Before e-mail, M&A transactions were done across the table, with a team scribbling copious notes. As in any negotiation, emotions often ran high, and throw-away comments, insults, and downright nastiness were used tactically, but usually quickly forgotten. The more incredulous incidents went down as City folklore, but were often held to be embellished.
But where email became the execution method of choice, a new and material issue arose – e-mails don’t disappear.
Unlike a table-thumping moment in a boardroom – which could be written off as the heat of the moment – emails can be revisited. When messages are re-read, sometimes years later, they are often viewed in isolation, rather than in the context of a start-stop negotiation or conversation, which is what they feel like at the time of writing.
When reviewed later, with a different context, whether that be with the benefit of further knowledge, facts or time passed, what may have been completely reasonable then may not seem at all reasonable now.
Some of the actors on the deal may change sides, such as when a management team helps its private equity seller negotiate the sale of a company. Postsale, most of the team stays on board but with new shareholders – who now own their deal-related e-mails.
Imagine a transaction where, post-close, the buyer is disappointed by performance – and then decides to conduct an audit of the business before acquisition.
E-mails relating to the state of the company, the context of the sale, the negotiations and even the price paid can be reviewed by the new shareholder. The buyer is effectively reading a diary, but they own it, and have full right of review.
And if that isn’t enough to scare sellers or management teams, even correspondence between a seller and their lawyers may be discoverable. In 2013, a decision in the Delaware Chancery Court effectively meant that privileged communications could be available to a successful buyer after close.
So what can sellers do? Purging e-mail servers or networks is at best costly and probably won’t work. Management teams and even sellers need to retain correspondence to assist in post-transaction efforts, either to protect their positions or to assist a successful buyer. Introducing a provision in a sale contract that precludes a buyer being able to use correspondence in the future to the detriment of the seller is unlikely to be met with smiles from a buy-side team. And as we have seen with the recent Terra Firma litigation with Citi over EMI, when transactions go wrong, fingers start pointing…
The best advice therefore is probably to follow the old adage – some things are better left unsaid.
This feature is part of pfm’s legal special magazine out on Monday 3 October.