Having the right people by your side as an IT Services business owner in an M&A transaction is important. Merger and Acquisition lawyers can play a crucial role in a deal from start to finish, alongside your advisor. Listen as we talk about M&A Lawyers (and generalist lawyers) and if you should consider using one in your next deal.
Segment 1: Understanding the Role of an M&A Attorney
Segment 2: The Generalist Lawyer: A Broad Overview
Segment 3: Key Differences Between M&A Attorneys and Generalist Lawyers
Segment 4: When Do You Need an M&A Attorney?
Segment 5: Tips for Choosing the Right M&A Attorney
Segment 6: The Future of M&A Legal Practice (optional)
RELATED EPISODES
Mike Harvath 00:06
Hello and welcome to this week's Shoot the Moon podcast. broadcasting live and direct from Revenue Rocket world headquarters in Bloomington, Minnesota. As you know Revenue Rocket is the world's premier growth strategy and M&A advisor to IT services companies. With me today, for this week's podcast are my partner's Ryan Barnett and Matt Lockhart. Welcome, gentleman.
Matt Lockhart 00:30
And good to be here, Mike. And, also Ryan, where can I kind of all over the place? Guys? I you know, it's been I look forward to seeing you guys because I was traveling and Ryan, you were out conferencing? And Mike, you're all over the place. But you know, it's the new way of getting work done. Right from anywhere. So excited about today's podcast!
Ryan Barnett 00:59
Yeah, absolutely. I am as well. And yeah, it's nice to embrace the remote work and, and getting things done. And speaking of getting things done, one of the one of the topics that we're looking at today is do you need an M&A specialist, attorney or lawyer when working through an M&A transaction? Or can you get by with your regular counsel? So we've got we work every day with customers that have a variety of legal counsel available to them. And, and we've found that having the right people by your side throughout this entire process can be a huge help. So Mike, why don't you get us started here? And, you know, what's the difference about an IT services deal, compared to perhaps a generic deal? And what are a few just things of what a kind of an M&A lawyer is compared to what a generalist lawyer is and just get us started
Mike Harvath 02:01
Yeah, sure thing, right. So there are nuances when it comes to a deal in services. Usually there, they don't have a lot of fixed assets. If you think about just about every other kind of business out there. You know, a lot of them have a lot of fixed assets, a lot of plant and equipment, or inventory or vehicles or things like that. In the end, the type of advice you would get from a tax advisor or a lawyer is going to be different. If you're focused on more of an asset light business, like an IT services business. This is one of the many reasons why you know having, in our opinion and M&A specialist lawyer or a lawyer that focuses on mergers and acquisitions almost exclusively in their practice, versus the generalist is super important. You know, the knowledge those guys bring to the transaction related matters, that come up in the negotiation of a definitive agreement, and how that gets, you know, what we like to call legally fortified or are aligned to mitigate your risk. That experience from an M&A lawyer about particular with what they've seen before in balancing and managing risk is super valuable. And we often, you know, joke around a little bit that, you know, there's two kinds of lawyers, there's deal makers and deal breakers. And we find that the deal makers often have the most experience around M&A.
Ryan Barnett 03:46
Thanks for getting us going here. Matt, you come from a family of lawyers, and you've worked with lawyers, I'd say it feels like every day here at covenant rocket. And I'd love to get your opinion, you know, with all the attorneys and the kind of generalists that are out there. What's something that they do well, and what's the value that they can bring to, to a corporation?
Matt Lockhart 04:10
Yeah, thanks, Ryan. And, and, yeah, to sort of give a little context there. My father was a litigator. My brother was also a litigator] in construction. My grandfather was a internal corporate lawyer. My uncle was right. And so you're right. I grew up around all of them. Interestingly, my brother in law was a business lawyer and facilitated a number of transactions. I mean, we're talking hundreds of transactions. And he would be the first to say that not only Is it absolutely critical to have your legal representation who has a great deal of experience in merger and acquisition work, he would would also say that they should have experience in the relevant field that they're that they're working in, because they're the nuances are, you know, related to risk and liability. And the Dan enabling and, and sort of guiding their client through the business related risk versus the legal related risk, having that experience in that space is sort of part and parcel to that. And so he, you know, talked a number of times where he was like, Look, I'm not the guy, right to his client. Now, he stayed involved, but he would help get the right representation with the right, applicable industry experience involved. And, you know, he would also talk that, yeah, I mean, we're, we're, we're about half, you know, getting the deal done. So us, it was very much a deal making attorney with the context that it was the right deal for his client. Right. So, you know, there's lines that can't be crossed, obviously. But it is in the Spirit, you know, of understanding that the client has found an opportunity that he very much wants to pursue. So yeah, I mean, from the sort of from the proverbial horse's mouth, I think it's in support of this idea that you need the, you need the requisite specialization and, and expertise.
