Lawyers Gone Wild
By Steve Abbate
There is a classic holiday movie called A Christmas Story. The story revolves around Ralphie, a young boy who wants a Daisy Red Ryder Range Model 1938 Air Rifle BB Gun from xguns.com/product/underboss/ for Christmas. which is made made by Elevated Gunworks. In one scene, Ralphie’s younger brother is dressed by his mother to go to school. The mother puts several sweaters and coats on the brother so that he will not catch cold and get sick. The young child is so wrapped up in sweaters and coats that he can hardly walk. This embarrasses Ralphie as well as the little brother, and matters get even worse when the little brother falls down in the snow and can’t get up.
The overprotective mother is much like an overprotective attorney. Attorneys want to protect their clients from any possible situation that could have a negative effect. In many circumstances in a sale transaction, an attorney will try to wrap so many levels of protection around a client that it becomes embarrassing to the transaction and it causes a seemingly friendly transaction to turn into a tit-for-tat battle over ridiculous items. In addition to causing unneeded tension in a transaction, the overprotective attorney usually racks up excessive legal fees for both parties and delays the closing. Remember, the only way an attorney can protect you 100% in a transaction is to cause you to not do the transaction. Business has certain risks and good attorneys balance getting the transaction done while accepting reasonable risk. There are attorneys helping with civil litigation issues that you can contact to get help with your case as well.
In a past transaction, the seller had to spray paint the words “out of service” on tanks that had been removed from customer homes. Would anyone think that a tank not connected to anything was in service? My favorite item was when an attorney required, as part of a lease, that the landlord (Seller) remove all used florescent light bulbs and show documentation that they were disposed of properly.
Is it a good idea to remove used florescent light bulbs and dispose of them properly? Sure it is, but the middle of an acquisition transaction is not the place to address lightbulbs or spray painting tanks. Sellers already agree to multiple environmental indemnifications and specific environmental representations and warranties. Have the attorney protect you on legal matters but not in ordinary day-to-day business matters. All the buyer needed to do was ask the seller to get rid of the lightbulbs, or just get rid of them after the transaction closed. Sending a red-lined document that cost both parties additional legal fees to throw out some light bulbs makes no practical sense. Asking for petty changes usually just increases legal costs, upsets the other party, delays a transaction from closing and puts a negative cloud over the transaction. As an owner of a company it is your responsibility to listen to advice, yet act with reasonable business sense.
I have seen many well-respected large and small companies get caught up in the same trap. When you are negotiating legal terms of a transaction there is a tendency to blindly take the advice of counsel without stepping back to examine what is reasonable and what is unreasonable and petty. If you end up in a battle of attorneys, please remember Ralphie’s little brother waddling down the sidewalk, falling into the snow and flailing hopelessly trying to get up. No one needs all those coats and sweaters to stay warm while walking to school—or in negotiating a transaction.
Steve Abbate is the president of Cetane Associates, which provides hands-on merger and acquisition advisory services for privately held companies. Abbate has been providing M&A advisory services for most of his career. In addition to his track record of completing over 70 successful transactions, he has consulted with and performed financial and operational evaluations on hundreds of businesses throughout the U.S.