I’ve specialised in private company mergers and acquisitions for 25 years – transactions with values anywhere between £1 and £50m plus. What’s always concerned me is that, regardless of the value of the deal, the legal process typically follows the same formula.
First the Sale & Purchase Agreement
Share Purchase Agreements are invariably drafted by the buyer’s lawyer – and always follow the same approach – heavily weighted in the buyer’s favour and unfair to the seller. When you’re advising the seller and the first draft of the SPA arrives in your inbox, you open it, not expecting anything other than business as usual – a battle ahead to get it into shape and make it fair. When acting for a buyer, you take the same approach. Why? Because everyone else does.
Then the Disclosure Letter
After the SPA, you get to the disclosure letter. Same problem. Seller’s lawyer sends the DL to the buyer’s lawyer and discloses everything imaginable in the “deemed disclosure” section at the front. It takes hours of work to negotiate these deemed disclosures down to something fair and reasonable. The specific disclosures in the back end, which is the crucial section and where information that impacts the deal will be found, are usually straightforward and deal with real, not theoretical, issues.
Why is it like this?
This way of doing things originates out of the City of London and has been adopted everywhere. If the big firms do it, then, surely it must be right?
I’ve always felt uncomfortable about it – endless months of negotiation and marking up drafts burns through a lot of time from everyone involved, including the management team of the businesses involved and there are other hidden costs besides professional fees.
In shipping, finance and international trade there are standardised documents and rules which make the process fair, cost effective and easy to use.
Why not in M&A?
Not long ago I worked on the sale of a technology company to a foreign buyer. The buyer instructed a large English law firm and insisted they produce the SPA in fully negotiated form. They’d had previous experience of the way lawyers did things and thought it was unnecessarily complicated. Their approach was brilliant. There were one or two issues which we resolved quickly and enabled the sale to go through smoothly. Both seller and buyer were protected and neither of them had tried to get an unfair advantage.
A better way?
We take the same approach at My Inhouse Lawyer, re-imagining the way M&A is done. We look at the commerce and relationship dynamics first, then use the law as a tool, taking care to keep the big picture in mind.
Because most business people selling out of a company or, for that matter, buying one first-time around, don’t know anything about the process, we explain to them how deals work, and the benefits to be gained by taking the heat and complexity out of deal documents by making them fair and balanced from the outset.
“Deals” tend to have a bit of a mystical status. If the mystery is removed and key documents start out fair and balanced, material commercial issues will be the predominant focus and can be dealt with without too much pain or delay. The aim should always be to achieve fairness between seller and buyer without compromising their commercial objectives.
There will always be risk in deals. We understand this and adopt a business-friendly, realistic approach designed for the client’s benefit. We just think that SME M&A should be cost effective and less complex for everyone involved.
Written by John Nugent
RD for South East and Principal at My Inhouse Lawyer
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