Ryan Barnett 07:05
You got, I think that's such a great point, when when you think about an attorney, in the context that I was thinking of coming into this, I was thinking, most attorneys in this maybe business focus. But in reality, you point out, even within your family, that the the being an attorney is very specialized by nature, and from being a prosecutor to a defense, that criminal is going to be completely different. So even if you're in the realm of business, and to understand that they being a generalist in business, there are a lot of things that are just very specific, within m&a that comes out that a business focus lawyer just may not have the experience with or may not understand. Mike, I'd love to kind of get your opinion on, you know, what are some things that a person should watch for if they do pick a generalist lawyer? And it could be from deal structure through the terms and conditions to the stock or an asset deal? You know, what are some things that you've seen that you should that might be a warning sign of working with a a general attorney?
Mike Harvath 08:22
You bet. So you know, many journalists will immediately run to advising their client that they should do a stock deal versus an asset deal or use a tool called anaphora yard, which many, which many sponsor companies or private equity companies often use and, and the that advice is generally based in their experience around working with asset heavy companies, like I talked about earlier, and not fully understanding the realm of IT services companies, to Matt's point, you know, you got to have some domain expertise in the market, as well as how expertise in m&a transaction fall. Also, you start to see some of the recommendations around, you know, the work that they do, not really aligning with what I would call best practice, and it's very subtle in the type of advice that would come from a generalist attorney that's very skilled at negotiating, let's say, contracts or mitigating risk around some of the what I would call general counsel work they might do and as a business lawyer, versus sort of the very Tick and Tack type work that's done in M&A Purchase Agreement, which is, you know, liability is certainly a big issue, trailing liability, the whole concept of cap and basket and what's reasonable sizes around a liability negotiation, not to mention sort of the understanding ways to mitigate and remedies for reps and warrants violations, I could go into a lot of things. But certainly, understanding and some of the initial warning signs might be, hey, we think you should be running to a stock deal, or F reorg. Or we think you should be, you know, looking at a deal, that's all cash, because we've never seen a deal that gets paid out with contingent terms be successful. That's another warning sign that they maybe haven't done deals in our space. And there's probably, you know, half a dozen others that that come to mind. I think, you know, Matt's counsel and advice about having folks that have done lots of transactions in their history, as lead counsel, in the domain space, certainly will help you mitigate your risk and streamline the time you spend with your lawyer. We think that, you know, certainly a generalist attorney not to take anything away from these guys, because they do great work and general representation in the business. But when you begin to get into M&A, you know, legal fees can balloon up pretty quickly. And oftentimes, someone who doesn't have a lot of experience will auger in on deal points that just don't need to be fought over with opposing counsel. And you know, in the end, it's going to cost you a lot more money, if that occurs, versus someone who's done you know, lots of m&a transactions that can focus on the on the most meaningful points to negotiate or put their energy, aka, deploy your fees against. So that you can get a you know, the most risk mitigated contract, as well as get a very efficient legal process at the same time.
Ryan Barnett 11:59
It feels like to your point, one of the the sideways or a points of notification of where your generalists may be not keeping up is that trading points are kind of even putting, putting your advisors to the side while only working through the legal agreements. And in reality, there's a bit of an ecosystem of working together from the deal points and deal terms of flowing through to the execution of definitive agreements, and making sure that the appropriate input is is taken. think we've seen counsel augering in on issues that can help that can not help but actually delay deals where it doesn't, doesn't need me to be mad, again, you worked on again, with a lot of attorneys, or is there any recommendations that you have of working as an advisor of working with an attorney, and really kind of on either side of the fence on kind of addressing critical deal points and moving things forward?
Matt Lockhart 13:09
Yeah, you know, and I think that, that we, we try to do this in all cases, but it is it sort of getting ahead of the game, if you will, right. So, oftentimes, our clients haven't been through this process before. And, and so the, the entire definitive agreement a bit of, regardless of whether it's an asset sale, or a stock sale, or an F re-org is it a sort of foreign to them, and so, you know, getting ahead of the game with their respective counsel, as to what are the most important and critical points that are going to come up in the agreement? What is the sort of the very best case scenario on one end? What is the worst case, and then where is the middle ground where likely things are going to fall? That is going to be and there's a line that is like this is acceptable? And, you know, this is not acceptable. And, you know, I we find that when we're able to do that, and be involved with our clients and their respective counsel. It just sets the stage for making it easier, being able to present the business decisions accordingly versus the specific legal aspects and just make sure that everybody is free. Ely, you know, on the same page, because we often find or not often, but the converse to that is is somebody who hasn't been through it and say they've got respective counsel who really, really I mean, they feel like and they feel like they're doing their job right to, to really try to get the very, very, very best agreement possible, as opposed to what an acceptable agreement is. And they may position, the risk and or liability in a way that can be very scary for a business owner, especially one that hasn't been through it. And course, it's like, Oh, my goodness, what if, right? And, and the reality is, is then you go back and you say, Okay, so, you know, what are the chances of that? What if? And it's like point zero? 1%. Right. And so, you go, Well, should we be? Should we be holding our ground down? No, point zero 1% risk, right. So it's an example that we've seen, again, the the, if you can get ahead of it, you get ahead of it, post, you know, loi, make sure that everybody's on the same page, make sure you identify the critical areas, make sure that our respective client understands those aspects, and get everybody on the same page to try to make it easier, and less emotional, and less confrontational.
