Editor's note: This article is from The American Lawyer's April issue.

Last year's move to take Dun & Bradstreet private was not your grandfather's deal.

In 2018, D&B, which sells business information and reported about $1.7 billion in revenue in its last full year as a public company, parted ways with its CEO and brought in consultants from McKinsey & Co. in search of a boost. With its stock in the $120s, it was in talks with several private equity firms about taking a minority stake. And then Chinh Chu came along.

As Freshfields Bruckhaus Deringer partner Ethan Klingsberg recalls it, Chu's offer—buying D&B in its entirety at $140 to $145 a share, or roughly $7 billion—was attractive. But it was unusual. Despite Chu's long career at the Blackstone Group, the offer wasn't being spearheaded by a major fund. Chu's own investment firm, CC Capital Partners, led the charge, working with businessman William Foley and a hodgepodge of other investors.

"There was a time when takeover offers would come in from people that weren't associated with a big fund or a strategic [investor], and they'd say, 'Oh, I'll be able to put together the money,' and I would just laugh," Klingsberg says. "It wasn't someone like Chinh Chu, who was one of the giants of private equity."

Some of the names were unfamiliar and their investing potential was unknown, and getting to yes meant lots of due diligence, Klingsberg says. Four big banks agreed to lend $4.5 billion, and a group of funds, a reinsurer and an affiliate of the Qatar Investment Authority agreed to stump up $1.9 billion, a proxy statement shows. Cannae Holdings, a Foley affiliate, had many of its assets tied up in one stock, so it agreed to sell most of its initial $900 million stake in D&B to a syndicate of owners after the closing.

At one point, says Klingsberg, who was at Cleary Gottlieb Steen & Hamilton at the time, the advisers even tried using D&B's own data to assess the creditworthiness of some of the purchasers.

"We definitely chuckled to each other [about it], but we were under a lot of stress," he says.

While there's no guarantee 2020 will measure up, M&A practitioners have been on a decadelong hot streak, fueled by a growing economy, cash reserves, low interest rates and other factors. In that time, the market has evolved, putting the onus on deal lawyers to evolve right alongside it. And those at the peak of the profession have done just that, developing innovative approaches to respond to the new paradigm.

Staying Flexible

Klingsberg's work for D&B made it clear to him that deals can now happen without a prominent sponsor or strategic investor getting involved. Family offices, sovereign wealth funds and others that have traditionally served as limited partners in major investments are looking for new opportunities. Freelance private equity professionals can tap their networks to fund a deal. Multibillion-dollar transactions are no longer just the province of big-name investors, Klingsberg says.

Such deals take many forms. Several lawyers have built practices that help special purpose acquisition companies, or SPACs, raise hundreds of millions of dollars at a time on public markets with nothing more than an executive team and a target. And in the lower middle market, independent sponsors are on the rise, according to surveys by the accounting firm Citrin Cooperman.

With buyers and sellers contemplating an ever-expanding menu of deal varieties, flexibility is more necessary than ever for M&A lawyers. Michael Diz, a partner and M&A co-chair at Debevoise & Plimpton who along with Jeff Rosen and a team at the firm represented Elliott Management in its bid for Barnes & Noble, says the lawyers on the deal came up with a provision over Memorial Day weekend last year that allowed Elliott to strike a purchase agreement without shutting down the bookseller's talks with other potential buyers. They called it a "keep-shop," a reference to the more common "no-shop" and "go-shop" provisions found in other deals.

"There [is] a lot of competition to buy companies, [with] very high price expectations on the part of sellers, so you see people getting creative in a way that you didn't see pre-financial crisis," Diz says. "You'll see clients looking to partner with a private equity firm and a strategic partner to buy another strategic and then divide it up. Or you'll see one buyer go out and buy two companies at the same time so they can get the synergies of acquiring those companies."

Debevoise has had a hand in some of these complex new deals. In 2018, its private equity client Clayton, Dubilier & Rice simultaneously struck deals to acquire building products-makers Ply Gem and Atrium Windows & Doors, with plans to combine the two.

One year prior, Debevoise was involved in the $4.1 billion acquisition of Kindred Healthcare by Humana and a pair of investment firms that planned to divide its business lines.

Health care has been a particularly ripe area for collaboration between strategic and financial investors. The advisory business 4sight Health logged four such transactions since 2015, in addition to the Kindred deal.

Foreign Funding

In some contexts, though, creativity won't cut it. Regulators in the United States and around the world are taking a hard look at deals involving foreign money, especially if it means that nationals from rival powers like China could be given access to key resources including personal data.

In the U.S., the watchdog Committee on Foreign Investment in the United States has only sparingly exercised its authority to put conditions on a deal—or unwind it completely, even after closing. Lawyers often describe its power as a "hammer" that can come down hard on an unprepared buyer.

Recent CFIUS regulations make clear that it's not just the Raytheons and Lockheeds of the world that have to be careful when contemplating foreign investments. The committee can review even noncontrolling stakes by foreign investors in companies involved with "critical technologies," "critical infrastructure" or "sensitive personal data."

Even before the regulations came down, the storage and use of user data had emerged as a flashpoint with CFIUS. Over the past year, Chinese owners of the dating app Grindr and the social video app TikTok have reportedly come under scrutiny over their potential to exploit user data.

