We have a robust M&A Department at Stock Legal comprised of attorneys who have practices in this field for the vast majority of their careers. This is the team to build out fixed fee work here at Stock Legal, along with our talented corporate lawyers who already have experience in fixed fee work for to build out corporate infrastructure for our clients. We are excited to translate that into fixed fee M&A! **Fair Warning** this is a long post, so hang with us as we outline our philosophy on fixed fees so you can understand how we believe it can work in the world of “doing deals”. Thanks for continuing this journey with us!
First Up! How to do fixed fee Mergers and Acquisitions (M&A) work given the variable nature of a deal?
Having now announced to the world that Stock Legal intends to bring the price certainty of fixed fee legal services to the complex, interdisciplinary world of mergers and acquisitions, we find ourselves in a conundrum: How do you do bespoke work for unique transactions that involve negotiation and coordination with several parties for a fixed fee? And how do we set a fee that is fair and sustainable without devolving into a one size fits all solution or a complicated morass of add-on services and super-secret hidden fees? These are the questions and issues that typically keep law firms from fixed feeing M&A.
A Leader in Fixed Fee Corporate Legal Work
It certainly helps that Stock Legal has a significant history in fixed fee corporate work, with a standing commitment to client service, communication, and price transparency. Over the years, we’ve gained valuable experience in evaluating and administering fixed fee corporate projects, developing the procedures and skills necessary to deliver high quality work product across a wide range of transactional areas. The process we’ve developed is centered on the core functions of evaluation, planning, implementation, and communication, which allow us early insights into the full life cycle of a project, allowing us to identify and address potential problems before they impact the progress of the work. In tackling the challenge of the fixed fee M&A transaction, we spent some time breaking own mergers and acquisition work, the typical workflow and the typical billing.
For more information on our fixed fee corporate work see:
- The Process of M&A and How it Could be Done Differently
- Our Why on Fixed Fees
- The Importance of Operating Agreements when you have Co-Founders
- Confidentiality Agreements At Stock Legal for a Fixed Fee
- Why your Corporation needs a Shareholders Agreement
- Deploying Standardized Employment Agreements
- Independent Contractor Agreements for a Fixed Fee
- Capital Raise Subscription Packages
- Incentivizing with Equity in LLCs
- Incentivizing with Stock Options
The Anatomy of an M&A Transaction
Every M&A transaction is a series of smaller transactions and agreements. There are common threads that run through most M&A deals such as purchase price, payment methods, and allocation of liabilities. Additionally, there are common threads that run through the component transactions of an individual M&A deal, such as the parties, the property being sold, the sequence and timing of transactions. The negotiation, timing, and coordination of parties (and governments) involved in the component transactions is the big unknown in planning a transaction.
Alternatives to Hourly Billing?
Typical law firm billing is hourly, so the “meter” ticks along as we work and scales up as we discover the complexities of the project. Hourly billing has been business as usual forever in law firms, and it certainly has its merits. Hourly billing can be easily explained up front, fairly represents the resources being applied to a project, and appropriately compensates counsel for their skill and experience. What hourly billing does not do is provide individual business owners who do not routinely buy or sell businesses with the information necessary to evaluate a significant portion of the costs of the transaction. This is especially the case in transactions under $2M, where the costs of the transaction may represent a sizable chunk of the total transaction value.
The Common and the Complicated
So, an M&A deal is several complicating factors wrapped around common core - the sale of either the assets or the equity of a seller to a purchaser. Determining the transaction requirements is usually straightforward and non-controversial. The number and nature of complicating factors is where things get interesting, and where a lot of time billed on a transaction can add up.
Complication and expense will usually scale with the number of parties involved, so obtaining reliable information on all the players involved in the transaction and establishing a roadmap for the entire transaction that has buy in from as may parties as possible is the first order of business.
Planning the M&A Deal
This is where our process begins. Evaluation is an in depth, honest, and objective assessment of the factors involved in the transaction. Here we work to understand the goals and relationships of the parties, the potential negotiation sticking points, and the required involvement of non-parties and governments, developing an understanding what we can control and what we can’t and determining whether a fixed fee arrangement is appropriate for the deal. Planning is just project management - scoping the tasks and responsibilities of the parties, getting buy-in from the players, assigning the appropriate resources, getting commitment from each party to carry out the actions required of it — then putting that all of that on a schedule. The result of these steps is a comprehensive overview of the components of the transaction(s) involved in an M&A deal, along with allocation and assignments for the work involved, a timeline and a good sense of the complicating factors involved in the transaction. Once these are identified, we can apply these factors to a project pricing matrix through which we develop a set of phases for the project deal and a price range for each.
Taking the Long View
Once we have the transaction planned end to end and have assessed the capacity and willingness of the stakeholders to participate in the transaction, we can accurately assess the time and resource requirements to carry out the transaction as planned at the level of service Stock Legal is known for. Starting with a view of the entire transaction and commitment from the parties allows us to identify and plan for a range complicating factors, enabling us to schedule resources and tackle problems as we carry out the transactions, rather than allowing them to become emergencies. Through efficient planning we can realize savings over hourly billing though enhanced communication, avoiding emergencies, use of appropriate resources, and eliminating duplication of effort.
With solid evaluation and planning, we can set out with our client on an M&A deal with structure and terms that the client can understand, plan for, and participate in —and we can do so confident that the fee we’ve settled on will ensure that we are able to provide the individualized Stock Legal approach and high level of client service at a stated fee that the client can rely on.
Before we get too far down the fixed fee rabbit hole, we would like next to embark on a series of blogs outlining the components of a M&A Transaction. We can’t wait to share our next posts on Doing the Deal!