Lawyer’s role in an acquisition in Finland
It goes
without saying that the extent of a lawyer’s involvement in an acquisition
depends on the instructions of the client and consequently varies a lot. I have
recently been involved in a couple of acquisitions which were very different
from each other both in structure and the size of the deal. Yet, these two
acquisitions highlighted the role of the lawyer and made me realize that
different clients may have totally opposite needs when choosing their legal
advisers.
1.
Client’s objective
The
objective which the parties’ lawyers will be expected to achieve is the legal
transfer of ownership from seller to buyer of the shares of the target company.
The client will also expect his lawyer to identify risks of a legal nature and
to seek to protect him from those risks as far as possible. As the objective is
so clear it’s worth considering why the instructions of clients vary so much.
The first idea that crosses your mind is that the client would simply like to
achieve this objective at the lowest possible cost. This is not, however,
always the case.
2.
Client’s motives
Many
clients, in particular owners of family owned companies, are straightforward
and seek to make the acquisition process as simple as possible and at the lowest
possible costs. This is possible in Finland as we belong to the continental
legal tradition with written laws based originally on Swedish law. So if you
want to make the paper work lighter it can be done as much of the contractual relationship will be covered by
the law anyway. So why pay for something that you get for free?
Having said
that you may still have valid grounds to make the documents more extensive. An
international company often has a protocol for mergers and acquisitions and
always does the documentation exactly the same way. This may be due to the
corporate policy or their bankers’ requirements. This approach should not be
taken to the extreme. I once had a German multinational as counterpart and they
had pushed the corporate requirements so far that they did not care about the
laws of the object company. It was most unfortunate – for them.
For a
multinational company it is important that all acquisitions are done more or
less the same way irrespective of the country. This makes the management of the
subsidiaries and affiliates easier. One of the reasons to make a very extensive
documentation may be a corporate one: once the decision maker uses one of the
largest law firms in the country he cannot be blamed if the deal goes sour. After
all the decisionmaker in question has done everything within his power. Fair
enough but this approach can be counter productive, and now I am not talking
about the legal fees. I have in the past seen cases where the documentation has
been so extensive that not even the drafting lawyer could make sense of it.
This risk is enhanced by the fact that legal teams dealing with acquisitions
seem to become larger and larger by the day and produce more and more
documentation. A skilled client should be specific about what he expects. One
is sometimes surprised how much material is produced with very little or no
analysis.
3.
Commercial Issues
The
lawyer’s input into the commercial aspects of the transaction varies a lot in
practice. The stage at which the client instructs the lawyer seems to be
equally as variable. These two factors often go hand in hand. Unfortunately the
client sometimes sees the lawyer’s role as excluding the commercial side of the
transaction, and then instructs the lawyer at a relatively late stage in
proceedings. There are sad stories about due diligences made and substance of
the deal having been negotiated without
the advice of the lawyer.
The reality
is, however, that it is nearly impossible to isolate the legal aspects from the
commercial aspects and therefore we prefer to be involved as early as possible
in the parties’ negotiations. This is vital if the lawyer is expected to give
taxation advice in relation to the acquisition. The way the acquisition is
structured has substantial impact on the client’s tax position; if the client makes
contact too late, it may be impossible to choose the most tax-effective method.
We do not wish to see that our client enters into any binding commitments too
early and see to that all negotiations are subject to formal contract.
4.
Coordination
A function
which our clients often ask us to carry out is to coordinate the various
professional advisers involved in the proposed acquisition. The acquisition
“team” most typically includes feasibility study makers, accountants, surveyors
and environmental auditors and patent agents. If a publicly listed company is involved, the team will be
much larger and enhanced with corporate finance and merchant bankers.
You simply
cannot exaggerate the significance of the coordination and this concerns also
the legal advisors. The team leader or the coordinator should be totally
committed to the case: we have in the past seen mediocre results by large
reputed firms due to bad coordination. A legal team often consists of a group
of lawyers, some of them with less experience than the others. If the team
leader has not time enough to meticulously coordinate the case, you will get
outstanding individual performances and the total outcome will at its best be
mediocre.
Time is of
essence so the earlier we get involved the easier and less costly the process will
be. Equally important for the client is to have a strategy: i..e. a clear and
outspoken vision of what he expects to be done, to what extent and at what
cost.
