Unpopular Opinion: Why You Should Hire the Expensive Lawyers
When I was working full-time in private equity, there was always something exhilarating about the early stages of working with an entrepreneur who was considering us as a potential investor. It’s that “first few dates” feel, and not just because everyone is careful to only show their good side and use the right cutlery. But there’s also the contagious enthusiasm that the entrepreneur has for the business, that open feeling where we can smell the potential, we can just feel how great this could be and how far it could go. You and us, what a great story this could be.
We start discussing terms, a deal starts to take form. We might even agree that now we’re exclusive. And then, just as we start hoping that this will be that one deal where everything runs smoothly, you say it. Something along the lines of “Oh, and for the legals…I have this guy, he’s very good. He’s a friend of the family and has helped us with a bunch of things already. I really trust him and I see no reason to pay three times more for some fancy expensive law firm. I mean, law is law.”
A Legal Drama (Worse than Suits)
Yes, law is law and love is love and you are breaking my little investor heart because I have seen this movie before and it’s not the one where Julia Roberts beats the snarky Big Law lady in the grey suit at her own game, making her squirm in front of her equally grey-suited bosses. No, this is the movie where we end up wasting days debating the notices clause at the end of the agreement, having already wasted weeks explaining why we need representations and warranties and why you cannot take dividends out of the company if we agreed on a locked box pricing mechanism. All things that your lawyer should have already known and reassured you about, in which case we could have spent our negotiation time focusing on the stuff that’s actually relevant for both of us. Instead, by the time (if!) we agree the final version of the documents, we are all exhausted and annoyed, we’ve blown our own legal budget out of the water because everything took way longer than it should have, we kind of hate you a little and definitely hate your lawyer, and you’re already slightly paranoid because you think every line of the agreement is an attempt to screw you over in a complicated way.
Fresh Isn’t Always Best
Now, I absolutely agree that a fresh look at how things are done is always good. It’s also true that “this is market practice” is often a silly argument used when you’ve got no better ones, and that the devil’s in the details so it’s a very good idea to scrutinize every clause. And I’m not saying your family friend lawyer is bad at law, or not smart, or that Big Law lawyers are always better. I’m also not saying you should find the biggest and most expensive law firm out there. Not at all. What I am staying however is that, if your lawyer has never done an M&A deal before, they won’t know what’s market practice and what’s not, and based on my experience they’ll either push back on everything or on the wrong things. It’s not that M&A lawyers are better; they’re just usually better, and faster, at doing M&A deals. (Just like real estate lawyers are usually better at rental contracts, which all my friends who have asked me to look at their leases already know from bitter experience.)
If you’re selling the entire company and never want to see your purchasers again after the deal, you might simply enjoy the fight; maybe you really love the David vs Goliath feel of it, and the thought that you are “sticking it to the man”. Many entrepreneurs are mavericks, and if that’s your thing, then go for it. Just know what you’re getting yourself into. But if you’re trying to get a good deal done and get on with enjoying your post-exit life, or even more so if you’re only selling a part of the business and we’re meant to go on as partners from now on, please, pretty please, for everyone’s sake, hire lawyers who have done this before.
(There are pitfalls there too…but we’ll talk about them next time.)