Deal lawyers—shirkers and grand-standers, the lot of you

31 Oct 20
tough boys.jpg
tough boys.jpg

M&A lawyers: we are not above criticism.

M&A has been characterized as a bloodsport. In a strategic transaction, the stakes are high for all concerned: careers, reputations, and business and financial fortunes and are on the line. In addition to the high stakes, the one-off relationship between a typical 

seller and buyer in an M&A transaction may particularly lend itself to disputes. Opportunities and incentives to resolve disputes or even to be reasonable in deference to the greater relationship are often absent in M&A, with the calculus changing (and the incentives to cooperate often declining) after each successive step of a transaction, from signature through closing to the end of the survival period for indemnification rights.

Consistent with the foregoing, it has been estimated that as many as one third of all private M&A transactions give rise to a dispute between the parties. And based on one survey sample, as many as two thirds of all claims in M&A disputes exceed $10 million.

Forrest G. Alogna & William Savitt, The Versatile M&A Lawyer: Bridging the Gap Between Courtroom and Boardroom (2017) (emphasis added).

[W]hen you’re under pressure to get a deal done, no one is anxious to raise the additional issue of how to resolve a potential lawsuit—especially when it relates to something that hasn’t yet occurred and that everyone is hard at work to prevent from happening. Second, there’s a dose of the timeworn "not my problem” syndrome at work here—the deal lawyer figuring that any dispute cropping up later on will be turned over to the litigator, so it’s the other person’s worry.

But that’s just where deal lawyers go wrong—it is their problem, and they shouldn’t duck it.

James C. Freund, Calling All Deal Lawyers—Try Your Hand at Resolving Disputes (2006) (emphasis added).

Less expert [lawyers: "agents"] may produce less complex or extensive [risk allocation provisions: "RAPs"] than would be ideal, again because of a lack of knowledge or exposure to different ways in which RAPs might be useful. However, less expert agents may also produce inefficiently (overly) complex or extensive RAPs, for the same "grand-standing" reasons that lead them to use RAPs when they are inefficient. More expert agents, by contrast, may better be able to advise clients on how to assign a value to RAPs, and to the disputes that complex or extensive RAPs may generate, which may make simpler or less extensive RAPs more efficient. Alternatively, more expert agents may use simpler or less extensive RAPs out of shirking, because (as above) the opportunity costs of developing or negotiating RAPs are greater than for other agents.

John C. Coates IV, Allocating Risk Through Contract: Evidence from M&A and Policy Implications (2015) (emphasis added).

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