M&A: From Lawyer-led to Professional Services-led

While we may enjoy the occasional joke at the expense of our colleagues in the legal profession, the value lawyers bring to M&A transactions is undeniable. Lawyers and legal departments remain integral to each transaction, from sourcing and shaping the deal, to negotiation, and through to closing and post-transaction restructuring. It is often the case that the ever-presents of a transaction are the legal teams and law firms, with lawyers becoming the de-facto transaction leaders and calling the shots. However, M&A deals consist of much more than just “what the lawyers do”, so who is best placed to orchestrate the transaction end-to-end and maximise value?

There are many reasons why transactions sometimes go wrong or don’t fulfil their potential. Articles and blogs outline the common pitfalls of failed transactions, but few get to the root of solutions. Whilst certainly not knights-in-shining-armour, consultancies are uniquely positioned to support businesses through their M&A journeys and beyond. The skills and experience required to avoid common pitfalls go well beyond swallowing the lessons-learned of the past.

"Jack of one trade, connector of none"

M&A transactions require a multitude of disciplines to close successfully and create value. Investment banks, investors, auditors, tax experts, company directors, regulators, lawyers and consultants each play their part with specific skills to address different aspects of complex transactions. The challenge is to deliver coherence and maximise value from all parties. M&A leaders must look at who is best placed to coordinate all parties and translate the local languages of each competency into an integrated, aligned plan of action. How do consultancies complement and augment the role of lawyers? They bring cohesion during the deal and advise on how to reduce risks and maximise the likelihood of success throughout the M&A lifecycle.

Consultancies are ideally placed to test, challenge and improve the value of a transaction in its entirety, inclusive of business, operational, cultural and information technology considerations. Their value is in understanding complex business change, offering expert solutions to unexpected problems and tapping into communication expertise where required^[1]. They can also prevent future issues by advising on commercial and contractual decisions. There is a strong case for wrapping lawyers’ involvement from the early phases of a transaction with a consultancy support team to coordinate the inputs from all advisors, provide a complete view of transaction value and actively hunt for (and mitigate) both expected and unforeseen risks. 

Human-centricity

Businesses tend to put their people and customers first, and should not forget this during M&A transactions. Deals of this magnitude will impact any organisation’s culture, diversity mix, data privacy approach and environmental footprint. Firms cannot underestimate the importance of measuring the risks and value creation opportunities from the earliest stages, with profound inflection points at cultural due diligence and agreement of a robust environmental, social, and governance (ESG) agenda.

Organisational culture is of paramount importance and, whether merging two businesses or carving out a new one, creating an identity that staff can stand behind is a major factor in the success of a transaction. Professional services firms are experts at managing the people side of change across the deal lifecycle.

In our recent insight, The Hidden Cost of Culture, we highlight the value of honestly looking at an organisation’s own culture and the culture of potential targets. Even peer companies with seemingly similar employee demographics can have vastly different approaches to day-to-day work, performance management, problem solving and innovation.

Thinking beyond the transaction

Legal involvement reduces in the latter stages of the M&A lifecycle as contracts are confirmed and restructuring is completed. Because lawyers set the tone for post-merger integration or separation, their decisions can have a massive impact on the ultimate success of deals for employees and bottom-line value^[2]. Post-merger integration activities, separation activities and processes are driven by commercial and contractual agreements, established by lawyers during the deal.

The unintended consequences of a lawyer’s contract drafting can offset value and create unnecessary complexity in post-merger integration and business separation activities. This value erosion is clear in studies that measure how different types of law firms are associated with different deal outcomes, much more so than the effects different investment banks have in a deal^[3].

Additionally, achieving foresight beyond day 2 and grasping the impact of legal decisions on the day-to-day operations of a business requires careful thought and close management. These are factors upon which the lawyers have decreasing influence as the M&A lifecycle proceeds.

Conclusion

Although lawyers and legal firms are crucial to the success of any M&A transaction, they are not best placed to connect multiple advisors and assess the impacts of a transaction on enterprise value from start to finish. Relying on the right expertise from the early stages is key to getting the most of all parties involved, de-risking decisions and actions made throughout the deal, and maximising the transaction’s enduring value.