Chapter 17Find a Law Firm Who Knows M&A

While bringing on bankers for a M&A is completely optional, onboarding a competent and knowledgeable law firm who specializes in M&A is absolutely critical for the success of an exit. It’s okay to cheap out on other things when it comes to selling your company, but definitely spend the money to hire a good and reputable law firm that either specializes in M&A or has a dedicated team for doing this. A bad law firm will give you bad advice for critical issues on things like indemnifications and liabilities, or could bill you to oblivion that the transaction proceeds couldn’t even cover the invoices.

The incentives when it comes to lawyers are purely based on the billable hours as opposed to getting the best sales price for the company. Because the payout for the lawyers are not tied to the financial outcome for the stakeholders, even if the deal falls apart and the company doesn’t get sold, the lawyers would still get paid for the hours they worked on your deal. The criteria to look for when vetting for a law firm is efficiency, prior deals, and who you get to work with. A good law firm will assign you a veteran M&A partner who is knowledgeable and efficient, they will set an overall budget, and navigate through the complexities and nuances of the transaction. In a nutshell, the job of the lawyers is to formalize the transaction in a series of legal documents and also ensure all the mechanics and procedures are followed to limit risk exposures and liabilities. Depending on what type of transaction you end up going through, the documents include all the stock/asset purchase agreements, disclosures, employment contracts, stockholder approvals, 280G analysis, and others.

M&A law is complex, geography-specific (depending on where you incorporated, Delaware has different laws compared to California), and often involves multiple stakeholders with competing interests and tax implications. It’s worthwhile to spend the money on a reputable and experienced law firm, and preferably they have had a working relationship with you in the past. When it gets to the disclosure phase, the acquiring counsel might ask for a wide array of documents and disclosures, and when your lawyers have worked with you, the process can be a lot more efficient as they already have all your legal documents and should be able to quickly respond to any request. Onboarding a brand new firm with no work relationship in the past would lead to a lot of hours spent on reading your data room and past legal documents like certificate of incorporations, fundraising docs, etc.

If you are already represented by a law firm that is reputable, you like working with them, and they have a dedicated M&A team, then it’s best to not switch and continue working with them. Otherwise, ask around for M&A-specialized boutique firms. You typically work directly with the senior partners at these firms and because they solely do M&As, they can be very efficient and knowledgeable and also provide better prices.

Finally, it’s important to set a budget early on so that expectation is known on billing only on important legal matters and the company or you handling the auxiliary tasks. Those that you could manage yourself include reviewing your own employment contracts from the acquiring company, supplying the waterfall structure from your cap table, or handling the wiring of the final proceeds to respective stakeholders. Lawyers hate to admit it, but you can set a budget with them, and you can also negotiate with them on the rates, so when they provide you with the invoice, study each line item carefully and pay only for the work that they actually did.