A Cure for Transaction Hiccups

by Christopher J. Fisher, Pa

There comes a time in every business financial transaction when someone reluctantly says, “Its time to bring the lawyers in to document the deal.” Business people see this as the moment that the otherwise friendly, smooth and flowing transaction comes to a grinding halt.

The perception, and all too often reality, is that from and after that time, the level of anxiety increases, the discussions become acrimonious and the legal costs careen out of control. It doesn’t have to be that way, and it shouldn’t be that way.

Once the business deal has been struck between the parties, considered outside the context of the heat of negotiation and in terms most simple, it is our job to facilitate the completion of the business deal that has been agreed upon by the parties. We are facilitators of completion. In all but a very few situations, once the business deal is cut, zealous representation of our client means getting the deal closed.

Certainly it is part of our job to analyze the legal (and sometimes business) risks of the transaction and fully inform our clients as to those risks. Usually coming in the form of due diligence or deal structuring, that is all part of coming to agreement on the terms of the business deal. But particularly in the context of financing transactions, in most situations, the business deal itself is pretty close to final before lawyers are engaged. As a general matter, zealous representation of a financing transaction client (either as lender’s counsel or as borrower’s counsel) should result in the lawyers working together as a team to paper the clients’ business deal in the most timely and cost effective manner possible.

But, more often than not, the “bring in the lawyers” moment is met with trepidation and anxiety, and negotiations between the lawyers often devolve into a prizefight between two heavyweights that always seems to go the distance, and on balance, always seems to end in a draw.

So, what goes wrong?

Sometimes legal due diligence uncovers facts unknown to the lender when the deal was made. Sometimes the lender’s approval process adds a requirement of closing. Sometimes the deal that was struck does not satisfy applicable regulatory requirements and needs to be modified. Sometimes the term sheet is ambiguous or silent on material provisions. These are “hiccups” in the process.

Generally, business people don’t come to an agreement with an eye toward re-trading the deal later. When re-trading happens, the deal usually crashes and burns. There are also some instances where one lawyer or the other is truly an obstruction to closing the deal—the lawyer has become the hiccup. As a business person, if you see your lawyer becoming the hiccup, stop them and have the conversation about facilitating, as opposed to obstructing, the closing. If that doesn’t work, its probably time for a new lawyer.

If it turns out, after detached consideration, that the hiccup is of the often unavoidable and unintentional variety, lawyers need to keep thinking in terms of facilitating the transaction, and the parties need

to start thinking in terms of resolution. In the emotional and financial heat of the transaction, it is the detached consideration that is both most necessary and most difficult. If need be, everyone should step away from the transaction for a day or two.

For the lawyer’s part, he or she should communicate to the other that the hiccup has occurred, and that it is recognized to be unavoidable and unintentional. From there, the lawyers can identify the legal issues for their clients, discuss the legal impacts and figure out how the legal side of the deal needs to change in order for it to work. At that point, it is up to the business people to work out their business resolution to the hiccup. In my experience, that most often means that the deal will move forward with some revisions, but in some cases, it means the deal dies. In either event, the lawyer has been a facilitator of the business deal by either getting the deal done, or having otherwise helped the parties to identify that there was never really a deal to begin with.

 

Christopher J. Fisher is partner at Bryan Cave LLP.
P | 816.374.3283   
E | cjfisher@bryancave.com