THE LEGAL services sector is not immune to the global economic climate change. Law firms have had no choice, but to adjust the way they provide services to tackle the financial pressures their clients have been facing in recent years. Now, the key challenge for lawyers lies in balancing acceptable costs and the highest quality service. The ‘result at any cost’ approach has been replaced by more cost-conscious strategies. But what can finance directors do to help ensure they get the best quality cost-effective advice?
Tailor-make your approach
Companies are increasingly looking to match legal advisors to the specific needs they have. Instead of referring all their legal work to firms they usually hire, companies have been increasingly looking for advisors who are experts in a particular type of a legal issue. For example, a specialised boutique law firm may well be able to provide equally good or better advice on data protection or another niche area of law for lower fees than those charged by the Magic Circle firms. Breaking away from the one-stop-shop policy when choosing legal advisors could be to your advantage in certain circumstances.
Best placed within a law firm
Shifts in client demands made law firms rethink the ways they carry out projects and regroup their teams. The majority of M&A work stems from relatively small transactions. With that in mind, both law firms and their clients recognise that not every deal needs to be overseen by the most senior corporate law gurus. In fact, junior or mid-level partners will generally have sufficient experience to assist in closing most of the small and mid-size transactions. Whereas, the companies will enjoy significant cost benefits associated with more junior lawyers.
Ideally, a team working on an M&A project will include lawyers who know the company, who are familiar with the company’s ‘house style’ and know how the company likes the work done. In that respect, associate secondments to companies have proven to be particularly useful. Seconded lawyers become invaluable shortcuts that accelerate the communications channels between the law firm and the client and allow pursuing the projects more swiftly.
Major deals – major needs
There is a leeway as to how creative law firms can be in cutting costs without sacrificing the quality of their services, especially when it comes to transactions of groundbreaking strategic nature. In major deals it is worth spending the extra advisory fees as this could save you millions in the long run.
Robert Townsend, the chair of Morrison & Foerster’s Global Corporate Practice Group outlines the key points companies should look at when selecting counsel on major M&A transactions. “When choosing legal advisors for complex transnational transactions, companies should focus on whether the advisors can offer (i) expertise in a particular kind of transactions; and (ii) knowledge of the industry; as well as (iii) geographic footprint matching the geography of the parties to the transaction,” Townsend says.
“Importantly, the set of such expertise, skills and experience will not always be found in London or New York law firms. Indeed, for certain industries, such as technologies or energy, lawyers from Silicon Valley, Houston, or Texas will be better placed to meet the merging parties’ needs,” Townsend adds.
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Lawyers’ creativity has been challenged in multiple other ways. Many of today’s landmark M&A are not only very different from traditional corporate structures; the pace at which these structures must be formed and shaped has been a challenge in itself. In hostile bids or takeovers of collapsing businesses, for example, timing is essential. Meanwhile, the time pressure does not eliminate the pressure to cut costs. Many international law firms have focused on utilising their overseas back-offices to boost their efficiency. Some even managed to continue working 24 hours a day by distributing work among their lawyers based around the world.
Despite the additional pressures in a corporate lawyer’s routine, there is no room for inferior quality work. Getting it right has never been more important – in today’s economic landscape, many companies simply do not have a second chance. Clients, of course, look for impeccable, innovative architecture of transactions. However, they also expect that the somewhat less exciting steps of the process, such as the due diligence review, will be pursued with equal prudence. After all, assessment of current and future liabilities is meant to keep the companies away from insolvency.
A new trend in the legal services market is an ever increasing number of interim lawyers working on M&A. “I can think of a handful of transactions in the last several years where M&A work was taken care of by interim lawyers,” says Marc Vereecken, CEO of Lex-ius Legal Staffing. “Often, interim lawyers are hired to reinforce in-house capabilities and work hand-in-hand with legal departments of the companies. Law firms have also been increasingly hiring locums for particular M&A projects.”
Interim lawyers have become an attractive option not only because of costs considerations, but also because of flexibility it entails. A team working on a deal can choose interim lawyers with experience from different sizes and types of law firms, ranging from major city firms to niche boutique practices. Interims are also attractive because they come with experience in different sectors and industry knowledge required to provide a tailored assistance.
Evelina Kurgonaite is the antitrust and regulatory correspondent at dealReporter