LEGAL DEPARTMENTS OF THE YEAR

DSM North America: Keeping It at Arm's Length

New Jersey Law Journal

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Hugh Welsh is a strong believer that in-house law departments should not replicate law firms.

"In firms, each lawyer operates in splendid isolation," says Welsh, the general counsel and president of DSM North America. "I'm completely against that."

Generally, a corporate legal department delegates M&A work "lock, stock and barrel" to an outside firm, but Welsh says he believes it's best to handle these transactions in-house, because his team knows DSM's business inside and out.

That's why in 2012, Welsh chose to have his seven-attorney, one-paralegal department handle the bulk of the work completing six major M&A transactions worth a total of about $2 billion.

"When the deals are done and the tough part — true integration — begins, they understand the needs of the newly acquired company," he says.

"At DSM, due diligence is only done by in-house lawyers, because these lawyers are going to be running these businesses post-close. If they don't do the due diligence, the information will reside with outside counsel and I will have to buy it back from them later."

Welsh says he first questioned whether pigeonholing lawyers in isolated disciplines was the best way to deliver legal services while he worked at McCarter & English as outside counsel to corporations.

"Corporate legal departments often weren't organized to provide optimal benefits to themselves or to the firms they hired," he says. "Clients asked questions and expected an answer because they were calling a lawyer. In the firm, though, things moved slowly, because providing an answer meant going around the firm to find the lawyer with subject matter expertise. They didn't always have the capacity to add value."

When Welsh joined DSM in 2004, the legal department operated on the traditional model. "Lawyers were embedded in each of the operating businesses," cut off from each other and from the knowledge transfer that occurs when all members of a legal team are in the same place.

Now his team sit together — which is what he calls "the catalyst for the magic."

All DSM lawyers are generalists. Legal counsel Lauren Israelow, who joined DSM in 2010, says this is one reason she sought out the job. "On a day-to-day basis, we handle the gamut of issues," she says. "I think it is a great way to learn, so we can provide good value to our business folks."

All DSM attorneys are forced to become excellent communicators: Welsh started a chapter of Toastmasters in the DSM building; all lawyers are required to participate. They also work in investor relations and government affairs.

"When I send a lawyer in to work, I say, 'You're not a legal expert, you're part of the management team.' Their jobs are beyond the scope of their legal training. Their jobs tap into all of their abilities" — as entrepreneurs, as communicators.

An attorney who is trained in all functions of a law department, Welsh says, is able to act as a "consigliere" to the businesses he or she supports.

He offers Israelow as an example. "She had a modest amount of experience at a midsized firm. She has now worked with IT, environmental law, HR, labor and employment issues. She can counsel business folks not just by giving technical legal advice, but because she can spot potential HR or environmental issues."

"Hugh has done a good job of bringing all of us into transactions, not just senior attorneys," says Israelow, who had no M&A experience before she joined DSM in 2010 and worked on several in 2012.

Welsh became president of DSM North America in October 2010, and while the double job is unusual, he says it makes a lot of sense. "It gives me a horizon-to-horizon perspective. It forces a holistic approach."

He likes to call DSM, which makes nutrients, materials and chemicals, "the biggest company you've never heard of." It is based in the Netherlands, and has 4,000 employees in the U.S. and 23,000 worldwide. North American headquarters are in Parsippany, N.J.

DSM undertook so many transactions last year, Israelow explains, because corporate strategy was to build up the nutrition and biomedical businesses. "They gave Hugh and the corporate team discretion. They went full force."

In 2012, this small team ran parallel transactions that included asset purchases, private stock purchases and public purchases.

They included:

• A joint venture with ethanol producer POET LLC will produce fuel from corn-crop residues. This is a new business for DSM, demanding what Israelow calls a "big learning curve." Senior counsel James Spielberg led the work.

• Acquisition of assets, licenses and other agreements for food enzymes and oil-seed processing from Verenium. Welsh and Israelow handled the transaction. Israelow says this was a "fairly small transaction" involving a business familiar to DSM.

• Completed the acquisition of biomedical company Kensey Nash. Senior counsels Vincent Ziccolella and Spielberg worked on the deal along with legal counsel Adrienne Zitka. Kensey Nash is a public company, "which is a whole different ballgame than acquiring a privately held company, [and the team] really dug into that and got the most out of it," Israelow says.

• Completed the acquisition of Ocean Nutrition Canada, which supplies fish-oil derived Omega-3 fatty acids. ONC is headquartered in Nova Scotia. It has a U.S. subsidiary and production sites in Canada, the U.S. and Peru. Welsh and Israelow worked on the deal along with senior counsel Jason Stephans. It triggered antitrust concerns, which, Israelow says meant that "it was a lot of work."

• Acquisition of Cargill's cultures and enzymes business, "a pretty seamless transaction" in which Israelow was able to "take more of a lead." Welsh and Stephans were the other team members.

• Completed the acquisition of Fortitech, which makes customized nutrients. Welsh, Ziccolella and Stephans worked on the deal. Fortitech has production sites in New York, California, Brazil, Malaysia, Denmark and Poland, and sales offices in China and Mexico. Israelow describes this as a large transaction involving lengthy negotiations.

The department also led integration efforts for $1.3 billion in M&As that closed in 2011.

"It was a very busy year," says Israelow. "We're recovering."

"It was exhausting," Welsh admits, "but also fun. …. A lot of our success has [to do with] lawyers 'working in the crucible' who have learned to prioritize business strategy, not just legal strategy."

In the past five years, Welsh's legal group has worked on 12 M&A transactions worth $4 billion. DSM's footprint has increased from 16 sites to more than 40, and gone from $1 billion in sales to more than $4 billion. At the same time, the number of lawyers on Welsh's team has stayed the same — which he says the CEO and the shareholders greatly appreciate.

"It's a great test of my philosophy, and I think it's proved out," he says. Welsh predicts greater demand for in-house legal departments to follow his organizational model because, he says, "When you have 'siloed' lawyers embedded in business units, they just can't move quickly enough" to handle the fast-moving demands of current in-house practice. •

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