Avoiding Surprises in Transactions – Part 1

Surprises may be great for birthdays and holidays, but they have no place in business deals, where they generally cost time, money, and sometimes even the deal.  That’s why there’s such value in predictability, certainty, process and control.  Lawyers and clients are a team and as such, should work together as closely as quarterback and wide receiver or pitcher and catcher to understand each other’s preferences, tendencies, strengths and weaknesses, and to “game plan” a particular legal situation or transaction so that, come “game day,” there are no surprises.

While complete control and absolute certainty are generally impossible – whether you’re forming a business entity, negotiating a merger or acquisition, conducting a securities offering or even litigating a case, the more certainty attorney and client can have, the better. 

I’ve found the most effective way to avoid surprises is effective and clear communication between attorney and client from the outset, so that the attorney clearly and fully understands the client’s expectations as to:

  • Timing – including deal timing and response times;
  • Communications – who should the attorney communicate with at the client’s organization, and how (e-mail, telephone (are voicemail messages ok?), fax, letter)?  Can the attorney communicate directly with the other side, and if so, do all communications need to be cleared with the client first?
  • Work Product – does the client prefer detailed legal memoranda or a simple phone call with the attorney’s thoughts/recommendations?
  • Scope and Responsibility – who will handle what issues/tasks?
  • Urgency – how important is this deal to the client?  Are there any “deal-killer” issues that would cause the client to walk away? 

The other thing I’ve discovered is it is almost always beneficial to lay out at the very beginning the likely course that a transaction will follow, including stages, structure, timing, transaction documents, pre-closing conditions, closing, post-closing follow-up, etc.  Equally important is to communicate and modify the plan as necessary throughout the transaction as things change.

In Part 2 of this post, we’ll apply these principles to a hypothetical acquisition.

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