How Legally Informed Strategy Adds Value To Business Transactions

Legally Informed Strategy improves business transactions

How does Legally Informed Strategy add value to business transactions?  I have previously argued that this is one way to break down the insidious barriers between business and legal silos.

Another part of the answer turns on an attorney's role in a business transaction.  In a typical business transaction, an attorney advises on the legal structure of the deal (e.g., what type of merger or acquisition should occur).  The attorney negotiates deal terms primarily from the perspective of reducing legal risk and minimizing transaction costs of the deal.

Moving From Transactions To Legally Informed Strategy

In addition to suggesting the legal structure for a transaction, an advisor who intimately understands the client's business, market space, and competitive dynamics can add Legally Informed Strategy.  Legally Informed Strategy goes beyond the structure of the transaction to how the transaction connects with strategy and management objectives.  Legally Informed Strategy ensures that legal moves are integrated with business goals.

The approach requires knowledge of the value chain, the competitive environment, and the company's strategy and business model. By incorporating these elements into the advice, Legally Informed Strategy works to ensure that the structure of the transaction not only protects the client's interests against downside risk, but also advances the client's business objectives. This approach optimizes business and legal risk by putting a greater emphasis on business goals than traditional legal thought. The result? The company can create more value from a transaction and capture more of that value.  The emphasis is on how the advice implicates strategy.

Legally Informed Strategy provides clients with added value by advancing strategic objectives. In today's economic environment, every business is looking for added value. Added value provides clients with more value than merely discounting fees. Discounting fees is addition by subtraction. Some firms are even increasing fees while not adding any value. Clients are pushing back against higher fees without receiving greater benefits in return.

Legally Informed Strategy in Action: Mergers and Acquisitions

When a company merges with or acquires another company, the purpose of the deal is to create and capture value from the transaction. Three phases characterize the transaction: due diligence, the transaction, and post-deal integration. The transaction itself involves a host of legal issues, for instance, minimizing tax liability, allocating rights and responsibilities, and transferring intellectual property licenses and other agreements.

The deal structure must consider business issues in addition to legal issues. Leaders must deal with business risk after the transaction closes. For example, if intellectual property is a prominent part of the transaction, the questions might include:

  • Are there barriers to transferring the intellectual property that the buyer cares most about?
  • How will the acquirer incorporate the company's intellectual property into its existing R&D and product development efforts?
  • How will the companies reconcile different approaches to R&D and innovation?

Where intellectual property is not a driving force behind the deal, the parties must consider issues like:

  • How will the buyer and seller integrate their sales forces?
  • How will the buyer and seller handle differences in organizational culture and incentive structures?
  • How will the top management teams be merged?

Answers to these questions should influence the organizational structure and control aspects of the united entity. Some of these issues may fall within the scope of the merger agreement, but not all will. Even where they do, contractual mandates will often fail to capture organizational nuances and realities.  Knowledge of the acquirer's organizational and management structure is needed to answer the questions. The buyer's existing business model will also have a large influence on the answers. With its focus on core business issues, Legally Informed Strategy can add value to business transactions.

What are other ways that this approach can increase the value of your deals?

Douglas Y. Park
Twitter: @DougYPark

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