Dealmaker or Dealbreaker? 5 tips to get the most from your M&A lawyer.
Special thanks to our guest contributor Katherine O'Brien of Sierra Legal
A lawyer’s role is to protect the legal interests of their client. Schooled in spotting problems, and often risk averse themselves, lawyers naturally seek to minimise risks to their clients.
But this means lawyers can sometimes protect their clients right out of profitable deals. They attempt to negotiate away all conceivable risk in a transaction, until it ultimately falls through. This is where lawyers’ reputation as ‘dealbreakers’ arises.
Lawyers are a necessary evil in M&A, required to document transactions and advise on legal issues. But despite their reputation, the right lawyer can be a valuable addition to the deal team. A commercially-minded lawyer realises that risk avoidance is not the primary objective of every transaction. They understand that even good deals have unknowns, perils, and vulnerabilities. The key is to keep them in perspective and manage them in a way that adds value. This type of lawyer is a “dealmaker”.
So if you’re buying or selling a business, how do you ensure your lawyer is a ‘dealmaker’ and not a ‘dealbreaker’? Here are 5 tips for managing your M&A lawyer to ensure you get the most out of them:
1. Choose the right lawyer – like so many areas of the law, M&A is a specialist discipline. That property lawyer who did such a great job on your conveyancing may not be the best choice when it comes to selling your business.
A dealmaker is generally a lawyer that practises in the M&A space on a regular basis. Only by acting on many different transactions can a lawyer gain a sense of what is market standard and understand the different approaches that may be taken to common transactional issues.
2. Do pre-emptive legal due diligence – this is an opportunity to ensure your house is in order before opening the doors to potential buyers. Your lawyer will be able to identify the legal issues that buyers may be concerned about and take action to mitigate them.
Conducting vendor due diligence allows the seller to tidy up the legal relationships the business is built on before they are examined by third parties. This can prevent unwanted surprises arising during the buyer due diligence process.
3. Achieve commercial agreement on the principal terms – the key commercial terms of the deal need to be agreed by the parties before lawyers can document them. If corporate advisors are involved, they will assist in negotiating the terms.
Many clients and advisors find it helpful to prepare and agree a term sheet, which details the key terms of the transaction, before negotiating longer form documents. Your lawyer or corporate advisor can assist you in putting together a term sheet which can be negotiated with the counterparty.
4. Manage the scope of legal work – actively engage with the scope of legal work proposed by your lawyer to ensure it covers your requirements without being excessive. Encourage your lawyer to be specific in detailing their scope of work. Loose scopes and broad cost estimates can result in fee blow outs.
5. Insist on regular updates – ensure your lawyer is providing you with regular updates on the progress of the transaction and fee status. Regular check-ins ensure lawyer and client are on the same page and can assist in progressing transactions more rapidly. It is important that you, the client, understand how the transaction is travelling and what the final bill will look like.
Involving your lawyer early in the deal lifecycle can also increase the potential for a favourable outcome. Each deal has its own negotiation process and nuanced challenges that can be best addressed with the assistance of professional advice.
Quality M&A lawyers play a crucial role in shaping and facilitating transactions. They structure deals so that they are legally and commercially sound, while also providing innovative solutions to risk. They manage parallel work streams to bring transactions to completion, provide practical and solution-oriented advice, and anticipate and smooth potential roadblocks.
For the client, utilising an experienced M&A lawyer provides peace of mind that the legal requirements of a transaction have been met. But it can also provide assurance that the transaction is managed appropriately. Dealmakers ensure hurdles do not become roadblocks, pushing deals towards successful completion. By choosing the right M&A lawyer and working effectively with them, you can positively shape the outcome of your transaction.
MORE ISSUES
