Heather McCormick is Founder and Managing Partner of Credo Law Partners, a boutique law firm serving M&A transactions and growth companies. She is also one of this year’s first ever 40 Under 40 Award recipients. Prior to Credo, Heather practiced law in Silicon Valley with Cooley Godward, where she has helped entrepreneurs grow, finance and ultimately sell their businesses. She is also a Board Member of Pasadena Angels, a premiere angel capital investment group. Heather earned her law degree and MBA at UC Berkeley. This week, we asked Heather for her forward-looking insights about the M&A industry, the role of women in the business and more about her outstanding leadership.
M.A.: How did you get into M&A deal making, and what aspects of the transaction process do you most enjoy?
H.M.: I learned technical skills as a young lawyer at Cooley, from Carl Sanchez and Rick Climan, both great teachers. But I really cut my teeth as in-house M&A counsel for Platinum Equity. Every M&A advisor should have a stint in-house, for it is only there that you see the aftermath of deals, and learn what does and doesn't matter after the deal is done.
What I love best about the M&A process is representing a seller for whom this is a lifetime event. It's an honor and a joy to help an entrepreneur realize the fruits of the company he or she has built, in many cases, over a lifetime. And in so doing, you become much more than an advisor–you become a strategist, a coach, and occasionally an amateur psychologist!
I also like the quickness of deals, the on your feet back-and-forth, the game of persuasion. In no other transactions besides M&A do you have the same level of intensity. There's nothing like the head-to-head of acquisition negotiations.
M.A.: What is the most difficult deal you have ever participated in and why?
H.M.: The most difficult deal was the acquisition of DyStar, which is the world's leading supplier of textile dyes. Each decision in the deal needed to be blessed by three large German companies who were the shareholders–Bayer, BASF and Hoechst. It was a lesson in bureaucracy, but we got it done. Oh, and the deal was made even more difficult by the dearth of Frankfurt cuisine.
M.A.: How do you think, from a legal perspective, things will evolve in the middle market over the next year or two?
H.M.: The most interesting legal changes will come not in the M&A deals themselves, but in the legal arrangements, both public and private, governing the PE and VC firms who are often buyer or seller. Many VC funds haven't produced good returns, and the current climate has brought to light how many PE funds depended too much on leverage for returns.Now that the era of easy leverage has passed, there will be a real sorting of the wheat from the chaff in terms of who can actually grow companies and produce returns as opposed to financial engineering.
Fund covenants had become overly permissive of management fees and other compensatory structures to fund management, even in the absence of healthy investor returns. While these were permissible when all was rosy, they will not be tolerated in the current climate, and we will see increasingly restrictive structures with new funds. At the same time, we will see additional legal requirements placed on funds by the public sector, beginning with SEC registration, and ending who knows where.
M.A.: What are some things you think would draw more women into the middle-market deal making process?
H.M.: It isn't drawing women into the profession that's the problem. It's keeping them there. This is often explained away as the difficulty of child-rearing in a demanding profession, and while there is truth to that, it doesn't tell the whole story. Far too few women make it beyond the worker bee stage to the point of becoming a true dealmaker where your schedule gets more autonomous and your career more rewarding. It's not surprising to see women in their 30's leave M&A, when often all they can envision for themselves in the profession is more work, not senior roles or recognition.
Part of changing this is teaching young women early on that doing good work isn't enough, and that business development is absolutely critical to their long term success, power and well-being. Senior men have a critical role in teaching junior women rainmaking skill, because there aren't enough senior women to do it, and often they are too maxed out to mentor junior women as well as they might. It's also about looking for opportunities to provide women with senior roles. That can be as simple as thinking about what talented woman you might call to give a deal lead, instead of automatically calling the top name on the letterhead.
Finally, we have to remember that women as rainmakers are part of an eco-system. We will have more women lawyers and investment bankers engaged as deal leads when we have more women on the boards of directors that hire them.
M.A.: What inspired you to found Credo Law Partners?
H.M.: Credo is the Latin for "I believe". It speaks both to the entrepreneurial aspirations of clients, and to our own belief in a different way of doing business in the legal profession.
Although my time in-house was an incredibly valuable learning experience, I wanted to go back into private practice (where lawyers are revenue generators, not cost centers). At the time, I was a nine year lawyer, and couldn't see myself going back to a large firm, where my expected role would have been to run deals rather than to build a practice, which I was ready to do. I am thankful every day that I made the choice to take charge of my own destiny.
But Credo is about much more than that personal story. As a business proposition, Credo was founded out of the belief that the large law firm business model is broken. The pyramid structure of large law firms does not serve clients well. It is extremely costly, and often results in inexperienced lawyers doing much of the work. Likewise, the billable hour, as the sole means of compensation, is a direct incentive for inefficiency, and puts the law firms' economic interest at odds with their clients' interest. I also found during my time in-house that many of the M&A legal issues that were important to outside counsel, just didn't have practical impact on our portfolio companies, while many terms that did have operational significance weren't on the radar.
So I was inspired to found Credo to do M&A differently, better. We utilize only senior lawyers who can do M&A work expertly and efficiently, and who are financially literate. We focus on the key financial and operational terms of an acquisition document and drive the best deal possible, without over negotiating the finer points of low-impact terms just to demonstrate how smart we are. Our fees are generally based not just on time but also on success, and we are often equity participants in our client's deals. So, unlike the traditional law firm billing model, Credo's economic interest is aligned with our clients' interest. While you would think that these basic business concepts ought to be common sense, in reality they are a very rare way of practicing law. Large law firms would not accept them. So Credo set up outside that structure to practice what we believe.
M.A.: Please tell us about Pasadena Angels and how you became involved.
H.M.: Pasadena Angels is a premiere angel capital group that invests in early stage companies in a broad range of industries. We add more than the money; we also bring great contacts and sage counsel. I initially became involved through the gracious invitation of Al Schneider, through our joint work with companies at the Los Angeles Business Technology Center, and now serve on the Pasadena Angels Board.
M.A.: Thanks Heather and again congratulations on your award and your outstanding leadership!
