October 28, 2020
M&A Agreements: Who Holds the Pen?
Bloomberg Law recently surveyed deal lawyers to find out who takes the lead on drafting deal documents in M&A transactions. The results aren’t necessarily surprising, but there are some interesting observations that suggest that a significant percentage of in-house lawyers aren’t completely satisfied with how drafting responsibilities are divided. I’ll get to that in a minute, but first, this excerpt breaks down which parties typically hold the pen:
For principal transaction documents (e.g., merger agreements, stock purchase agreements, asset purchase agreements, etc.), 62% of respondents reported that law firm buyers’ counsel typically held the pen; 30% reported that law-firm sellers’ counsel typically held the pen; and only 5% reported that buyers’ in-house counsel typically held the pen. These results are consistent with the notion that the buyer wants to control the process in a negotiated sale.
Similarly, for ancillary agreements (e.g., license agreements, intellectual property transfer agreements, labor and employment agreements, and so forth), the breakdown was 67% for law firm buyers’ counsel; 21% for law firms’ sellers’ counsel; and 7% buyers’ in-house counsel. Due diligence request lists and checklists received similar responses, with 65% of respondents reporting that buyer-side law firm counsel held the pen. And the document category with the most respondents reporting that buyer-side law firm counsel held the pen was closing checklists: More than three-quarters (77%) of respondents gave this response, likely reflecting buyers’ need to ensure that the final steps of the purchase run smoothly.
Buy-side in-house counsel were tasked with drafting agreements relating to post-closing integration just under one-third (29%) of the time; with drafting term sheets 23% of the time, and with due diligence request lists and checklists 16% of the time. In addition, 13% of respondents reported that integration was not typically part of the deals they worked on.
Like I said, you’re probably not too surprised about how this survey came out. The survey seems to suggest that most in-house counsel are generally happy with this allocation of responsibilities. After all, one of the big reasons companies hire an outside law firm for M&A is for its experience in drafting and negotiating acquisition agreements.
But one thing that came as a bit of a surprise to me is that more than 1/3rd of in-house lawyers said that they would prefer to do more or all of principal transaction document drafting. The Bloomberg Law article suggests that in some cases, in-house departments simply may have too much on their plate to handle the drafting they’d like to do. But it also suggests many in-house departments have plenty of internal drafting capabilities, but that handing law firms a lead role in drafting may be the price they pay for getting them to provide the external deal support that they need.
If that’s so, then a willingness to accommodate that desire present a real client development opportunity for a law firm with M&A capabilities and enough humility to accept a less front and center role in the drafting process.
– John Jenkins