No one has commented publicly on my post about suboptimal drafting in the contract for Jeff Bezos’s acquisition of the Washington Post (here). That comes as no surprise: I’ve learned that M&A practitioners are reluctant to stick their neck out.
But I did receive one comment privately:
Digital delivery of movies to theaters is way more efficient and cost effective than film delivery. Yet it took a long time to implement because the cost of retrofitting theaters fell on the owner of the theater, but the benefits accrued to the studios. Eventually they sorted it out, but that is a relatively closed business—the parties bearing the cost and reaping the benefit dealt with each other over and over. In M&A contract land, it’s generally a one shot deal, and the probability of the imperfectly drafted contract harming you is small (although the magnitude of the harm can be great), but the cost (not just in money, but in time to signing (always an imperative) and risk of pissing off the other side) can be large. Therefore, even enlightened people just tinker around the edges.
I think that’s a good analogy. In the case of M&A drafting, clients are in the position of the studios and law firms are in the position of the theaters. But the analogy isn’t perfect: studios were keen to deliver movies digitally, whereas I haven’t heard much about clients agitating for a more efficient M&A process.
I agree that it’s not realistic to expect law firms to take the initiative to make the process of drafting contracts more efficient. In addition to the “one shot deal” factor that my commenter mentions, you also have the fact that the billable hour rewards inefficiency. And don’t underestimate ego as a reason why some law-firm partners might be reluctant to accept that anything is amiss.
Who might agitate for change? You can’t expect bar associations to assume that role. If individual law firms can’t countenance change, you can’t expect that when M&A lawyers get together they’ll somehow acquire an appetite for shaking things up. Furthermore, bar associations rely on volunteers, and putting M&A drafting on a rational footing won’t happen without funding and some full-time staffing.
That’s why any change would have to be driven by clients. It would require little in the way of resources: a document-assembly system; a small team to work on the content; and an editorial board to provide big-picture input. Such an initiative would have to be overseen by an organization analogous to the National Venture Capital Association.
I’m not claiming that such an initiative would have a dramatic impact. But it would sure save, in the aggregate, a vast amount of drafting and negotiating time, allowing clients to save money and get deals done more quickly.
This is not a new idea. I wrote about it in 2011, in this post and this post. And in this 2007 article, two Jones Day lawyers, Robert Profusek and Lyle Ganske, showed commendable gumption in acknowledging that something’s amiss with deal documentation.
Do I expect something to happen? No. But I’m willing to keep pointing out that which seems obvious.
2 thoughts on “It’s Time for a New M&A Trade Group”
I’m a younger lawyer with a taste for good contract drafting and a budding interest in the M&A scene. I know it’s been six months and nobody has publicly commented on this topic, but have you had any more private expressions of interest? I’d love to find, or found, a shop with little enough inappropriate ego to really give this a go.
Ben: I’m afraid that no one in M&A has suggested that there’s any interest in the sort of initiative I describe. Although the M&A bar pays lip service to quality and efficiency, expediency is the driving force. Ken