11 May 2017

Law firms found lacking in M&A department

Law firms need to shape up for M&A clients

Clients say law firms are not delivering value for mergers and acquisitions deals with cost and inefficiciencies cited as reasons why external advisers fail to deliver.

However, it is not entirely the fault of law firms as companies are also to blame - even serial acquirers lack a standardised approach to M&A.  These failings are primarily due to the de-prioritisation of deal integration and due diligence analysis, according to research from Axiom.  In-house lawyers understand these pre-and post-deal pitfalls and are eager to affect change, but do not feel empowered to do so. Instead, they feel confined to due diligence box-ticking exercises, which add limited value to deal outcome, according to the research - The Deal Machine: M&A 2017.

Lack of integration

Legal departments cite lack of integration as the number one reason deals fail (according to 58 per cent of respondents), while also acknowledging that they are providing inadequate value to downstream teams focusing on integration synergies. In fact, over 85 per cent of the lawyers rank issues related to the quality of due diligence, integration or the misalignment between those processes as the number one or two area where they could do better. Specific to diligence, 79 per cent of respondents feel that input from the due diligence process is not effective in achieving deal synergies during integration, and 78 per cent of respondents believe that M&A value would increase if due diligence were approached more strategically. 

Lack of information

The survey findings revealed two distinct areas hurting deal success: a lack of clear information (cited by 81 per cent of respondents as a major challenge for the legal department within M&A transactions) and an absence of standardisation (cited by 70 per cent). The survey found that even some of the most active deal-making companies do not have a standardized deal playbook and are not leveraging best practices. Among companies that do more than two deals per year, almost 60 per cent  feel their processes are inadequate, despite recognition of the critical role standardisation plays in M&A. 

Technology and data

The respondents said that technology and data are under-utilised M&A resources, even though in-house teams have clear ideas about how tech should be used. Twenty-two percent of lawyers cite achieving enterprise targets through data alignment/output as their number one technology priority. (The number from organizations doing 10+ deals a year is even higher, at 80 per cent). This was closely followed by technology capable of analyzing key contract data, cited by 21 per cent of respondents. 

Capacity and expertise

More than technology, however, respondents cite a significant need for capacity and expertise. The Deal Machine discovered that some 64 per cent of respondents feel they do not have enough people to realise their M&A aspirations, while 61 per cent said they do not have the right quality of people to do so. 

Law firms 'ineffective'

Law firms are considered an ineffective solution to this capacity problem. In citing the reasons law firms fail to deliver value, 68 per cent indicated that they still require a heavy investment from the in-house team. Cost was a noteworthy factor raised by 65 per cent of respondents, as was the firms’ inefficient and manual processes. Source: Axiom Press Release