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Features
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 Deal mediation, or employing mediation in scenarios where failure doesn't mean a trip to court, is nothing new. 'When I was founding CEDR in 1990, I didn't talk to litigators,' says Eileen Carroll, deputy CEO of CEDR, 'I went to talk to corporate lawyers, and the first people I brought on the first CEDR course ever were corporate lawyers.' But despite early enthusiasm, the market for mediation emerged elsewhere: 'The big need seemed to be the distressed purchase,' Carroll says.
The rise of mediation in the contentious field hasn't been entirely at the expense of deal mediation. Anecdotal evidence suggests that mediation's core features can be as relevant and useful in the purely commercial arena as in disputes, and the rise of globalisation and shareholder activism, among other factors, suggest that a market for deal mediation could be ripening.
In the articles and conference papers on the subject which proliferate in the ADR community, two forms of deal mediation are identified. The purest form is where a third party is brought in to facilitate negotiation between two or more parties at the point of contract formation. The second, and more commonplace application of deal mediation, is generally concerned with ironing out wrinkles in pre-existing contracts in circumstances where litigation would be futile.
The value of deal mediation at the point of contract formation is debateable, but fans of the process believe that scope exists to improve and enhance present conduct of negotiation. This means simplifying and streamlining the process. The presence of a third-party trusted by each side takes a lot of bluffing and conjecture out of the process, but there are additional benefits. Negotiation via a mediator mitigates risk. 'There are a lot of situations in negotiations where you can't move without great risk; you cannot stick your head out to make or react to a proposal without that very fact causing a huge amount of risk,' says Robert De By, Dewey LeBoeuf's head of international arbitration. In those circumstances, a neutral can test the waters with hypothetical proposals of the type: 'I can't tell you and I don't know whether or not there is $1bn of financing, but if there was $1bn of financing, would you be willing to talk on that basis?'
Thus, in this scenario, the acquisition mating dance can be cut short. The 'testing without risk' principle is equally applicable in any number of circumstances. Streamlining the deal in this way has value, according to Michael Leathes, British American Tobacco's former head of intellectual property and now head of the International Mediation Institute. And conversely, he says, 'Shareholders are sick of macho posturing at board level which is costing them money.'
Shareholders are also growing less tolerant of cash bungs used to placate or dispose of surplus directors when two corporations merge. More creative solutions are therefore at a premium. Investment bankers, according to De By, have traditionally been adept at resolving financial impediments to a deal, but have been less concerned with the so-called 'social' side of M&A deals. Resolving issues as to who heads which department, however, is already heading back towards contentious mediation's natural terrain.
Globalisation, too, has brought its own range of dynamics and difficulties to the negotiating table, which some suggest offer scope for deal mediators to facilitate better communication. Cross-cultural deals, it is argued, can break down because of different expectations, negotiating styles and business customs. Where losing or saving face is dictating negotiations but one party is unaware of the fact, potentially successful deals can collapse. Mediation in these circumstances seems an obvious solution to those familiar with the process.
In addition to facilitating dialogue during negotiations, others foresee value in deal mediation substantially earlier in the process. Dr Paul Wheatley, a founder member of the Association of Cambridge Mediators, and owner of website www.dealmediation.co.uk, was struck by the colossal waste of time and resources companies invest in deals which have no realistic prospect of success. Deal mediation, he believes, can be used to test for a 'Zone of Possible Agreement' while deals are little more than ideas. 'People have worked for years on deals that are going nowhere,' he says. 'A neutral third party can cut straight through all that, potentially saving weeks' if not months' worth of advisers fees.'
Mediation, therefore, appears to offer solutions at every stage of any negotiated process. The trouble is that the market doesn't recognise that it has a problem. Worse still, the intuition and calculated risks required of one-on-one negotiation, for advisers at least, are part of the 'fun of doing business.' Deal mediation is also lacking economic leverage: basic economics suggests that deals will be struck on rational and efficient terms without third-party intervention. Deal mediation, then, is a tough sell, but the rewards for mediators might make it worthwhile. Unlike its contentious counterpart, deal mediation appears to require lengthy and prolonged engagement. De By, and Hammonds consultant Charles Middleton-Smith are among those whose input has been required on deals over periods of six months or more. Michael Leathes worked on one deal where the 'project neutral' was the only constant. The deal took four years to complete and numerous of the principals had relocated to different continents (an increasingly commonplace phenomenon in multinationals) or switched jobs.
Although numerous factors suggest that deal mediation has potential to be mediation's next evolutionary step, evidence of a market at present in the UK is scant. In researching this article, The Mediator contacted the UK Magic Circle law firms: Clifford Chance, Allen & Overy, Linklaters, Slaughter and May and Freshfields Bruckhaus Deringer, firms which earned their Magic Circle moniker by dint of their colossal share of the M&A market. Among corporate partners, none had even heard of deal mediation.
Undeterred, optimists suggest deal mediation is 'an American thing' which, like contentious mediation, the laggard Brits will pick up in their own good time. While familiar with this transatlantic flow of ideas, Herbert Smith dispute resolution partner and head of ADR, Alexander Oddy, however, is sceptical that deal mediation can make the same journey: 'It is easy to demonstrate the benefits of mediation in the context of heavyweight commercial litigation because the pure economics of time and costs savings are so obvious when it works,' he says. 'It's a lot harder to quantify the benefits of deal mediation and you can't impose it because it's about of freedom of contract and people negotiating with whomever they wish to negotiate,' he says.
As for deal mediation being 'an American thing' Michael Shane, an internationally regarded independent mediator from the West Coast, concedes he doesn't know anyone who has mediated at the point of contract formation. He does not reject the suggestion that more drum beating might be required before the market responds, but he does question the value further intermediaries can bring: 'there's a legitimate question about whether, when forming a deal, people feel that hiring a mediator is value-added when they have all sorts of intermediaries anyway. Investment bankers get the best fee when the deal is done and are motivated right to get the deal done, and the lawyers are also motivated by wanting to keep their reputations and, in my experience, try to get the deal done as much as possible.'
Goodwill and good motivation isn't always enough, so the pro-deal mediation argument goes. People and personalities can still obstruct and at worst destroy a deal. Eileen Carroll remains optimistic: 'Is there potential for this? Yes, but it's not going to happen explosively. Mediation's track record demonstrates that if you can fix something in the most difficult of scenarios, you can absolutely use those skills in deadlocked negotiation. And friction and deadlock are a fact of life.'
If deal mediation is to arrive on these shores in any meaningful way, it's going to need its champions. Where these might be found remains a source of conjecture, but it may be said with some certainty that corporate lawyers won't be among them. 'If it does take off,' Alexander Oddy suggests, 'it's going to be driven by very very enlightened corporate counsel, the in-house lawyers who know about this. I don't think law firms will be in the driving seat on this, at least in the short term.'
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