Guide to Efficient Business Transactions: Part II

I. Precepts and Procedures.

1. Choose an Attorney With Whom You are Comfortable. Obviously your transaction counsel must have a thorough working knowledge of the legal subject matter of your transaction, and sound work habits, so no discussion is needed on that. Instead, I mention that you should employ only attorneys you yourself are personally comfortable with.

   Your comfort should be driven by your perception of the attorney’s loyalty, the sense he or she is looking out not just for the legal interests of the client entity, but for your personal interests in the context of your organization. In my experience, it is hard to protect the first without looking after the second. It should be driven by an ease of communication between you, which should explain itself. It should involve knowing you share a common understanding about priorities in your business & his or her law practice. This is difficult to describe clearly, and can take time to develop, but comes down to trust that, in looking at any set of facts, each will know instinctively what is important to the other.

   The working relationship between a business person and his or her transaction lawyer should amount to a comfortable bond. This relationship aspect is at least as important as technical skills, and without both it will be hard for either of you to work efficiently.

2. Address Cultural Differences before you Start a Deal. This Guide is pitched to transactions where both principals are people involved in commerce in English-speaking countries. Personally I have observed a common business culture to exist in the United States, Canada, England, India and Australia, such that business people from such countries can usually interact effectively with each other. I expect the same is true in all Common-law countries. Outside those areas, however, real cultural differences exist in business practices, in addition to any language barrier. It is outside the scope of this Guide to advise about specific cultural differences. Suffice it to say that before negotiating even the first term, a prudent person contemplating a transnational deal where cultural norms vary widely needs to secure not only attorneys knowledgeable about laws in all relevant jurisdictions, but also business-level advice for the transaction from someone experienced in the foreign culture.

3. Start with a Letter of Intent. Go from the General to the Particular. On occasion I have had transaction clients say, “To save money and time, we are skipping the LOI and going straight to definitive documents.” Nothing is more counter-productive. Spend the time needed to draft and sign a letter of intent before anything else. Once deal terms are nailed down in principal, it is vastly easier to reach agreement on particulars. More detail is better than less. In my view it is less important whether the LOI is binding or non-binding, as long as both parties sign it. There is real value in both parties signing an LOI, even if it isn’t legally binding. In my experience a party may walk away from a deal with a non-binding LOI, but if they do proceed with it, they find it hard to go back on the terms in the letter.
4. Establish a Closing Timetable, but Be Reasonable. Generally one or both parties to a transaction have hard business reasons why it must be concluded by a particular date, but even if this isn’t the case, your Letter of Intent should set the expected date for closing, and possibly for intermediate steps like completion of due diligence. Overly long closing processes create outsized legal bills, but so do unrealistically short ones. An experienced transaction lawyer will know what is reasonable. Expect all dates to slip, of course, so allow some margin of time. Once document drafting and negotiation starts, it should continue until completed and the documents are signed. When lawyers halt their drafting work for over about one week, time is inevitably required to get them back up to speed.
5. Engage All Professionals Early; Get All Their Fingerprints on the Deal. At or before the LOI stage, identify what legal and other professionals will be needed to close the transaction, and engage all of them up front, not just your transaction counsel. For instance, most M&A transactions call for advice from a tax accountant or lawyer, whom you should consult before agreeing to any transaction structure. If the transaction will involve retirement fund issues, for example, engage ERISA counsel early on. Other specialist disciplines must be handled similarly. At early stages of the transaction, each specialist needs to do only enough work to advise you on the decisions required at that point. This need not be an invitation to heavy billing. Competent specialists will know how to monitor early transaction stages with minimal expenditure of time, while alerting you to issues which affect your LOI or other early process; and they should give you clear assurances on this point before their engagement. If the transaction fails early-on, these bills should not be burdensome. The aim here is to avoid having to re-do steps in the transaction process because of issues you knew about all along but failed to address early enough. The biggest inefficiency you can avoid is the drafting and negotiation of the same document multiple times.
6. The Other Party Should Engage his Professionals in Synch with You. Get their Fingerprints on the Deal Too. Especially in cases where there is no binding agreement until definitive documents are signed, you will be at a disadvantage if the other party to your transaction postpones hiring his professionals while you move ahead with yours. What often happens in such a case is the other side’s attorney or other professional steps into the transaction after you have spent money getting documents drafted, and reveals issues which make the terms as drafted impossible for his client. You are forced to repeat significant drafting and other steps. If the other party insists on delaying the introduction of his professionals, it is generally a sign he is uncommitted to your deal, so be warned.
7. One Lawyer as Quarterback for All Attorneys. When legal specialists are needed in a deal, they should report their advice and counsel directly to you, but their work should be scheduled and coordinated through your transaction counsel. They should keep him apprised of their progress and particularly any problems or delays they encounter; and in most cases your transaction counsel, who has full understanding of all aspects of your deal, will be able to help you evaluate a specialist’s advice, and make needed decisions based on it.
8. Use Courtesy and Politeness Whenever Possible. Make sure Your Team Does Likewise. While not all practitioners agree on this point, I find that a party is best served by consistent politeness and courtesy with their counterparts except in the most extreme circumstances, and cloaking their adversarial emotions as much as possible. While it can be argued that each party will use every advantage available to forward their own monetary interests in any transaction, whether or not they feel personal animus against the other, my experience is otherwise. A transaction is never entirely a zero sum game, and pleasant dealings with the opposite party usually pay off. Transaction professionals (especially younger ones) may need reminding on this point.
9. Match yourself with a Bargaining Partner on or near your Level of Seniority. Avoid Negotiating with a non Decision-maker. If you are the principal on your side of a transaction, and you bargain with someone lacking authority to make decisions on the other side, the conversation becomes a downward ratchet for you. You can make a concession which grants the other side a victory, finally and irrevocably, but the other side can’t. The best you can get from him or her is “I’ll go back to my Principal and see if they agree.” The absent principal isn’t psychologically involved in the concessions you are making, and seldom agrees to his side’s concession.
10. Don’t Meet Alone with the other Side’s Professionals. By the same token, avoid placing yourself in a position to be lectured to by the other side’s attorney or other professionals, without your professionals being present. When this occurs the opposing professionals tend to describe the facts under discussion, and also the law, in ways subtly or not so subtly less favorable to you than they truly are. If your professionals are present, they will promptly object, or the other side won’t try this in the first place. Don’t let the other side play with your head in this way.