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When navigating the complex world of M&A, understanding the roles of in-house and external legal counsel can significantly impact the success of a deal. Each type of counsel brings unique strengths to the table, and knowing how to leverage both can help you mitigate risks, negotiate better terms, and ensure smooth integration post-deal. In this article, Anson Lau, Deputy General Counsel at LONGi Solar, discusses optimizing your M&A practice by effectively utilizing in-house and external legal resources.
Understanding the Roles: Tactical vs. Strategic
In M&A, external counsel often focuses on tactical aspects. They act as advocates, negotiating aggressively on your behalf. Their job is to handle the technicalities, such as navigating contract terms and identifying potential risks associated with those documents.
External counsel has the benefit of experience from both buy-side and sell-side deals, making them well-equipped to anticipate counterarguments and understand which positions will hold up in negotiations.
On the other hand, in-house counsel takes a more strategic approach. Their role goes beyond legal oversight; it involves understanding the company's broader business strategy and ensuring the deal aligns with long-term goals.
In-house counsel must consider how risks identified by external counsel will impact the business post-integration. They need to think about the company's operational and reputational risks and how these factors will influence the overall success of the deal.
For effective M&A practice, balance the external counsel's tactical focus with the in-house counsel's strategic vision. Ensure both are aligned in their approach to risk management and deal execution.
Dynamics of negotiations
Negotiation is critical to any M&A deal, and the dynamic between in-house and external counsel can be crucial to getting the best terms. External counsel often plays the "bad cop," pushing hard in negotiations to secure favorable terms. They are positioned to be the tough negotiators because they don't have to manage the post-deal relationships that in-house counsel must navigate.
In-house counsel, meanwhile, must consider the longer-term implications of negotiations. The people they negotiate with today could become colleagues tomorrow, especially when integrating a newly acquired company.
As such, in-house counsel often plays the "good cop," maintaining a more collaborative and less confrontational approach to preserve relationships and facilitate smoother post-deal integration.
It is considered best practice to use external counsel to play the tough negotiator role while keeping in-house counsel focused on maintaining good relationships for post-deal success.
Mitigating Risks
Risk management is a crucial component of any M&A deal. External counsel can provide a broad view of potential risks based on their experience across various deals and industries. However, they may lack the deep organizational insight to fully understand which risks are most relevant or how they might impact the business post-deal.
In-house counsel is better positioned to understand the company’s risk appetite and operational limits. Based on a deep understanding of the company's strategic objectives and operational realities, they should guide external counsel on which risks are acceptable and which are not.
In-house counsel must also communicate effectively across different departments to ensure alignment and mitigate all potential risks adequately.
Ensure that in-house counsel clearly communicates the company’s risk tolerance to external counsel, aligning both teams on risks worth taking and those that should be avoided.
Building Strong Relationships
Successful M&A practice depends heavily on strong relationships between in-house and external counsel. In-house counsel should build a network of trusted external law firms, understanding that different deals may require different levels of expertise and specialization. A more cost-effective firm familiar with the company’s standard practices may suffice for routine deals. However, a firm with specialized knowledge in areas like IP, privacy, or antitrust might be necessary for more complex transactions.
Building a track record with these firms ensures they understand your company's needs and can provide tailored advice. Trust is key; in-house counsel should be confident that external partners will deliver high-quality service while respecting the business's strategic priorities.
Develop a network of trusted external counsel and choose the right firm for each deal based on the level of complexity and required specialization.
The Importance of Communication and Alignment
Communication between in-house and external counsel is vital for M&A success. In-house counsel must ensure that external counsel understands the broader business strategy and the specific context of the deal. This includes being transparent about the company's limitations and expectations and clearly outlining acceptable risks and deal-breakers.
Moreover, in-house counsel should focus on legal risks and consider reputational and operational risks that could arise from the deal. Effective communication ensures that all parties are aligned and that the deal progresses smoothly from negotiation to integration.
Foster open communication between in-house and external counsel to align on deal strategy, risk management, and integration plans.