Simulated Auction for the Sale of an International Company

This semester-long simulation provides a practical, hands-on experience to help prepare law students for their transition into private practice and the business world.

Hear Professor Presser talk about his prize winning activity:

Goal:

  • To provide students with an overview of the challenges and opportunities of crossborder transactions.
  • To build the foundational skills for corporate advisory work, helping the students prepare for the transition into private practice and the business world. 

Background:

The course is designed to simulate a typical sale of a business in an auction process. The hypothetical involves a sale of assets in an energy corporation that operates internationally.

This instructor notes that law school curricula generally contain very few experiential classes, especially for transactional lawyers. As a result, this course exposes students to drafting, negotiation and auction dynamic techniques that students would not otherwise be exposed to until well into their practice at private law firms or in business. The course also exposes them to corporate decision making processes that they might not see for a number of years, but which rely on the product of their analysis and work as a young attorney.

Structured in three parts, the course begins with four sessions in Part 1, consisting of interactive lectures focused on the fundamentals of cross-border M&A transactions and the basics of an organized sales process. Part 2 consists of five sessions in which students participate in the simulated auction for the sale of a division of an international corporation with diverse potential buyers. Part 3 consists of three classes where the bidders present their proposals to simulated boards of directors (comprised of actual corporate directors) and submitt final proposals; then the seller presents its decision to its own simulated board, and a bidder is chosen.

The prerequisite for the course is either completion of a law school corporations course or a general understanding about business transactions.

Procedure:

  1. Preparation.  
  • The class discusses basic negotiation skills and how to approach creating an “issues list” - mainly, defining and prioritizing the main issues. Students are also given guidelines for Round 1 Negotiations and have the opportunity to ask questions about the auction process.
  • The students are broken up into four teams with one team consisting of 8 students acting as the seller’s deal team and the remaining three teams consisting of about 7 students each acting as the deal team for competing bidders from the US (private equity), China and Brazil.

In class.

  • At the beginning of the process, the teaching team explains in class how the auction is going to be run and the facts surrounding each of the varying parties involved. Students receive process materials.
  • Student teams are each assigned to two associate attorney advisors who are practicing attorneys in the M&A group at Freshfields Bruckhaus Deringer US LLP.
  • Students participate in weekly calls with their attorney advisors to discuss the auction process and negotiation and drafting techniques. Basic negotiation skills and tactics are discussed in many of the class sessions as is the importance for creativity.
  • During the process, the seller and bidder teams engage in three rounds of negotiation sessions and two exchanges of the markedup auction draft purchase agreement (five sessions total).
  • During each negotiation session, the seller team breaks into three groups of 2-3 people and each seller sub-team meets with one of the three bidder teams for the negotiation session. The negotiation sessions typically began with the bidder teams presenting its issues to the seller sub-teams. The seller team would then reconvene (as a group) to discuss each of the bidder teams’ proposals and develop an approach to the negotiation session. The seller sub-teams and the bidder teams would then come back together and negotiate for 30-40 minutes on the material points of the transaction (i.e. price, regulatory approvals, covenants, conditions, indemnification).
  • During the five sessions, and in between sessions, the bidder and seller teams also engage in negotiation through drafting, exchanging multiple markups and having discussions regarding both the concepts and execution.
  • The final product is a revision by bidders submitted with their final proposals.

Assessment:

  • At the conclusion of the simulation, students are asked to complete an evaluation about what they did and did not like about the exercise and what they would change for coming semesters.

Material/Resources:

  • The facts of the auction hypothetical, which gives detail about the seller’s business that was being sold and general background information about each of the three competing bidders;
  • A process letter (modelled on typical letters provided by investment banks) outlining what bidder teams should do to be successful in the auction process;
  • An auction draft asset purchase agreement, which simulates the initial version of a transaction agreement provided by seller’s advisors to bidders during a typical auction process;
  • A due diligence memo that details the diligence findings surrounding each of the major areas of the seller’s business (i.e. real estate, contracts, IP, compliance, litigation, etc.) and that was required to be incorporated into the negotiation sessions;
  • Two sets of confidential information memoranda (for each team) that are specific to each of the four teams (one seller and three bidders). These memoranda give each team unique facts about its team’s priorities, concerns and valuation methodologies; and
  • Crossborder M&A case study readings that highlighted issues in real-world transactions that were similar to those presented to the students in the simulated auction.

Comments from the Instructor:

  • The board presentation is a significant piece of work that requires each team to review and explain its process and decision. It is modeled on what a company would present to a real board of directors to support a significant business decision.
  • According to the instructor, flexibility is key to the success of the simulated exercise. Although there is a set syllabus, the instructor asked students for their input throughout the course and tailored the sessions to what the teaching team felt would be most helpful to the students.
  • The instructor recommends setting up additional phone calls and meetings (essentially office hours, even if remotely) outside of class to talk through the dynamics of the auction and support the student teams; engaging with specialists at a law firm to get students more information about certain matters (i.e. antitrust and CFIUS approval processes) and allotting more time in class for students to engage in negotiations.
  • Another key component, according to the instructor is staying close to the students (sitting in on their negotiation sessions to monitor the process; while not interfering, so they can learn by doing, not just by instruction) to help them focus on what matters so they maximize their experiences.

Submitted by Mitchell Presser, Harvard Law School