PE: What the client wants

PE is an area of practice that presents challenges for all concerned – all of which ALB’s in-depth survey of PE professionals across the region suggests are being pushed onto the shoulders of external legal advisors. More in-house lawyers are looking to their external lawyers to provide ‘value added service’ that transcends the usual concerns: ‘being close to the business’; ‘being commercially savvy’ and ‘being cost-effective.’ In-house lawyers view them more as prerequisites rather than as part of any ‘optional extras’ that external lawyers provide.

“A firm that can establish long-term relationships with us – ones based on give and take – and be as flexible when deals go through as when they go bust, will get repeat work,” said the Asia general counsel at a United Kingdom-based investment house. Surprisingly, a majority of ALB’s survey respondents (60%) say they were not likely to push their external lawyers to migrate to fixed-fee arrangements.

Respondents indicated that when it comes to legal work on PE and VC deals, in-house lawyers are less likely to sacrifice the quality and attention to detail that can sometimes come from slashing budgets for external legal spend. “In relation to the actual work, in this area more so than in others, I don’t mind having a team of lawyers at a firm performing exhaustive due diligence on a target,” said an in-house lawyer at a Singapore-based PE fund.

“We know this sort of thing doesn’t come cheap so I really don’t mind having to justify bills in the hundreds of thousands for this, provided I’m convinced 100% that the work is sound and comprehensive… the culture here is that we see legal spend of this sort as a vital operational cost.”

What private equity professionals are less willing to shift ground on is the assertion that their external legal advisors should bring more than just their legal expertise to the table. “I want judgment calls,” said one hedge fund lawyer. “What I need is someone who can weigh importance in negotiation and prioritise things. I want risks assessed and explained in real-world contexts, not in some abstract sense. Essentially the ideal external lawyer is someone who can leverage their legal and industry knowledge in equal measure.”

“It is important that we have someone who can join the dots,” said the head of legal at a Korean investment bank. “The deal timeline is usually cut fine in a PE deal – and a company-based approach rather than ‘deal-hopping’ is the key. How does this particular transaction, and say our compliance requirements under it, line up with the deal we have going in this part of the world or another? These are the sort of answers we need… outlined for us succinctly – not buried in two lines in a 20 page advice – what the compromise issues are and what the dealbreakers are.”

Taking an approach that recognises the increasingly diverse nature of PE clients and the multifarious needs that they each have is just as important. “The domestic investors have their own style of doing business,” said one respondent. “Generally, they are not as concerned with exit routes and corporate governance as foreign investors, usually because they feel a greater sense of control than minority foreign PE investors. Where they do feel less comfortable is when they are dealing with foreign sources of financing, foreign debt providers, co-financiers … here they definitely need more ‘hand-holding’ especially on how to structure a winning deal.”

As it appears from the results of our survey, the boutique and specialist players are perhaps fighting above their weight in this regard. “International law firms will always be used – they have the depth of resources that you need in private equity, but the smaller guys add value that others can’t,” one respondent continued. “If you are looking for a pure PE lawyer, not a lawyer who does M&A Monday-through-Wednesday and PE on Thursday and Fridays, you will likely find them in a smaller firm and not international law firms.”

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