Template-first, then strategic guidance (if needed) legal support?

September 08, 2024

by a searcher from The University of Chicago - Booth School of Business in Seattle, WA, USA

My business partner and I are under LOI for a $2.5M deal. There is not a bank involved (cash + seller notes). These may be famous last words, but the relationship with the sellers is great and we anticipate few if any requested revisions to the Definitive Purchase Agreement that we propose.

Many of the quotes that we are getting to provide legal support for the Definitive Purchase Agreement seem to reflect either the need to draft an agreement from scratch or they anticipate a lot of back-and-forth and are pricing that in upfront.

In my mind, I would love to work with a lawyer who begins by leaning heavily on off-the-shelf templates that just need to be populated with the relevant data, offering this service in a way that keeps costs low if the deal does indeed stay simple. I am then more than willing to pay a premium for highly qualified advice when/where/if things get complicated.

If our deal turns out to be more complicated than expected, I'm more than willing to pay good money for a great legal advisor. But if it stays simple, I'm not excited to spend a lot for someone to populate a template with out deal data.

Does anyone have any relevant experience, advice, or referrals?

Note that my post focuses on the Definitive Purchase Agreement, but the sentiment applies to other aspects of legal diligence / transaction support.

Thanks!

Reply by a searcher
from The University of Chicago in Seattle, WA, USA

Thanks, everyone, for the great advice!

Here's a summary of some takeaways on our end:

1. Absolutely agree that skimping on legal (or QOE) fees is a bad idea. That's never been the intent. The goals are to (a) ensure that as much of the budget as possible is spent on high vs. low value add work, (b) to avoid overpaying if our deal does turn out to be simple, and (c) to avoid putting an attorney in a position where they are not putting in full effort because a flat fee deal became really complex. To that end ....

2. It's clear that an hourly fee structure is right for us ...

###-###-#### ideally with a flat fee for document preparation ...

###-###-#### working with a lawyer who has direct experience (and related "templates") with the type of deal and industry that we're in.

This all will help us be MUCH more direct and targeted as we continue the process of contracting a lawyer (and other service professionals, e.g. for QOE). And, please rest assured, we will not be going the government contracting route of simply choosing the lawyer with the lowest hourly rate!

Thanks again, everyone!
Kevin

Reply by a professional
from University of Michigan in Detroit, MI, USA

Hi ^redacted‌, one of the main legal cost drivers is the conduct of the seller and the seller's attorney. How hard are they going to negotiate? Unfortunately, that is an unknown. So when you ask a lawyer to give you a cost estimate, they are going to factor in some kind of average based on their experience. We've had $2-3MM deals drag on for months because the other side decides to play hardball on every single point.

That might not be your situation. But it explains why you think the estimates you've received so far are too high. Also, understand that the difference between an hourly and a fixed fee engagement is who bears the risk? With a fixed fee engagement, if things go south, the lawyer takes the pain. With an hourly engagement, vice versa, the searcher pays more.

My firm, Groundswell Advisors, LLP, is solely focused on the ETA market. If you'd like to discuss working together on your deal, feel free to DM me here or reach out directly at redacted Happy to talk through the options and give you another datapoint.

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