One aspect of M&A that doesn’t get a lot of discussion is the need for secrecy. A big part of that secrecy is the hidden world of project names.
The Importance Of Secrecy
Secrecy has been at the heart and soul of M&A since M&A became a discipline. The use of project names provides the potential merger of one company with another necessary anonymity, especially in the early stages until a deal is ready to be announced.
According to Porzio, the reasons are fairly obvious and include avoiding adverse reaction by the public and shareholders, distraction and anxiousness on the part of employees. “It is in the best interest of management,” Porzio says, “to keep everything under wraps until you are close to a close.”
Project Names Protect Both Buyer And Seller
The use of project names instead of the names of the companies involved in both public and non-public discussion serves a different purpose depending on whether you are the buyer or the seller.
The seller wants to protect its identity for all the reasons mentioned above. “On the buy side,” according to Porzio, “you’ve signed confidentiality agreements so you cannot be the one who leaks the deal.”
Interestingly, Porzio says, sometimes buy side and sell side use different names. This can create its own brand of confusion. If the seller refers to the deal as Project Panther and the buyer names it Project Falcon, it’s important for both sides to know this – or there could be potential problems or even legal issues down the road.
Popular Project Names
IntraLinks annually announces the most popular M&A project names for the previous year. Recently the company announced that for 2016, the most popular name among almost 5,000 transactions analyzed was Project Blue. Next came Project Diamond, Project Falcon, Project Phoenix and Project Eagle in that order.
The use of familiar names, especially those representing animals, colors or other common objects can present a problem if those names are used repeatedly within the same bank or organization.
Blame The Banker
Porzio says frequently the managing bank is responsible for coming up with the project name. Sometimes it’s a junior banker within that organization. What’s particularly troubling is that although you would think there would be a carefully thought out process of coming up with the name, frequently there is not. Even when there is, the process itself can be a stumbling block.
Porzio recalled an incident from his own career as a banker. “When I worked for a German bank doing cross border M&A, they had strict rules. In our NY office we wanted to name things creatively but the Germans had a rule that names could only be 4 letters, had to start with the first letter of the target company name but also had to be randomly generated words.”
As Porzio noted, if the target company’s name started with the letter ‘M’ no problem. “Lots of 4-letter words start with ‘M,’ “he said. “On the other hand coming up with a 4-letter word, starting with ‘X’ for Xylophone.com,” he observed, “could be an issue.”
In the midst of all the silliness there’s an important issue – compliance. As Porzio explained, large investment banks have an important and strict compliance process. Exposing details about a potential deal, including the name of the target or acquiring company could be huge.
Giving the wrong person access to a deal could create a conflict of interest causing team members to become conflicted and have to drop out of the deal. Citing another issue, Porzio said, “Or you have to stop trading the stock because that Project Panther that would have been OK for that guy to see is actually a different Project Panther.”
All Secret All The Time
IntraLinks, which provides virtual data rooms (VDRs) where deal makers can exchange information in complete privacy, doesn’t encourage users to abandon project names when in the VDR. “It’s all part of conditioning people not to communicate the company name,” Porzio said. “The fewer the number of times the actual name is uttered – zero is perfect – the better.”
Although it can be tempting to come up with a project name that can be associated with the target, it’s not really smart, according to Porzio. “If you are selling IBM, for example,” he said, “and calling it Project Big Blue, that’s probably not a good idea.”
“I worked for a managing director who liked to name deals based on restaurants where we pitched the deal,” he said. “Project Mortons or Project Dennys were OK,” he said, “since there are lots of those around the country. “Project Uncle Bob’s Omaha Grill, not so much.”
Beyond Project Names
Even if project names were a perfect science, there are ways deals can be leaked or psyched out by persistent rivals. Porzio used the example of travel patterns. He noted how someone could observe that, “Joe works with this bank and now he has been seen in another bank. Must be doing a deal.”
There have been incidents in which operatives have gone through a company’s trash looking for clues; spies noting who certain deal makers are having dinner with and more. “These are all things banks with physical security think about all the time,” Porzio said adding, “I remember going with a senior banker who flipped through 3 months of logbooks to see who had visited a target company.”
“When we came out with virtual data rooms 20 years ago,” Porzio said finally, “people worried that the internet might not be secure compared to meeting in person. Based on what I’ve seen that might not be totally true.”