Dealmakers

The legal team behind LKQ Corporation helped build the industry leader through more than 225 M&A transactions. GC Victor Casini shares what makes his team the aces of acquisition.

A serendipitous elevator conversation two decades ago led Victor Casini down an unexpected yet successful career path. In the ensuing years, Casini, now general counsel and corporate secretary of LKQ Corporation, has been instrumental in building an industry-leading, $7 billion aftermarket and recycled automotive parts distributor.

With his legal guidance, LKQ has grown from just an idea to where it is today by executing more than 225 acquisitions of several mid-sized companies and scores of small mom-and-pop operations. His contributions to the company have made him a key part of the business team.

It all started one day in 1992, when Casini stepped onto an elevator at the Chicago offices of his then-employer, Bell, Boyd & Lloyd LLP (now K&L Gates LLP) and struck up a conversation with Paul Metzger, one of the firm’s partners. Metzger told him a client needed help with a deal to buy Discovery Zone, Inc., an operator and franchiser of family entertainment centers.

Casini took on the assignment and met Don Flynn, the client and a former executive and director who was forming Flynn Enterprises, which would build a diversified portfolio of businesses to eventually pass on to Flynn’s heirs as a family legacy. While working with this account, Casini got to know Flynn, and in 1993, he was offered the position of general counsel with Flynn Enterprises. In 1998, Flynn formed LKQ to exploit a unique vision to build an alternative vehicle parts company via acquisitions and industry consolidation. That would mean plenty of work for attorneys—though Casini didn’t know how much at the time. “When I first joined Flynn Enterprises and later LKQ, I wondered if I would have enough to do,” Casini recalls. “Turns out I haven’t had much down time since.”

Pocket Policy Manual
The Hart-Scott-Rodino Antitrust Improvements Act in brief

This act requires companies to file premerger notifications with the Federal Trade Commission and the Antitrust Division of the Justice Department. It also establishes waiting periods for certain acquisitions or tender offers and authorizes the enforcement agencies to stay those periods until the companies provide additional information about a transaction.

In 1998, LKQ was formed as a shell company and soon purchased three of the leading companies in the alternative vehicle parts industry. LKQ distributes aftermarket and recycled parts—aftermarket being those made by manufacturers other than the automaker, and recycled being reclaimed parts from vehicles totaled in accidents. No one had attempted to create such a large company in this industry with this broad of a geographic reach (LKQ operates nationwide and in many foreign countries).

With acquisitions as the essential growth strategy, the legal team plays a prominent role that goes beyond that of a typical supporting group. Legal and business leaders at LKQ have become a highly integrated, efficient team with a deep understanding of what needs to be done to expedite successful deals. “We try to help our clients get things done and not look for reasons to derail deals,” Casini says. Legal has earned the respect of business leaders, who, Casini says, recognize the legal team has business experience and can readily offer strategic input. And their counterparts on the business side are well versed in legal issues. “Our senior vice president of development is an attorney,” Casini points out. There’s no culture clash, he adds, and the streamlined process that has developed over the years—honed through repetition—gets deals done quickly with appropriate due diligence.

“We know how to zero in on the key issues,” Casini explains. A notable plus is that the legal team, composed of four attorneys and one paralegal in the United States and one attorney in the United Kingdom, has a sound understanding of the financial aspects of acquisitions.

A standard purchase agreement, which the team developed and tailored for LKQ and the industry, aids in expediting deals. This document allows LKQ to protect itself from the legal risks stemming from acquisitions, says Casini, without “overwhelming the process by dumping a huge boilerplate document on the other side.” LKQ must consider risks such as environmental issues, pending or possible litigation, and employment matters. In addition, LKQ’s legal team has developed a due diligence checklist that includes examining the material contracts of the target company, assessing pending or threatened litigation, and ensuring that its employees have proper I-9 forms that make them legal to work in the country. It is designed so sellers can quickly respond to LKQ without the need to send a large due diligence team to the acquisition target.

There are innumerable other details that could attract the attention of legal staffs in these kind of acquisitions, so focusing on what’s important and not getting bogged down with minor matters is critical to keeping the process moving smoothly. “What we wouldn’t do in most cases, for example, is send somebody to the target company to pore over their minutes books,” Casini says. Because LKQ usually buys the assets of a company and not the company itself, this step is usually not worthy of that level of attention, he says.

LKQ’s negotiation strategy—being less confrontational and more cooperative with the acquisition target’s legal representation—has proven effective in getting deals done to the satisfaction of both sides, Casini adds.

LKQ keeps most of its legal acquisition work in-house, but some deals require outside counsel. A $450 million deal for Keystone Specialty, a distributor of specialty vehicle aftermarket equipment and accessories, is a case in point. LKQ enlisted K&L Gates due to the size of the transaction. In particular, the outside counsel assisted with drafting and negotiating the merger agreement and complying with the Hart-Scott-Rodino Antitrust Improvements Act.  LKQ also uses specialty firms, like Fisher & Phillips for employment matters and Shook, Hardy & Bacon for litigation issues, when
circumstances warrant.

Deals for foreign companies such as LKQ’s 2013 acquisition of Sator Beheer B.V., a distributor of mechanical aftermarket parts in Luxembourg, Belgium, the Netherlands, and northern France, typically require the assistance of counsel based abroad. Differences in language and business laws and practices make the assistance of an in-country law firm essential. Baker & McKenzie in Amsterdam assisted on that deal, which expanded LKQ’s European presence.

“For foreign acquisitions, you want to deal with a law firm that has experience with these types of deals with US lawyers,” Casini says. “A foreign law partner has to be able to explain the differences between the applicable foreign laws and their US counterparts, so you have a good sense of the legal issues and risks.”

Casini may not have envisioned such a prominent role in building a powerhouse when he signed on with LKQ, but his contributions have been essential to the company’s success. Few corporate attorneys have had his good fortune to find a role that brings all their skills to bear to realize the enterprise’s strategic vision.