By Benjamin Horney

Law360 (May 4, 2020, 7:07 PM EDT) -- Ethan Klingsberg had no clue the worst global pandemic in a century was just beyond the horizon when he started his new job as head of U.S. mergers and acquisitions at Freshfields late last year, but the veteran M&A attorney believes his firm will weather the storm and come out the other side with an even stronger corporate law presence across the world.

Klingsberg arrived at Freshfields Bruckhaus Deringer LLP in late October as part of a group of four New York-based partners who came to the firm from Cleary Gottlieb Steen & Hamilton LLP. Only a few months into his tenure, the M&A market has been shaken by the coronavirus pandemic, which had killed more than 65,000 Americans as of Sunday, according to the Centers for Disease Control and Prevention. 

The COVID-19 outbreak has caused dealmakers to question whether it makes sense to ink transactions right now, and in many cases, clients are asking counsel whether provisions like material adverse effect or force majeure could get them out of a deal that was already signed. Additionally, the pandemic has forced businesses to go remote if possible, meaning lawyers currently find themselves in videoconference meetings that get interrupted by noisy children and barking dogs. 

Klingsberg is still trying to navigate a new role while overseeing a growing M&A group, and he spoke to Law360 about the transition to working from home, the effects of the coronavirus on Freshfields and the M&A market at large, and the most pressing matters the firm will face in the future. This interview has been edited for length and clarity.

How has the coronavirus affected the Freshfields M&A practice? And from your perspective, how has it impacted the state of M&A at large?

"During much of March and the first half of April, the focus for our client service was on corporate governance and liquidity," Klingsberg said. "Now, we are back to the strategic alternatives assignments again."

The firm is working with a few clients on playbooks for how to do upcoming strings of distressed acquisitions, as well as some mergers of equals meant to create combined entities with stronger balance sheets, but the hottest part of the market right now are PIPE — or private investment in public equity — offerings, Klingsberg said.

PIPE deals are those in which public companies sell shares to private investors. They can come with trade-offs, including that PIPEs are typically sold at discounts and contain other restrictive terms favoring private investors. But one advantage is that PIPEs can be completed quicker and cost companies less than a fully registered offering with the U.S. Securities and Exchange Commission.

"I had always viewed [PIPEs] as crummy transactions for corporations because they are expensive, dilutive, and unclear on the strategic value-add," Klingsberg said. "But the market has been reacting positively to them since the pandemic started. The reason is that they reaffirm that the company will be able to survive multiple waves of pandemic and signal that at least the PIPE investor believes that the company has a worthwhile strategic plan."

How has your day-to-day personal life and work life changed since the coronavirus outbreak?

"I see my wife and kids more," Klingsberg said. "We laugh a lot more because, with them around, it is so obvious how absurd my life is — always on the laptop and doing these videoconferences."

More time with family isn't the only benefit to sprout from this difficult situation for Klingsberg, who said he has also come to appreciate that it's becoming more common for people to show empathy for one another during daily conversation.

"I like the fact that every call with a client or a colleague usually includes some healthy discussion about considerations unrelated to work — who is sick, who is stressed, who is helping whom — and some macro observations on where our society and the economy are going," he said. 

How has the transition to everyone working from home been? Have there been any technical difficulties or any funny mishaps on video calls?

"The other day my son had a virtual piano lesson and my client's son was having a virtual trumpet lesson simultaneously during our call," Klingsberg said. "The mix of background sounds was amusing."

Another time, during a video meeting with a client, the dog of one of Klingsberg's fellow partners at Freshfields began barking like mad while the attorney tried to advise on anti-takeover devices.

"Without missing a beat, and with the dog still barking away, he concluded between barks, 'We've got to show the market that we will aggressively protect the ability of the company to execute on its strategic plan, just like my dog is showing you that he is protecting me right now,'" Klingsberg said.  

How do you usually unwind outside of work, and how has that changed in the wake of the coronavirus?

