Acute Acquisitions

Mobileye, Movidius, Nervana Systems—these names might not be well known outside certain tech-industry niches, but their acquisition by Intel could one day power significant growth for the Silicon Valley stalwart. Mobileye, a developer of technology for autonomous driving, and Movidius and Nervana Systems, both innovators in artificial intelligence, are helping advance Intel’s evolution from a PC company to a data-centric company, says Dan Vaughn, associate general counsel and M&A legal lead for the business.

The purchases are just some of the latest that Vaughn, with a track record in corporate finance and M&A law spanning more than two decades, has helped Intel negotiate over the past few years, maintaining its status as a global tech leader. He and his team approach the deals as “cocaptains” with business executives, and their involvement begins at the earliest stages and runs through the closing of each acquisition. With at least nine acquisitions completed since Vaughn joined the company in May 2015, the legal team has had many opportunities to hone its approach to assessing the risks and benefits of these transactions. “We’ve been focused on developing repeatable processes for efficient execution of acquisitions,” Vaughn says.

Here, he breaks down a few of the particulars of Intel’s M&A process and how exactly he and his team approach common concerns.

Preparing the Paperwork

The M&A process today begins with a nondisclosure agreement between Intel and its acquisition target. While nondisclosure agreements for standard commercial partnerships—very common in the technology industry—are tightly focused on a specific product or service, M&A nondisclosures encompass almost every aspect of the target company. (Exemptions may be made for trade secrets such as proprietary computer code, though.)

Vaughn’s team also participates in drafting a term sheet: a document that captures the principles of the deal. During this step, Intel lawyers scrutinize and verify the value drivers of the transaction to help C-suite executives derive a fair value for the targeted company and give insight into the long-term potential of the deal. They identify risks and liabilities and help devise risk-mitigation strategies.

Inspecting Intellectual Property

The impetus for acquiring a technology startup typically centers on IP. Intel’s lawyers therefore investigate a target company’s IP ownership claims with great scrutiny and care. Did all the inventors of the technology sign invention assignment agreements? Does the target company license some IP from a third party? “Our job is to see that the target company fully owns its IP,” Vaughn says. If it does not, Vaughn and his team must determine what implications that has for the deal. For example, invention assignment agreements might have to be negotiated after the transaction goes through.

If a target company did develop its own IP, Vaughn and his team then look into what the company has done to protect ownership of its innovations. Documentation of patents, licensing agreements, and employee and contractor confidentiality agreements must be vetted for any items that might imperil full IP ownership.

Reviewing Red Tape

Regulations governing exports, antitrust standards, and employee protections are another major area for investigation. For example, some countries, including Israel, provide financial support to technology startups. If a target company has accepted funding from the Israeli government, there may be restrictions on whether its IP can be moved to a company outside of the country.

In the European Union, on the other hand, workers have extensive rights when a company based in that region is sold. Employees are entitled to a certain number of days of advance notice prior to a deal. They also have the right to be informed of their company’s plans for them, should the transaction be completed, and what their compensation range will be if they are retained. The employee-notification requirements might even mean it will take longer for a transaction to be completed. “An M&A lawyer must explain to businesspeople these rights and how they impact the timing and costs of the deal,” Vaughn says.

Managing Stockholders

Private, venture-backed technology companies often have complex ownership structures. They may have multiple levels of preferred stock, common stock, and employee stock. During the due-diligence phase of an M&A deal, Intel’s lawyers unravel the implications of a target company’s ownership arrangement. For instance, holders of a certain class of preferred stock may have a liquidation preference, Vaughn explains. If those holders are entitled to claim the majority of the sale proceeds, there might be little left over for employees.

“It might be incumbent on us to properly incentivize employees,” Vaughn says. Intel may sweeten the deal for employees by raising the common-stock payout or providing a proportional amount of Intel stock so that they stay with the company after the acquisition. If the latter is the case, Intel might face a higher overall cost for the acquisition, and valuators in finance have to account for that.

Acting Fast

The legal team’s work on most M&A deals takes between thirty and sixty days, Vaughn says. That’s an ambitious schedule, given all that has to be accomplished. In the fast-paced technology sector, though, rapid response is necessary, especially if a key acquisition is being looked at by multiple potential buyers.

“We work basically around the clock,” Vaughn says. For larger deals, outside counsel sometimes augment the work of Intel staff to help keep the process moving on a tight schedule, and they’re consistently impressed with the work of Vaughn and his team. “Intel deals demand that its lead embody the three P’s: pacesetting, proactive, and passionate,” says Bill Choe, a partner, the global head of tech M&A, and the cohead of the technology industry group at White & Case. “Each attribute is required for successful tech M&A, which is equal parts mentally intensive and time constrained. Dan has that triad nailed.”

Vaughn and his team’s intricate yet efficient approach has paid off for Intel, and the company remains a leader in the technology sector. As it continues to bolster its portfolio of companies, add new products, and enter new markets, heading into its second half century, Vaughn and his team will be prepared for each new deal.

Expertise Spotlight:

Innovative expansion strategies in the technology industry require legal guidance from a market-leading team with concrete understanding of sector-specific issues and verticals, both locally and globally. Ranked “#1 Global Law Firm” by Law360 and consistently ranked by Bloomberg, Mergermarket, and Thompson Reuters as a top-five firm by global M&A deal value, White & Case includes a Technology M&A team that is led from the firm’s Silicon Valley office and extends across its office network in twenty-nine countries on five continents.

With more than five hundred M&A lawyers worldwide, the team advises leading public and private technology companies, private equity and financial sponsors, banks, and other institutions on complex, big-ticket buy- and sell-side matters and strategic alliances, providing in-depth expertise to clients as they scale. The team’s expertise includes first-chair, in-house experience, and its lawyers are sensitive to particular issues arising from domestic and cross-border technology M&A matters, including IP ownership, product-development challenges, open-source orthodoxy, code quality, privacy compliance, and IT systems integration matters. The team regularly advises on innovative hybrid transactions as clients enter new markets or product lines, offering commercial approaches and creative structures to address technical, operational, and integration issues, provide practical risk assessment, and develop mitigation strategies without sacrificing quality or adding risk.