1. ACCDocket 16 June2007
Hearsay Going Global | New To In-house | Ins & Outs
| Small Law | The Contractual Cogitator
I
came to my current assignment
as corporate counsel of Xiotech
Corporation, a $100 million data
storage company, with my law
school diploma, a degree of litigation
experience in a local prosecutor’s
office, and the desire to use my legal
skills to help build a fast-growing
new business. Like many others who
are new to in-house, I did not have
M&A experience, nor did I think I
would need it so soon.
Nine months after I started,
Xiotech management strategically de-
cided to branch out into new business
arenas, particularly electronic discov-
ery services, through acquisitions. It
was not just a concept; management
actually had in mind a specific target
company, Daticon, a Connecticut com-
pany under Chapter 11 bankruptcy
protection. I can still remember the
near panic I experienced when I real-
ized that senior management would be
looking to me for legal help.
Happily, 16 months later, I can
report that not only did I survive
the test of fire, but we were able to
complete an assets-out-of-bankruptcy
acquisition in only six weeks—a
record for the state of Connecticut. In
that short time, I gained an enormous
amount of information about M&A,
not just from the business leaders at
Xiotech and our outside counsel, but
also from executives of the acquisi-
tion target, and from counsel for the
debtor in possession. Hopefully, my
experience can provide a roadmap for
other inside counsel.
When faced with an M&A, start
by getting an M&A checklist from the
ACC Virtual LibrarySM
, an ACC col-
league, or your outside counsel. While
these lists vary in detail and quality, all
of them describe the issues that need
to be addressed in a transaction, the
order in which they need to be consid-
ered, and the general flow of the deal.
I would also recommend Anatomy of
a Merger by James C. Freund. I actu-
ally didn’t buy the book until our deal
was closed, but in hindsight, I now see
that the advice is practical and real.
It is equally as important for in-
house counsel to possess a thorough
understanding of the company and
its strategy. I enjoy a good relation-
ship with Xiotech senior manage-
ment, and they were eager for me to
understand the strategy, why the deal
was important to them, and the how
far they would go to consummate it.
Thus, I was able to make quick and
accurate decisions.
That is not always the case. Many
business executives want to move for-
ward the minute they make up their
minds to do a deal—and they want
everyone else to have their sense of
urgency. As inside counsel, we have
to resist knee-jerk reactions. It may be
a challenge to get the business execu-
tives to explain the deal fully, but you
can’t do your job properly without
this knowledge.
Beyond understanding the busi-
ness and strategic reasons for the
transaction, in my case it was critical
for me to totally understand my own
company’s governing documents and
material agreements. Those materi-
als contain critical information—in-
formation about controls, voting
rights, and structures—that, if not
handled correctly and in a timely
fashion—could have delayed or even
killed the deal.
The common thread during a M&A
is that third parties can gain leverage
knowing that they can delay or even
destroy a sale and use that leverage to
squeeze something valuable out of one
of the parties. When entering into con-
tracts, look closely at the provisions
relating to change of control, assign-
ment and mergers, or other material
transactions and try to build in as
much flexibility as possible. It’s easier
to get this flexibility when a transac-
tion is only a theory than it is to get
consent to an actual transaction.
Because I am a one-person law
department and must simultaneously
handle all of the company’s legal
needs, it would have been impos-
sible for me to attempt to handle the
transaction on my own. In our case, I
turned to our incumbent outside legal
firm which had substantial expertise
in acquisitions out of bankruptcy.
While it’s convenient to turn to in-
cumbent counsel, this may not always
be the best choice, depending on the
deal. For instance, if the target is a
public company, a government con-
tractor, or if the object of the acquisi-
tion is intellectual property, it will be
important to find an outside firm that
already has experience in, and has
dealt with, those unique transaction
First Time’s the Charm:
Tackling and Succeeding
in M&A Work
By Todd Grauel
Todd Grauel is the corporate counsel for Xiotech Corporation based in Eden Prairie, Minnesota. He can be
reached at todd_grauel@xiotech.com.

2. ACCDocket 18 June2007
Hearsay Going Global | New To In-house | Ins & Outs
| Small Law | The Contractual Cogitator
issues so that they don’t need to learn
the ropes in a live-fire exercise or
miss something important.
Because Xiotech was acquiring
assets out-of-bankruptcy under the
guidance of an independent trustee,
there was low risk that the opposing
side was hiding skeletons. Probably
the most common threat to consum-
mating M&As is the emergence of
skeletons from the closet during due
diligence. These skeletons can take
many forms including current or
potential litigation, poor accounting
or controls, disgruntled employees or
customers, and problems with tech-
nology or intellectual property. The
due diligence part of M&As is where
these skeletons get uncovered. But
inside counsel should anticipate these
issues long before the decision to
sell or buy is made. In-house lawyers
for sellers and buyers need to work
closely with accountants, outside
lawyers, and investment bankers to
identify and address these issues early
in the due diligence process. Sellers
should not believe (and take the risk)
that the buyer will gloss over a prob-
lem. It won’t. If, as a seller, you have
identified a problem, you need to fix
it or disclose it.
While my level of M&A knowl-
edge was only cursory when the
Daticon transaction surfaced, one
thing was clear: When it came to the
legal issues surrounding the transac-
tion, I was the one who was expected
to understand the totality of the deal.
It certainly was an education by
fire, but lawyers on both sides of the
deal wanted to get it closed, so they
cooperated willingly as I learned the
M&A vocabulary.
However, beware—advisors on ei-
ther side of the deal can be overzeal-
ous. Your advisor’s job is to zealously
represent you in a transaction. But
some advisors can go too far even to
the point of killing the deal. The les-
sons: Hire lawyers, accountants, and
investment bankers whom you trust
and who are experienced in M&A
transactions. Take control of your
advisors. If they are going too far,
squelch them. This is your deal, not
theirs. Final lesson: Don’t lose the
forest for the trees. Remember that
the objective in an M&A transaction
is to sell or buy the company. What
seems like an insurmountable ob-
stacle can almost always be overcome
with creativity, determination, and a
willingness to compromise.
The author would like to thank
Keith Mendelson, a member of Wom-
ble Carlyle Sandridge & Rice, PLLC,
for his assistance with this article.
Have a comment on this article?
Email editorinchief@acc.com.
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