Matthew Gemello, a partner at Orrick, Herrington & Sutcliffe, says many deals don't progress because dealmakers recognize the likelihood of regulatory hurdles. Buyers are looking at a portfolio of options and rank them based on ease of completion, he says, so those on the wrong end of the spectrum quickly fall by the wayside. Gemello says he can't speak about any specific cases, because scuttled transactions aren't often publicly reported. But he says cross-border regulatory issues have been more prominent in the deal-making calculus over the past four or five years, a period that has seen deal flow dry up between the U.S. and China.

Risk Tolerance

Even when geopolitical tension isn't part of the picture, data privacy and cybersecurity have become paramount concerns.

No lawyer wants to deal with the panicked call that ­Verizon and Yahoo's lawyers probably received in September 2016—after Verizon's acquisition of Yahoo had been announced—when Yahoo revealed that 500 million user accounts had been hacked. The closing of the deal was delayed, and Verizon ended up renegotiating a $350 million price cut and liability-sharing agreement with Yahoo. Hospitality giant Marriott was hit with a $124 million fine after its acquisition of Starwood Hotels, which had suffered a massive data breach before the deal that wasn't disclosed until 2018.

Marc Zwillinger, the former head of the privacy practice at Dentons predecessor Sonnenschein Nath & Rosenthal, who's now at the privacy and data-focused boutique ZwillGen, says he's seen an uptick in calls asking his firm to conduct privacy and cybersecurity-related due diligence in mergers. He only recalls one transaction over the past three years where such concerns have scuttled the deal, but clients are clearly concerned.

"There's rarely a clean bill of health," he notes. "It's a matter of risk tolerance."

With his lawyers working in teams of two or three, Zwillinger says, the work typically takes two to four weeks. They try to answer a host of questions: How is a company complying with the European Union's General Data Protection Regulation? How about the new California Consumer Privacy Act? The Illinois Biometric Privacy Act? Can it trace users' consents to have their data shared? What are the company's cybersecurity policies, and what would its insurers cover? Are its employees trained to be on the lookout for phishing schemes?

Diligence more broadly is an area where a tech-savvy approach is increasingly necessary for deal lawyers. When a buyer is under the gun to get a deal done quickly, software from companies like Kira Systems—or any of the dozen-plus companies that have sprung up more recently—can help attorneys analyze a target's contracts and identify key provisions, says Richard Tromans, who runs the legal technology news website Artificial Lawyer.

Contract analysis software is "not a magic bullet" that can be operated by a junior associate with the push of a button, Tromans says, and it won't necessarily add efficiency to every transaction. But banks, insurers and other corporate clients whose business is bound up in thousands of contracts expect their counsel to be well-versed in such technologies.

Some legal tech firms are focused on other aspects of the M&A process, Tromans says. Doxly, recently acquired by Litera, helps lawyers manage the administrative aspects of a deal, like gathering dozens of signatures from board members and investors on transaction documents.

The 'Soft Stuff'

But diligence isn't just about what's in a company's contracts. Cal Smith, an Atlanta-based partner at King & Spalding who practices at the intersection of M&A and corporate governance, says clients are paying more attention to reputational risks—as well as environmental, social and governance issues—when they're considering a big deal. Directors are also involved in such transactions in a way they didn't used to be, he says, rather than giving managers a long leash.

Even financial sponsors are more focused on the "soft stuff" of a portfolio company, like culture, than they used to be, Smith says. Making an acquisition, giving the balance sheet a "spit-shine" and flipping the company onto a new owner doesn't cut it anymore.

"You always look back at departures, especially at the senior management level: 'Why did Jill leave?'" he says. If there was a major settlement, lawyers need to dig in to understand it. "And then you have a privileged conversation. You have to follow the trail of breadcrumbs, and you have to ask the right questions."

One way buyers have been guarding against risks is with representations and warranties insurance. Jonathan Klein, the chair of the M&A group at DLA Piper, says that over the past decade or so R&W insurance has become a ubiquitous feature in all but the biggest deals. More than a dozen companies now offer to underwrite a seller's promises about key elements of an asset being sold. In exchange, they ask for a fee that's usually much smaller than the escrow that was once standard, he says.

From 2008 to 2018, the number of deals using R&W insurance grew more than fortyfold, according to insurance data provider Advisen. AIG, which studies claims activity, says claims are now filed for 20% to 25% of R&W policies.

R&W insurance first caught on with private equity managers and other financial sponsors, Klein says, because "they want to get their money back to their LPs, they want to report high internal rates of return, and they ultimately want to be liquidating their funds—and then going out and getting more money, obviously." But even strategic buyers take out policies now to simplify the financials of a deal, he says, with the possibility to create a "tower" of policies for several layers of protection.

Klein says he has two lawyers these days who do nothing but negotiate these insurance policies. Several litigators at his firm, too, are kept busy with claims under such policies, though most disputes don't see the inside of a courtroom—if they aren't settled, they tend to be arbitrated.

In this new era for M&A, in which billion-dollar deals have become commonplace, a deal's size doesn't necessarily correlate to its legal complexity. Sometimes, the smaller matters can be the thorniest, attorneys say. Across the board, though, M&A lawyers are being tested in new ways—and finding new ways to deliver for their clients.

"[When] you're hit with some bespoke, very tricky issues … you don't want to lose the deal at that point, so there's a lot of pressure to solve those issues," Klingsberg says. "That's frankly where the real value-add is for advisers."

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