One of the hardest tasks in negotiating a business deal is identifying those issues that are (or could be) “deal breakers” – the issues that so fundamentally and adversely affect the terms or risks of the deal that you should walk away. Having identified these issues, the next difficult task (and one that is just as important as identifying them) is determining how to respond. After all, if they can’t be resolved in a way that is acceptable to both parties, by their very nature these are the issues that kill the deal.
So, how do you identify deal breaker issues? First, it’s critical to understand that they can be either business or legal issues and can arise at virtually any point in the negotiations – which means it’s critical that attorney and client communicate effectively and directly. While the ultimate decision is always the client’s, the attorney must directly inform the client if he or she believes the issue is so fundamental that the client should consider walking away. Likewise, the client must communicate with the attorney if the client identifies such a risk.
While there is no single definition of “deal breaker” issues, in my opinion they’re the ones that create such a level of risk or uncertainty or so limit the upside of a deal as to be unreasonable or unacceptable. In other words, every deal should present an upside opportunity to the client in exchange for a reasonable amount of risk assumed – when this is not true, this is probably a deal that the client should walk away from. There will be other deals/opportunities – but only if you walk away from the bad ones when you should.
In my next post, I’ll discuss how to respond to these deal breaker issues – since walking away (while almost always an option) protects you from the downside but also requires that you pass on the potential upside – a strategy for survival but not for prosperity.
The title to this article may surprise people – especially since it’s being written by a lawyer who prides himself on being able to proactively advise clients and assist them with the most complex legal matters. However, I believe what separates the truly outstanding business lawyer from the rest is not, in most cases, the lawyer’s intellectual capacity or knowledge of the law – after all, most of us are reasonably bright and are experts in the law – rather, it’s the ability (and willingness/desire) to truly understand the client, the business/industry and the deal and to apply the attorney’s judgment and experience to simplify (rather than complicate) and streamline (time is money) the deal and achieve the best outcome with the greatest value/upside to the client.
The bottom line is – most of the transactions we work on are not entirely new or unique, and most of them do not require absolute legal genius or an overly complex structure to achieve the best result. In fact, often when a lawyer or firm is taking that approach without clearly articulating the reason, it’s because it’s in their best interest (after all, complexity costs money) rather than the client’s. That should never be the case.
For the above reasons, I suggest that each party to a deal start by outlining its general interests, the basic purpose(s) of the deal, the party’s specific objectives, and their understanding of the steps necessary to make the deal happen. This outline should then be discussed with legal counsel to make sure he or she understands the client’s objectives and can explain any legal issues/challenges or reasons that the deal may need to be more complex than the client anticipates. Then, client and attorney can move forward with a clear and mutual understanding and agreement of the deal structure, timeline and process.
As I write my first ever blog post, and perhaps as you begin reading it, we may both wonder:
“Why another legal blog?”; and
Aren’t there enough lawyers using big words to explain simple concepts, or even bigger words to explain more complex concepts in a seeming effort to write and speak in a way that complicates rather than simplifies the topic or transaction?
The answer to the second question is “yes” – there are enough of those blogs. The answer to the first question is, I hope I can present something different – a business blog written from a business perspective that happens to address the legal issues that arise in businesses and business transactions – hence the name, “BizB4Law.”
BizB4Law will follow a consistent theme – that the business aspects are ALWAYS more important than the legal aspects. Therefore, I will focus on business issues before legal issues and try and explain how the legal strategy and approach must always follow from the business objectives and realities.
With that introduction, let me make my first substantive point – it is critical in any business or transaction that from the outset the lawyer fully knows and understands:
the client, whether individual or corporate, and if corporate, the individuals who the lawyer is working with;
the business/industry that the client is in and the most important business and legal issues for that business/industry;
the client’s objectives for the particular situation and the risk/benefit to the client of achieving or failing to achieve those objectives;
the leverage and positioning of the various parties; and
the value that the client places on the lawyer’s role in the transaction, and the importance of the lawyer in achieving the client’s objectives.
In other words, the lawyer needs to know his or her stuff from a business perspective before the legal strategy can be defined – BizB4Law.