, the “official” answer is that all deals require a bespoke approach. That said, I recently handled an acquisition for a client that required a number of “unique” considerations to get the seller comfortable with both their rollover equity position post-closing and their own risks regarding certain activities being impermissible “competition” post-closing due to other business ventures in which the seller was involved. The deal ultimately closed, but the various transaction agreements had numerous unique provisions to “thread the needle” between what the buyer needed in terms of post-closing noncompetition protection and what the seller wanted for purposes of confirming that they wouldn’t “accidentally” violate a post-closing covenant. The buyer and seller also agreed to a number of provisions in the governing documentation to address a handful of unique issues raised by the business and the various stakeholders.
The Lawbook: Deal activity has been on a blistering pace this year. Can you describe how that is playing out in the middle market?
Glover: Everyone is busy – the clients are busy, accountants are busy, representation & warranty insurance providers (and their counsel) are busy. Volume is high and pace is fast. Those engaged in these deals have to know what matters and focus on getting the right terms for the right reasons.
The Lawbook: Are there particular kinds of transactions you are seeing more of?
Glover: The “public company style” sell-side deal is becoming more common than not in deals where the auction is even modestly competitive. Sellers in those scenarios are able to dictate very limited post-closing recourse including limited to no indemnity for pre-closing taxes.
The Lawbook: What are you seeing in the LBO space? What about bolt-ons?
Glover: Both types of deals are hot. While we are slowly starting to see what tax rates (may) look like in the near term, the uncertainty is driving founders and others to seek a liquidity event sooner than later – couple that with relative low cost of capital and ample dry powder available to the typical buyer in the middle market space, add-ons and new platforms are equally (and very) active.
The Lawbook: Are clients heading to equity investments over LBOs/acquisitions?
Glover: Everyone’s experience varies, but in my practice, my clients are continuing to focus almost universally on control transactions. Equity investments were a bit “hotter” early on in the pandemic when portfolio companies needed (or wanted) equity investments to bolster balance sheets – but those transactions were more limited and also tended to be focused on industries that were harder hit by the pandemic.
The Lawbook: What are the important trends or developments in the PE space that you are following?
Glover: As everyone knows, representation and warranty insurance has had one of the larger impacts on deal strategy/dynamics over the past decade. While not cheap, these policies allow for (a) swifter negotiations of representations and warranties, (b) Sellers to significantly curtail their post-closing exposure and (c) Sellers to tie up much less of the deal proceeds in a long-term escrow. The fact that underwriters have been preparing policies at an incredibly quick pace allowed for the R&W policy to fit into the deal timeline without much intrusion on the overall process.
What I’m watching is whether there will be a pull away from these policies in the future in light of two noticeable trends: (1) policy premiums are creeping up and (2) underwriters are becoming more selective in deals they’ll underwrite and are highlighting the fact that they may need more lead-time to get a policy done.
The first issue – premiums – is pure economics. When buyers are forced to purchase the policy and incur the full retention under a policy before obtaining any recourse to the policy, the economic value of the policy starts to be tarnished. Couple that with the fact that some buyers never seem to make a claim (under a policy or otherwise) there are rumblings from some sponsors in the market questioning whether these policies provide the value worth the premium.
On the second point, as we have seen in the current market, there is so much activity and everyone is trying to close a deal as quick as possible, requiring the deal to slow down for an insurance policy can have negative implications on a buyer’s attractiveness in a heated auction. To be clear, I do not see this as a pending demise of the R&W Insurnace industry, but I am interested to see if buyers start to think twice about whether a R&W policy is the right way to go for every transaction.
The Lawbook: How has your practice evolved since making partner two years ago?
Glover: The biggest evolution has been the addition of “other hats” to wear throughout the day. While I continue my practice and advising clients in their acquisitions/dispositions, I have more administrative tasks to address. I’ve also tried to ensure associate mentorship/education continues. Mentorship was more fluid and organic pre-pandemic due to the fact that we were all around the office and could have easy discussions. Education and mentorship in a time of prolonged remote work requires much more intentionality and purpose.
Publisher’s Note: Katten is a sponsor of The Lawbook’s Corporate Deal Tracker page. This Q&A is an associated thought leadership piece.