For a small or midsize company CEO, undertaking a strategic M&A transaction is often a legacy-defining proposition. An acquisition of a direct competitor, another key industry player operating at a different level of the supply chain, or a promising high-growth entrant into the marketplace presents a truly unique opportunity to add unprecedented value to the organization.
For the GC of the acquiring company, this would seem like a tremendous opportunity. Being able to serve as the CEO’s right-hand strategic legal advisor on an acquisition can be a career game changer. It could mean that you help your CEO take the company into emerging global markets, onboard hundreds of new employees, build and distribute new industry-leading products, and generate additional revenue that will benefit the company’s investors and shareholders. But as GCs undoubtedly know, the hard part is getting the acquisition closed, and doing so in a manner that fits the company’s risk profile, minimizes liabilities, and satisfactorily meets any regulatory obligations. To get a transaction from exploratory conversations to a successful closing, a GC needs to assess how the legal team would support such a transaction and what type of external legal assistance would be required.
It starts with due diligence; every M&A transactional lawyer knows this. But for a small to midsize company GC, the first challenge before even tackling due diligence is figuring out the budget. How do you procure top-notch legal services to support this acquisition while obtaining value for money spent? Assuming the acquirer is not utilizing an investment bank or advisor, a relatively straightforward task such as coordinating review of a target company’s due diligence—often under significant time constraints—can be a daunting task. In-house legal teams of small to midsize companies rarely have personnel on staff with M&A expertise. Moreover, these teams are consistently stretched supporting a multitude of business areas and likely don’t have the resources to fully cover all the various phases of an acquisition.
Law firms are tremendous partners when it comes to advising on deal structures, negotiating sale and purchase agreements, asset purchase agreements, joint venture agreements, etc. They are similarly well-equipped to bring in specialists in the areas of tax, employment, executive compensation, benefits programs, litigation, real estate, and compliance investigations. However, their billable model can prove to be an obstacle for small to midsize companies to utilize their services for a comprehensive due diligence review. Legal technology vendors—particularly those that provide contract abstraction and summarization using AI technology—may be a significant help in many instances and can reduce hours spent manually reviewing applicable clauses in the target company’s commercial and operational contracts. While the software tools used for these abstractions do indeed drive efficiencies, teams of lawyers need to help manage these platforms and undertake certain administrative and operational tasks. Lawyers are also needed to utilize the insights to produce due diligence red flag memos and help pinpoint critical risks and liabilities. Law firms do often partner with legal technology vendors and offer these capabilities, but again, their billable model makes it challenging for many GCs to consider using them to assist in these areas.