I often hear from private equity and SMB buyers: Lawyers kill good deals.
Yesterday, a CFO told me about a well-known BigLaw partner (head of a major department), who caused sellers to walk away from two great deals after taking aggressive and unreasonable positions.
Today’s M&A Monday: How to ensure your M&A lawyer is helping get your deals to closing.
- Incentives. Make sure your incentives align with your lawyer’s incentives.
Traditionally, Buyer’s incentives do not align with their lawyer’s. The lawyer bills per hour and the more complications and issues arise, the higher the legal bill. A fellow M&A lawyer told me in confidence that if he bills on a deal and that deal dies close to closing, he gets paid for the dead deal and usually another deal.
This why for M&A deals, we bill flat fees that we quote upfront and most of the fee is paid at closing and ONLY IF closing occurs. While I raise and resolve issues, this model encourages a more commercial approach where the client and I are on the same team and have the same incentives.
- Communication and Expectation. Tell your lawyer what posture you want them to take on a deal.
Maybe this is a high-risk deal or a distressed situation, and you want to take an aggressive approach and score every point possible. More often, you will want your M&A lawyer to treat the seller reasonably (e.g., not carpet bomb seller with diligence requests or that extra month of indemnification survival).
Make sure the lawyer sets his ego aside. A mentor once told me, there are two types of principals (i.e., principal and principle), only one is worth arguing over. If you ever find your lawyer insisting on arguing points that do not impact the deal, make sure to reign that lawyer in before they kill the deal.
Get the right lawyer. This seems obvious, but I have seen so many people choosing the wrong lawyer for their transactions. Aside from those who choose non-M&A lawyers, I see people choosing the wrong M&A lawyer. The CFO referenced at the top was using a $2,000/hour lawyer for his sub $50 million deal. A big firm lawyer like that will treat your deal like a $1 billion deal and you will get a bill similar to a $1 billion deal.
I often say, once you determine an M&A lawyer is qualified and has deep M&A experience, the most important thing in choosing a lawyer is that such lawyer will care deeply about your deal. You want that person to wake up in the morning and go to sleep feeling the same level of passion about your deal as you do.
I’ve heard it often: Lawyers kill deals, but it doesn’t have to be that way. M&A lawyers can be your partner and wealth of strategic knowledge, if you properly navigate the relationship.