The Role of Attorneys

Your attorney will play the second-most critical role in the transaction and will negotiate the key agreements – primarily the non-disclosure agreement (NDA), the letter of intent, and the purchase agreement. All sellers should retain an M&A attorney before the process begins. In some cases, your M&A attorney may assist you in identifying legal issues that need to be resolved before you go to market, and you can then delegate these matters to your commercial attorney to resolve. In most cases, your M&A attorney will become involved during the stages of negotiating the LOI and will play a crucial role in the transaction until the closing transpires. 

It’s critical that you hire an attorney who has significant experience buying and selling businesses. The biggest mistake business owners make is hiring an attorney with limited M&A experience, which in many cases can cost you the sale due to their inexperience. It pays to heed the wise proverb and avoid being penny wise and pound foolish when it comes to hiring an M&A attorney.

For middle-market transactions, the buyer often brings a team of dozens of staff and advisors to conduct due diligence. As a result of the imbalance, you should aim to at least achieve negotiating parity by hiring the best advisors you can afford. Having an experienced attorney helps level the playing field. 

Your Attorney’s Role in the M&A Process

Here are the common roles your attorney will play in the sale of your company:

• Non-Disclosure Agreement: While your investment banker’s standard NDA will be suitable in most cases, I recommend having your attorney draft a custom NDA if the sale is particularly sensitive and you’re approaching or negotiating with any direct competitors.
• Letter of Intent: The buyer’s legal team customarily prepares the LOI, but your attorney should be on standby and available to respond quickly when you receive a letter of intent.
• Due Diligence: The extent to which your attorney is involved in due diligence depends on how thoroughly the buyer conducts their due diligence. I can often anticipate how thoroughly a buyer will perform due diligence based on my preliminary conversations with them. Often, your investment banker can let you know in advance if they feel your attorney will need to be more involved in the negotiations.
• Purchase Agreement: The buyer’s legal team also customarily draws up the purchase agreement. The purchase agreement is often prepared while due diligence is being conducted, which usually gives the parties plenty of time to negotiate it, and the negotiations typically tend to be less time-sensitive unless you’re facing any deadlines. On the other hand, the negotiations surrounding the LOI tend to be more time-sensitive, especially if you’re negotiating with multiple buyers. As a result, it’s critical that your M&A attorney is on standby and able to quickly become involved in negotiating the LOI.
• Negotiations: I also recommend involving your attorney to a much greater degree if negotiations become contentious or if the buyer proposes excessively restrictive reps and warranties or other clauses in the purchase agreement. In many cases, the buyer may reserve the right to claw back all or a significant portion of the purchase price if there are any material errors or omissions. Your attorney can also be instrumental in negotiating these agreements to reduce your level of risk exposure.
• Closing Process: Your attorney can facilitate the closing process and wiring of funds if the buyer’s attorney or escrow is unavailable to do so.
• Real Estate: If you’re selling a building or land, your lawyer can prepare or review the necessary transfer documents. 

Tips for Hiring and Using an Attorney

When hiring an M&A attorney, you should look for the following:

• Experience, Experience, Experience: Your attorney should spend the majority of their time negotiating M&A transactions. Don’t hire a general corporate attorney who dabbles in mergers and acquisitions. Your M&A attorney, who may charge $750 per hour, will surely be cheaper than your general corporate counsel, who only charges $350 per hour. You’re far better off hiring an attorney who specializes in M&A. 
• Availability: You’ll want to have your attorney on standby. All sellers should hire an attorney and have them prepared to become involved in the transaction at a moment’s notice. 
• Negotiating Skills: Your legal advisor should also be an excellent negotiator. While most attorneys are excellent negotiators, their skill levels can vary tremendously. Often the negotiation on reps and warranties is tougher and more challenging than negotiating the price. 
• Soft Skills: Find a lawyer who doesn’t feel compelled to participate in or influence the commercial aspects of the deal unless you specifically request otherwise. Obtain references and talk with the attorney to ensure the chemistry is a match.
• Creativity: Your attorney should be capable of offering solutions in risk management, such as creative deal structuring.