"I've had to move temporarily to upstate New York, where there are some awesome hills for a runner to stay in shape," Klingsberg said. "I've got some beautiful routes that I've worked out for runs. The hills, they either kill you or you conquer them."

In addition, Klingsberg has been spending time with his guitar, working on developing short sets of songs to keep himself sane.

"Since corona has broke, I've been working on a new guitar set consisting of 'Goodbye Pork Pie Hat' by Charles Mingus, 'Georgia' by Hoagy Carmichael and 'Stormy Monday' by T-Bone Walker," he said. "I even practice these in my head while I'm sleeping."

What are some of the short- and long-term challenges the M&A space faces?

As the world continues to battle the coronavirus, Klingsberg pointed to two main challenges being faced by the M&A world. First, the enhanced power of, and increased scrutiny by, investment regulatory regimes, including the Committee on Foreign Investment in the United States.

"[Freshfields] has a heavy focus on expertise in every foreign investment regime across Europe and Asia and, of course, CFIUS in Washington, where my partner is the guy who oversaw the thousands of CFIUS reviews for the last several years," Klingsberg said.

The partner Klingsberg was referring to is Aimen Mir, who previously served as deputy assistance secretary for investment at the U.S. Treasury. He joined Freshfields in February 2019, bringing with him almost a decade of experience as a senior official for CFIUS.

Klingsberg said that the coronavirus has caused dealmaking difficulties specific to regulatory regimes, which are taking longer than usual to process agreements.

"The word from this global team is that this area is now a minefield for M&A deals on a completely different scale from where it was two months ago," he said. "Process timelines are going to take longer and the regulators are going to be more conservative in a growing number of sectors."

The second major challenge Klingsberg sees in the M&A space is the difficulty of preparing internal forecasts that serve as the basis for all substantive valuations. Without those, it's difficult for a board to fulfill its duty of care when deciding whether or not to approve an M&A transaction, he said.

"The best clients are being creative on this front — using multiple scenarios and sensitivities, reflecting multiple waves of pandemic, incorporating probability weighting, and definitely not throwing up their hands and saying, 'Who knows?'" Klingsberg said.  

When you joined Freshfields late last year, you said you were drawn to its aggressive growth in areas including corporate/M&A, regulatory, and litigation and enforcement. Is that push for growth still going on or has the coronavirus halted hirings at all?

"Growth is at the top of the agenda," he said. "I believe we are the only firm in New York City right now that is open to hiring lateral associates in the corporate group. We're picky but open because growth is a priority. The work is coming in and the energy, even virtually, is special."

Klingsberg praised the firm's ability to stay organized and pull resources from across the globe to meet a given client's needs.

"I did not expect a firm of this size and breadth to be this 'one firm' in its approach to clients," he said. "For clients, and for someone like myself intent on carefully curating the firm's resources for clients, this approach to organization and constant intrafirm communication is refreshing."

What is your overall vision for the future of the Freshfields M&A practice? Are there any specific ways in which you are aiming to better the firm's M&A practice? 

"Look, there's lots of lawyers out there who can draft a good merger agreement and who will respond to your calls quickly and get a thrill out of staying up all night working on a deal that will be in the news at some point," Klingsberg said. "You've got to be contrarian to differentiate yourself."

One of the ways Freshfields differentiates itself is through its push to build strong presences in the U.S., Asia and Europe. By being "of scale" in each of those regions, Freshfields thinks it will stand out among the competition and become a go-to for M&A and corporate work, Klingsberg said.

"Some other firms can cover some of these areas, but nobody is expending the resources to be of scale and have top people in all of these areas," he said. "So we are narrowly focused in what we are good at. But we are very deep and very expansive — both in terms of geographies and bench — in these select areas where we are good. And fortunately for our M&A oriented clients, these areas all support M&A."


--Editing by Emily Kokoll and Jill Coffey.

For a reprint of this article, please contact reprints@law360.com.