Two Tribes – The relationship between Corporate Finance Advisers and Lawyers on a deal

On most transactions. the principals (vendors or acquirers) will employ both a corporate finance adviser and a lawyer. What then is the role between these two advisers and who should you listen to if they don’t agree?

A deal is a legally binding contract and therefore it is unquestionably your lawyer’s responsibility to ensure that you understand the contract you are signing up to and that it has been drafted in a clear and unequivocal way which reflects the commercial deal you believe that you have done.

The legal drafting on a deal is usually done by the acquirer’s lawyers and the documentation is the very last stage of the transaction process, usually being initiated after the bulk of the due diligence is complete and there are no significant unresolved commercial issues outstanding. It will be for your corporate finance adviser to negotiate both the headline commercial terms of the deal and to support you in dealing with the resolution of any points arising during the due diligence process.

A close working relationship between lawyer and corporate finance adviser during the later stages of the process is highly desirable since the corporate finance adviser will have been party to discussions and negotiations throughout the process and can help the lawyer understand the intent behind the legal drafting. It is not, however, for a corporate finance adviser to express a view on the legal drafting itself or whether it gives effect to that intent in the right way.

Lawyers are rarely comfortable to take the lead on the financial aspects of the legal documents and will rely on the corporate finance adviser to provide the numbers for the headline agreements and any ancillary documents and to produce the “waterfall” which calculates the consideration applicable to each shareholder and what the lawyers therefore need to pay to everyone at completion of the deal. They will equally usually look to the corporate finance adviser to negotiate and confirm the drafting of the completion mechanism (be it completion accounts or a locked box) and any earn out or other conditional consideration schedule required.

As you can see, in the later stages of a deal particularly, the work of lawyer and corporate finance adviser is intertwined, and regular dialogue is key to getting to the best possible answer. On those rare occasions where your lawyer and your corporate finance adviser disagree on the best course of action it usually relates to the risk inherent in agreeing to a particular form of words. It is difficult under these circumstances for a client to disregard the views of a lawyer but if there is a strong disagreement it will usually be because the theoretical legal risk and the commercial risk are misaligned and there is a judgement call to be made about whether to accept a point or risk the deal over it.

Generally an experienced corporate finance adviser and an experienced corporate lawyer will know how to work together to provide joined-up and coherent advice to their shared client.

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Wendy Hart

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