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500Lawdragon Q & A with:Ethan KlingsbergbY Xenia KobYlarzAs an aspiring ultra-marathon runner, ClearyGottlieb partner Ethan Klingsberg has a taste for speed.But when it comes to his M&A practice he longs for thedays when people would sit down and negotiate deals inthe same room, or at least the same time zone.“I’ve done a half-dozen deals with some firms andnever met a single lawyer from these firms in person,”Klingsberg said. “I try to encourage boards to meet inperson as much as possible. But, due to the speed ofdeals and the ability to connect virtually, even keyboard meetings are not always in person. This trendputs a lot of pressure on counsel to communicate welland build trust.” Klingsberg, however, appears to beimpervious to the deal-making pressure as he managedto execute about two dozen deals in 2011 and early2012, including Google’s $12.5 billion acquisition ofmobile-device maker Motorola Mobility Holdings.LAWDRAGon: Last year, your firm had a role in two ofthe largest deals in the technology industry. Are wegoing to be seeing more such deals?ETHAn KLInGSBERG: We’re also handling SonY’s buyoutof Ericsson’s mobile handset business. We’re hopingthe big tech deals will keep coming. Large techcompanies are generally cash-rich and have investorsand boards that are more interested in seeing thiscash used to grow the company’s prospects, asopposed to the dull and depressing alternative of specialdividends and share buybacks. The other driver isthe value attributed to speed and being the first moverin this sector. Many of the products and operationsthat are being bought in tech could be developed inhouseover time, but it’s not necessarily worth waitingand the first entrants in a space can have a benefitthat organically developed alternatives may have troublecompeting against. Take these factors, togetherwith a very healthy dose of desire to be the best, andyou end up with a hot M&A market.LD: Even with the bad economy (or maybe because ofit), many companies are sitting on piles of cash. Whatimpact does this have on your practice, if any?EK: We spend a lot of time working with boards ofdirectors on this issue. For example, the excellent conditionof the balance sheet at our client, Family DollarStores, was a primary reason that the hedge fund,Trian Partners, came in attacking the board andannouncing an unsolicited takeover offer. A commonmisconception is that hedge fund insurgents targetonly underperforming or distressed companies. In fact,the boards and managements that are most frequentlyattacked by activists are those overseeing companiescharacterized by steady cash flows and healthy balancesheets. In the mid 2000s, healthy balance sheetsoften signaled likelihood for being an LBO target. Nowthis state tends to signal a need to prepare for a hedgefund insurgency.Generally, we counsel that boards should explore, andpush outside advisors and management to help themunderstand, whether more aggressive uses of excesscash may be appropriate and communicate their conclusionsand reasoning to investors. This effort can domore than traditional anti-takeover mechanics to protecta company from interference by an activist whopurports to know more than the incumbent directorsand management about what to do with the excess cashand who, in the face of a seemingly passive board,could generate enough momentum to steer the companyin radical directions that are not prudent.LD: What do you consider is the most interesting dealyou’ve handled in your career?EK: In 1998, I spent months in South Korea working onthe first foreign investment in its banking system — aseminal transaction by Goldman Sachs. The governmentwas giving us a hard time, the target, KookminBank, was giving us a hard time, and there were lots ofcultural rules that we were expected to follow. We hada great team there from Cleary and Goldman, lots ofcamaraderie. In the end, we broke some of the culturalrules, but that was the right thing to do to get the dealdone. There’s a time to play along and there’s a timeto disrupt in the deal-making business.LD: For an M&A lawyer, you actually have a highlydiversified practice.EK: Client relationships are a great way to becomeaware of industries, business lines and organizations.You’ve got to start with the premise that you are advisingpeople and, once you have that awareness, you canexpand into multiple sectors if you have the patienceto do your homework.LD: What do you do for fun?EK: Mostly, my kids and I try to figure out ways to goon adventures together. In addition, I’ve got the runningbug. I ran the NYC Marathon, NYC Half Marathonand two 10Ks (not the Exchange Act form) races in thelast six months. I aspire to ultra-marathons over thenext decade to affirm that life really is absurd.See the full Q&A at www.lawdragon.com/lawyer-limelights/ethan-klingsberg.L A W D R A G O N 72 I s s u e 13 Photo by: jennifer pottheiser