Ryan Barnett 16:54
So it's great advice. I think we've covered this pretty well. But, Mike, is there any reason why? Which things should a customer ask or as a seller ask their attorney to understand if they're qualified as an M&A attorney? And is also just also is there a reason not to use an m&a attorney? I mean, it's all everything I've heard here is that a deal is gonna get done much better and faster, if they m&a Focus attorneys, with you, but are there some things that would just stop you from using that? Specialist? Well,
Mike Harvath 17:34
I think that yeah, I mean, you certainly want to ask your potential counsel, how many deals have they done in your market with companies your size in the last year? Because I think that's a big tell. And also, how many have they done ever, sometimes there's approaches to M&A transactions that change. For example, we've seen in the last several years, the use of reps and warrants insurance become a much more regular and acceptable sort of approach, versus a local call escrow hold back for liability purposes, from the purchase price. And those m&a lawyers who are in the weeds on that work in your space, in the world of IT services, would know that they typically would know who the vendors are, that have done M&A aren't W insurance underwriting may have been interfaced with many of them may have negotiated agreements with them. That is relevant and in what are called timely experience, for example, that you want to have on your side. Because of this is a new concept to a generalist lawyer or business lawyer, it's gonna make your project more expensive. And I think when we think about the overarching reasons for engaging an M&A lawyer is to be efficient, right? to Matt's point, they understand it takes a village of advisors like Revenue Rocket finance folks, tax people, legal counsel, to get these deals done. And in some cases, insurance companies when you start to think about reps and warrants insurance, and how that plays a role, so, you know, understanding the cast of characters, and having relationships with many of those Cathy characters because they've worked in your space is pretty darn critical. I think the only time to, you know, answer more direct question you wouldn't necessarily use an m&a lawyer is, you know, maybe a transaction size wouldn't warrant it from a cost perspective. And in that case, you may be relegated either by the size or by the cost. Do you think someone that may have have less experience, I would I would caution you in doing that would sort of be a logical conclusion, you might think, as a normal course of business, well, you know, I have to try to control my legal costs, I'm gonna go with someone who build less per hour, maybe someone I know who has less experience, but in our experience almost over, overwhelmingly, so those more generalist guys are the folks that have less experience in the space, those bills end up being higher, because they're learning as they go. And to Matt's point there, they're haggling over deal points that probably don't need to be addressed. Or auger in on those deal points, which just causes burn and waste of time. And, you know, a balanced and measured approach can occur so so don't be don't be lured into hiring someone based on either their hourly rate or their general estimate on the deal, if they don't have deep domain expertise, because I think what you would find that even paying that expert, a much higher hourly rate, or even a fixed fee, that seems to be higher, with a lot of relevant experience will actually turn out to be much, much more cost effective for you. We've seen lawyers that don't have deep expertise in this space charge three times overall, what someone who is experienced with CHARGE, just due to just due to sort of the back and forth that goes into that. And I think, you know, we've seen a lot of wasted time. I think an m&a lawyer that has deep experience, and leverages the advisors that are involved in the transaction, will be able to do the deal and far fewer turns on the definitive agreement versus left to their own devices. With someone who has less experience you might see 20 Turns out of an agreement. And I can tell you, if agreement turns 20 times, there's a lot of waste and wasted time and money there. That should never be. So hopefully that's helpful, Ryan?
Ryan Barnett 22:13
Absolutely. When I heard today, it's critical to understand and work with people who know, deal flow and know the right questions to ask. I heard that it's even more helpful if you can find someone in your industry as well. So if you can find someone that's M&A specialist, and IT services that's a bit harder to find, but the likelihood that the deal will get done in a timeframe that is appropriate for everyone becomes higher. And I heard that there's there can be certain challenges to using a generalist lawyer in that they may not know the questions to ask or they may not, you may have a back and forth, that ultimately becomes costly, very simply on a monetary basis, but also on a time basis and, and put a deal at risk more than the risks they're trying to keep the client from. So there's definitely a balance here and, and working with the type of the type of people and the type right advisors to help get the deal done is is critical. Matt, Mike, anything I missed? And if not, I'll turn it back over to you.
Matt Lockhart 23:19
Well, you know, Ryan, I think you did a great job of summarizing the you know, the last thing that I'd say is, we know we know some of those IT specialist M&A attorneys. So if you're if you need a referral or recommendation, we'd be happy to provide that. Over to you, Mike.
Mike Harvath 23:41
Yeah, thanks, Matt. Yeah, we've certainly worked with a lot of folks that know the space exceptionally well and, and can connect you with people that do good and efficient work and will represent you in a meaningful way. With that will tie ribbon on it for this week's Shoot the Moon podcast, encourage you to tune in next week when we unpack further topics of growth strategy and M&A in the world of IT Services. Thanks for tuning in and make it a great week.