What does a commercial law firm actually do?
Pinsent Masons is a full service commercial law firm, this means we aim to provide a comprehensive range of legal services to our clients, rather than just focusing on one or two particular areas of law. Many clients prefer to instruct a small number of law firms to undertake their legal work and so being a full service firm can be advantageous when seeking appointment to an employers legal panel.
While the day to day work of different lawyers will vary according to their area of expertise, at the heart of many business transactions you will find contracts, but why are lawyers so fundamental to business?
To give you an idea, let’s look at a fairly common scenario – a typical merger and acquisition (M&A) transaction. To keep things as simple as possible, in this example we’re acting for the buyer, but we might also act for the seller, the buyer’s bank or other parties involved. You can follow this M&A transaction through its key phases below. This will help you understand where lawyers at firms like Pinsent Masons add value and expertise to the process.
Stage 1 – Internal Client Discussion
How it starts
Let’s say an IT client – Lodestone Systems – has identified MadMile, a niche apps developer, as a potential acquisition. It looks a good fit, but Lodestone’s management team needs to make sure. What are the risks, assets and liabilities? How does Lodestone capitalise on the opportunities? It’s a big thing to get wrong. Some external, professional advice would be useful.
Stage 2 – Client Seeks Preliminary Advice
At this stage, Lodestone might also be gathering advice from accountants, tax advisers, pensions advisers and management consultants amongst others. There will be questions of integration, tax-efficiency and restructuring to consider, as well as whether any regulatory, shareholder, customer or supplier consent is needed.
(Sometimes, another bidder can complicate matters. If MadMile knew of any rival interest – which they might if they’d put themselves on the market – Lodestone could become embroiled in a bidding war.)
This is where our teams get to work on all the important preliminary tasks.
- We’ll draft confidentiality agreements (to ensure Lodestone doesn’t misuse any sensitive information provided by MadMile)
- We’ll review constitutional documents, company searches and contracts – Lodestone needs to know if consent is required from shareholders or anyone else connected with MadMile
- We’ll review financial information and contracts and advise on whether the transaction needs consent from competition authorities
- We’ll also provide advice on tax risks and structuring. Taken all round, that’s a lot of work in which trainees can get involved
Stage 3 – Decision To Proceed
Getting the green light
If as a result of our advice, Lodestone decides to proceed, we’ll then provide due diligence – the in-depth research into risks and liabilities which will enable Lodestone to know whether they want to commit, what they are prepared to pay and how the contract should be framed. Due diligence is typically conducted by corporate lawyers, who may consult different teams for specialist advice.
In a straightforward two- party transaction, we’ll simultaneously produce a draft sale and purchase agreement (SPA). This is when the intensive negotiations start.
We’ll first assess the extent of due diligence required, and then look at cementing the precise terms of the draft SPA, which will reassure Lodestone that MadMile has its stated assets, and that no costly liabilities are lurking in the background.
Our teams will report on MadMile’s current contracts. How healthy is their order book? Who works for them, and in what capacity? What are their business relationships with banks, IT providers and suppliers? What are their Intellectual Property rights? Are there any unusual terms attached to the transaction by counterparties? What related documents also need to be agreed – such as tax deeds, or new service contracts for directors?
That’s enough work to keep trainees, associates and partners from various teams busy the whole day through – and possibly the evening too.
Stage 4 – Completion
So everything’s settled. No scary skeletons, the documentation’s in order and the price is agreed. We now just need to arrange the share transfer.
But first, we’ll hold a completion meeting, where representatives from both parties sign on the proverbial dotted line. If this isn’t possible, we’ll circulate documents by email.
Sounds simple? Not quite. Completion may involve co-ordinating many different parties in different jurisdictions, as well as getting sheaves of documents – board minutes, shareholder resolutions, share transfers and certificates, directors’ and auditors’ resignation letters – under the right nose at the right time. Any last-minute hitch could sink the entire deal.
The bottles need to stay on ice just a little longer! For us, the period after completion is a time for relationship-building. Our client has just acquired a new business arm, with its own senior managers, legal team and other advisers, who we’ll have started getting to know during negotiations. Also, our client might require further help in aligning the two businesses. Putting effort into building relationships now is a good way to secure future work.
This is just one example of one type of transaction in one particular practice area. But there are many more strings to our bow. To find out more about the breadth of work on offer at Pinsent Masons, you can read about the Sectors we work in.