Assembling the M&A Deal Team: When to Bring in an M&A Attorney
As experts in finding buyers and sellers for architecture, engineering, and environmental consulting firms, Zweig Group’s M&A team generally speaks with business owners at the inception of the M&A process. One question that I am asked frequently by our clients is “when do we need to get the lawyers involved?”
I should note that “lawyers” is often said with a slight tone of disdain – the implication is that things will grind to a halt and bills will run through the roof when you get a lawyer involved. As a lawyer myself, I both recognize this aversion, and can somewhat understand it. That said, if you’ve got the right lawyer – one who is highly qualified, familiar with our industry, and busy helping lots of other firms through their transactions – you don’t need to worry.
Think of a general corporate attorney as your general practitioner; the doctor you go to for annual check-ups and as the first person you call when you think you might have a medical (or, in this analogy, legal) issue. When you are working on something as complicated and nuanced as selling your firm – the business that you have spent your career building to this very point – or buying another firm – a process with more unknowns than knowns – you need to call in a specialist. You need an attorney who is experienced in mergers and acquisitions, and we always recommend someone who works in our industry.
What is a qualified M&A attorney? It’s not me, it’s not your general corporate attorney, and it’s not your brother-in-law who practices insurance law and said he can help you draw up a contract for free. General business attorneys simply do not have the specialized M&A experience and skills needed to help you evaluate or prepare contracts. In addition, keep in mind that if you’re a seller, your general corporate attorney stands to lose a client if you successfully sell your firm. When we work with attorneys who seem to “slow down the process,” it’s almost always because a firm is using a general corporate attorney who is either in over their head, or is aware that they are losing a significant portion of their customer base as they negotiate the sale of your company. The M&A attorney will understand the legal aspects of the agreements that you will negotiate, and ultimately sign, as part of the transaction, and is an objective collaborator and partner as you evaluate your options.
The M&A specialist, much like a surgeon, will come with a higher hourly bill rate than your normal business attorney (and higher than your brother-in-law, for that matter). However, don’t get sticker shock too quickly. An M&A specialist often concludes services with a lower overall bill than someone who charges much less by the hour. The specialist acts deftly and knows what they’re doing. They work fast and thoroughly. There will be fewer re-writes when you work with these attorneys, and you will never have to worry about whether you’re paying your regular attorney by the hour to figure out how to handle your transaction.
Remember, just as with your brain surgery, you can’t afford not to invest in the highest quality services available. A mistake in the acquisition or sale of your firm could be incredibly costly. Overlooking something simple in a contract, or being unfamiliar with the due diligence process as it relates to our industry, could cause you to leave money on the table (if you’re selling) or could cause you to purchase more risk than you bargained for (if you’re buying).
A great M&A lawyer sees himself or herself as a member of your team and doesn’t want to drag on the transaction to hit more billable hour goals. This person’s job is to thoroughly protect your interests and to get you to the closing table with eyes wide open. These lawyers are busy, highly sought-after, and diligent. They’ve seen many transactions and can work quickly, but you have got to make sure to utilize them as soon as you get serious about a target firm. You need the input of your qualified M&A attorney before you put anything down in writing that could be construed as a commitment.
A myth that I’d like to dispel quickly is that you should take the deal as far as you can on your own before you get an attorney involved. We talk to firms who want to use their general attorney to draft LOIs or non-binding outlines of what a deal might look like – or, rarely and much more deleteriously – want to draft initial documents themselves. The risk here is that you will be actively creating a mess for your M&A attorney to clean up later in the process, which will delay closing, cause a perception of higher legal bills, and could even damage the foundation of the transaction if you promise more than you can deliver. Retain a qualified M&A lawyer on the front end, and use them as you proceed into negotiations. The entire process will be streamlined when you partner with expert advisors, and, often, your legal bill will be lower than if you partner with someone who doesn’t know what they are doing.
Depending on the complexity of the transaction and the background of the M&A attorney you retain, it also may be in your best interest to retain a tax attorney in addition to your M&A attorney. Note that M&A attorneys have tax expertise that is almost always sufficient for the needs of the businesses in this industry, but in highly complex transactions (such as international deals), your M&A attorney may recommend bringing a tax specialist into the deal as well. A tax attorney (which, by the way, is generally an individual who holds an accounting degree, is a qualified CPA, went to law school, and generally holds an LLM – a “master’s degree” for lawyers – in taxation). Generally, a firm’s CPA working with the M&A attorney is appropriate, but if the transaction is more complicated or unique, talk to your M&A attorney about whether an additional tax expert would be appropriate.
Although we pretend to hate the lawyer jokes, most attorneys I know and work with recognize the ounce (or gallon) of truth hidden below the surface. So bring the jokes, but, more importantly, do not move toward closing a transaction without bringing your specialized M&A attorney with you at the outset.