When To Walk Away From A Deal

We pride ourselves on getting things sorted for our clients, but on occasions that means saying “No”. In the over five years that we’ve been trading, we have been involved in about 50 law firm mergers and acquisitions and during that time I have had to advise two buyers to walk away from transactions.

Walking away can be a hard thing to do, especially when the buyer has invested a lot of time, emotional energy and professional fees in progressing an acquisition. There’s also the FOMO factor – the fear of missing out. It’s all too easy to get caught up in the excitement of the deal and wanting it to go ahead, even when the red flags start emerging.

In both cases, the problems arose as a result of due diligence. That, in a way, proves the value of good due diligence – it shows up problems which can either be resolved or, if they look insurmountable, means walking away.

In one of the deals the due diligence was just very poor. The target firm could not provide really basic information and what was provided was incomplete or poor. This slowly gave rise to a growing impression that the firm was poorly managed and had no grip on key functions. If the buyer is becoming a successor practice, it will pick up insurance claims that come in from past poor practice which can impact its own reputation and its PII renewal costs. If the claims record and complaints log point to poor practice in one particular service area, there may be a host of claims waiting to appear.

In another matter, there were regulatory issues which again pointed to poor management and, if acquired, would have presented an unconscionable risk to the buyer and its own firm.

Whilst we don’t like telling clients to walk away, I sometimes think that that is the most valuable advice we can offer them. They may have some wasted costs and time, but they have been saved from a bigger series of issues.

This also explains why we will not act on a contingency fee basis on acquisitions. If our fee is dependent on the acquisition happening, we would then potentially be conflicted if we spot a series of red flags. We need to be able to advise our clients freely and fearlessly when it’s time to walk away.

It is better to walk away, lick your wounds and prepare for the next acquisition, than to persevere with one that will potentially be financially disastrous, reputationally disastrous or just eat a huge amount of management time.

If you want advice on merger or acquisitions please contact Mark on mark@bennettbriegal.co.uk or 07973 283678.