It’s customary in an M&A transaction to have a team of in-house and outside legal counsel working together to get a deal done. While external counsel typically has strong procedural expertise and is often crucial in the successful completion of a deal, it can be considerably more costly, especially for larger deals. Though according to Eaton & Van Winkle partner Rudolph Houck, “the biggest factor in generating legal fees is not the size of the purchase price but rather the risks and complexity of the transaction.”
Because of this reality, M&A practitioners, buyers, and sellers have the incentive to structure their legal teams such that each lawyer has a particular piece of the transaction on which to work based on his/her expertise. Beyond understanding each lawyer’s strengths, knowing the strengths and weaknesses of the lawyer types will aid in determining who should lead the deal.
Typical Strengths of Outside Counsel:
- Deep M&A expertise
- More likely to be industry-agnostic, thus can draw experience and parallels across industries
- May work faster because of experience and the incentive to move to other deals
- May have more negotiation experience
Typical Strengths of In-House Counsel:
- Know the company history intimately
- Understand how a merger or sale fits with the company and owner’s strategy
- Will bring domain expertise
- Outside counsel could negatively affect the dynamic of negotiation, as in-house counsel are more likely to be viewed as “friend” rather than “foe”
Even if tasks are delegated effectively, dividing M&A deal work can nonetheless cause friction to arise, as lawyers who may never have worked together before must collaborate under pressure. The inevitable collaboration-conflict balance makes the case for proper delegation and great leadership even more pertinent. If lawyers become frustrated because the tasks are not properly divided to maximize the use of counsel’s expertise, it can cause loss of time and money. If the lawyers become vexed about the deal because of a miscommunication, it can cause inefficiency and slowdown. No matter how the tasks in an M&A process are divided and whether an in-house or external counsel is chosen to lead the deal efforts, the two groups need to work together, and there are best practices to encourage collaboration.
1. Delegate Early
Martin Collins, Vice President of Corporate Development at Bloom Energy, says that in order to align all lawyers on the project, divide tasks early rather than late. This best practice is key because, regardless of who is in charge, it will enable the team to foresee problem areas. That is important because last minute hold-ups can cause legal costs to balloon. Delegating early also allows whoever is overseeing the process to empower the other lawyers to surface any concerns before these brewing problems become hindrances to deal progress. Finally, delegating early provides a buffer for M&A deal-makers; if an external lawyer is chosen to lead the deal efforts but it is not going smoothly, there can be time to make a change in leadership without detrimentally affecting the progress of the deal.
2. Stay Organized
When multiple lawyers are viewing and editing documentation for the deal, it is important to stay organized so everyone is able to provide advice and know that their expertise is being utilized. Productivity tools abound to help with this best practice. For example, Google Docs, a free, online tool from Google, can help with tracking revision history and accommodating multiple, simultaneous editors, so deal-makers are not trying to balance dozens of copies of the same document or clause with illegible edits from counsel in the page margins. Often, external counsel will already have the proper vendors in place (for document sharing, data rooms, and more) to best accommodate staying organized.
3. Regular Communication
Communicating effectively and frequently is a key best practice for external and internal counsel who work together. Chris Ferazzi of Porter & Hedges LLP recommends daily or weekly phone conference calls between in-house and outside counsel to align on deal progress and outstanding tasks. He also suggests to send frequent updates via email, noting that the frequency of communication will vary based on the stage of the deal process. Ultimately, whoever is appointed to lead the legal effort on an M&A deal, whether in-house or external counsel, must be a comfortable and robust communicator.
Do you have other advice from the field in balancing assignments between in-house and external counsel? Leave a comment below or email us at [email protected]. We’d love to hear from you.