The Role of M&A Lawyers [Real Stories from an M&A Attorney]

What were some of the main challenges you saw and experienced working as an M&A attorney?

Some of the challenges that jump to mind are billing, knowledge management, and M&A project management. Billing is largely the internal operations of the firm, and if there is an attorney at the firm doing work today, you might not get paid for that work until several months later.

This means a significant cash problem, especially considering how much work it takes to get the credit. Knowledge management is the kind of issue where you need a provision to address some issues.

You know that someone at the firm has probably done research on those issues, but how you identify who that person is so that you don’t end up reinventing the wheel is a problem. The third issue is project management because deals are complex projects, there are a lot of people included, such as different attorneys, tax people, and security specialists.

There needs to be coordination with opposing counsel, the investment bankers, and specialists doing the due diligence, so someone needs to make sure everything is coming together.

Regarding these three areas, how are they overcome?

Regarding billing, I see the firms are going to bill based on the value they add and they will be able to have more transparency for the client. There will be an increased initiative for them to look for ways to become more efficient in how they manage the firm and the very process because they then know what the revenue is.

The law firms will be orientated towards finding better ways to manage the project, improve how they use technology, and get smart about how they deliver what the client is going to need, and they will become better at knowledge management. I think this is all going to make law firms more lucrative.

Tell me about starting the SRS. What led up to it and what really drew you into it?

A good friend of mine, Jason Mendelson, came to me and asked if I could be the shareholder representative, which I initially denied, as law firms should never be the shareholder representative. But, a few months later I came to an idea to create a separate company that could do that and that is how SRS Acquiom got off the ground.

In the beginning, this is all we did and we had a pretty simple business model. It sounds simple now, but at the time it was a radical idea because nobody had ever hired someone outside the deal to be with the shareholder representative and nobody had ever paid for it before, so we were competing against free, which was not easy.

How did it continue from there?

We started in 2007 and in 2008 the crisis hit, but despite that, we started to build some momentum and started to get more and more deals.

We went out and built the first online payments tool, so instead of getting mailed out paper letters and a transmitter that gets filled in by a pen and needing to search for original stock certificates in a vault, you’d get an email and you’d get paid almost the same day, where's before the online tools it would take weeks to get payed.

We also developed products that the market had never seen before, where you could put the money in the bank account, but also in a product specifically designed for M&A escrows.

More recently we got into rep and warranty insurance, where I think there is a lot of opportunity for improvement. We also spend a lot of time and effort on data and into trying to take the deals experience that we have and be able to report back things to the community that could be valuable to them.

When we talk about some of these industry inefficiencies, can you tell me how this has an impact on the deal outcome?

It all just makes it more cumbersome to get the deal done. The parties will eventually get there, but if they had the knowledge management where they are able to efficiently and successfully navigate some tough issues, they would be able to do it much faster and potentially with a better outcome.

With these issues sorted out, you’d have a better client experience, more profitability for the law firms.

When it comes to project management, as deals are increasingly complex, if you weren’t aware of some important details, like the fact that third-party vendor doing the technical due diligence is two weeks behind, that can really add risk to the deal that you didn’t really wouldn’t have if there was an efficient way to track how all the pieces are coming together.  

Does SRS Acquiom currently solve some of these specific challenges?

We work on some of those issues, but not all of them. We are not an AI company and we are not currently focused on how do you make the due diligence process faster, but we do help with paperwork and getting the signatures from various shareholders and we spend a lot of time on data initiatives.

We try to help law firms understand their own data better, which ultimately will lead them to not just being good legal advisers, but also make them even more efficient at becoming business advisers to their clients. We advise them on not only what are the risks, but also on what are the best practices and the opportunities.  

Is there a potential in this industry to start looking at ways to opening that up and putting some transparency there so we can start adopting standardization on some of these provisions that we typically debate?

Maybe. I think M&A is tough because most transactions are pretty bespoke, and issues you face vary from deal to deal. There is too much complexity, too much that needs to be addressed deal by deal, so it's hard to say there is going to be a solid standardized M&A form.

If you are a company that has a thousand of license agreements or you have a lot of leases that are almost identical, then I think you can have standardized forms. If you are doing M&A due diligence that’s very different deal by deal or trying to apply AI to the form itself, I don’t think it’s impossible, but it’s just a much harder project.

Is there maybe a ratio that you would estimate as being tailored versus vs standard?

M&A deals largely follow a similar structure deal by deal. Oftentimes they follow a similar framework, but then within that, they get to be highly customized. Where there are blocks of these agreements where you can say that a provision looks pretty much the same deal by deal, I think that’s maybe possible. In ten years, there may be a lot more progress on that.

The more that you are able to use technology to be able to tap into what was seen historically and get to not only legal risk, but also business best practice than I think you could see the mindset of all the ways that the lawyers can add value and what the goal, the diligence process is.

You can see that kind of shift because right now the thought is that the diligence process is there just to identify things that should be of concern, as opposed to giving advice or shedding light on opportunities based on all prior experience.

When you were starting SRS Acquiom, what were the main challenges to bring it to market and make meaningful progress in the industry?

One of the biggest is that nobody had ever heard of what we do before. People know what a shareholder representative was, but nobody had ever thought of paying for it.

If you are going to go into a category where there has not been anything in that space before you have to start with explaining what is this and why should anyone need it or pay for it.

How do you see the industry evolving over the next decade?

You are going to see law firms look for a bunch of ways that will help them be more efficient, and continue at even greater value to the client. You are really changing the mindset of getting paid based on value and being able to define what that means and what I think that will mean fewer lawyers that you will need to get some of these deals done

The amount that law firms charge per deal might go down, but the profitability per deal goes up.

The industry as a whole and M&A, I believe that the big serial buyers and the big financial buyers are going to have tools available to them over the next decade that will help them become much better at their internal project management and to be able to know what is going on with all their historic deals.

In our business specifically, we want to change the conversation from how do we make your deal better to how do we make your business better.

SRS Acquiom has five editions of a publication, Tales from the M&A Trenches, comprised of industry lessons learned and experiences gained. Is there one topic from these five editions that stands out most to you?

One of the topics that is getting a lot of airtime right now that I think is complicated is what happens to the privilege, the target companies attorney-client privilege following the closing of the deal. Most people think if they talk to their attorney that that is privileged and no one else is going to have access to those communications.

However, mergers are unique because in a merger you have adverse parties prior to closing, the buyer and the seller and at the closing, they become the same. I just can’t think of any context in which that model exists, except for a merger.

We address this in a book asking questions such as what is the legal community doing about this and how are they addressing it. It is still a complicated issue without a consensus on what’s the best practice.

What’s the craziest thing you’ve seen in M&A?

I think there are very interesting patterns we see around claims. One of the bigger issues that we get is that a buyer will say that they believe there has been a breach of representation and they believe that damages related to that breach have negatively impacted the revenue by, say, million dollars.

In the deal, we paid 10 times revenue, so our claim is not for the million-dollar misrepresentation, it’s for 10 million dollars because that’s how much we think we overpaid for the business and that becomes a challenging issue because the bid and ask are so far apart.