Legal Specialization & the Myth of General Practice

I’ve recently had the extreme displeasure of doing purchase and sale of business transactions (the selling or buying of shares or assets) with non-business lawyers acting on the other side. I’m talking about lawyers who are general practitioners, though most of them seem to do litigation and real estate, mainly, and unfortunately for all involved, they dabble in corporate and commercial law when it comes in the door. Some even do family law in between forays into business law.

I find it an ongoing challenge to stay current and sharp in the corporate/commercial area of law. I take courses, buy CLE materials and learn best practices from some of the best Bay St. law firms when I do deals with them. I’ve been doing these deals for 33 years now.  When I was just a cub lawyer of a few years out, I was invited to teach part of the Acquisitions module at the Calgary Bar Admissions Course. So, I like to think I know what the hell I’m doing in this area.  I don’t dabble in real estate, litigation, criminal or family law.  I’m a business lawyer.  That’s all I do, I don’t dabble in other areas.

The general practitioner lawyers I’ve encountered recently seem to be oblivious to the need for specialized expertise that is needed to handle business deals in this quickly changing world.

I’ve seen this trend before in my practice history: when the economy goes into recession, the bigger deals dry up because the banks and private lenders have retrenched, leaving only small, self-funding deals.  GPs, often in towns outside of the GTA, don’t turn down any work that comes in the door, even if they have a preference or expertise for certain areas of law.

Small deals are a challenge at the best of time: the clients on both sides are usually inexperienced, never having done such a major deal before. There is a steep learning curve, as entrepreneurs typically second-guess the advice of counsel on even basic issues, like the scope of due diligence. They don’t know how to do a deal as a purchaser or as a seller, and being entrepreneurs, they learn by doing things themselves, not by reading or listening to others.  So, they rarely accept advice without question.

Legal and business issues are often discussed at great length, thereby running up more time and effort.  I also find that the architects of the smaller deals tend to build in a lot of needless complexity that makes drafting and interpretation difficult – hey, I like interesting work, but legal fees are limited on small deals, so there’s a practical limit on the time you can spend on novel and complex earn-out provisions or net worth calculations.  In any purchase and sale of a business, there are always plenty of pithy business and legal issues to resolve, without the added burden of creative, untried features.

I call a deal less than say $500,000 a “small” deal; larger deals tend to attract more accounting, tax, business and legal expertise and experience. The lawyers involved tend to be specialists who do this kind of legal work day-in, day-out, on either side of deals, with and without deal financing.

When I do a deal with a lawyer on the other side who is a litigator or real estate lawyer, I find that such lawyer will bring forward silly or obnoxious positions instead of saying to the client, “That’s not the way this is done” or “I recommend that we not adopt that position because it is so unreasonable – it will cost a lot of time and fees to argue about, and you will lose the argument at the end of the day” – litigators are too tolerant of outrageous claims by clients that take a long time to dispel in the court process, meanwhile – after all, litigators make more money arguing ridiculous positions until the client is squeezed for fees and energy.

Experienced, reasonable business lawyers will advise their client on what kind of positions will be workable, and warn them that extreme or silly positions will cost a great deal of time and fees.  That’s not to say that I shy away from hard bargaining or getting unique deals done – indeed, I have a reputation for getting tough deals done.  But there are limits, especially when the client has limited tolerance for legal fees.

I’ll give an example, with details changed for confidentiality. A recent vendor sold his business and became the buyer’s landlord of the existing premises under a long-term lease. I acted for the buyer.  Vendor insisted that my client display the Vendor’s collection of antique widgets that were not related to the actual business in the main area of the premises for the whole term of the lease. Vendor was adamant on this point: we were told at one point it was a “deal-breaker”, which was a ludicrous position. We got the requirement down to two years, then one year, then finally six months was adopted in the main deal agreement.  This requirement was stupid, because it did nothing for the ongoing business, inconvenienced the buyer, reduced his usable space, made him responsible for something unrelated to his business, and created animosity.  On the closing date, vendor actually called my client and said “Never mind about my collection of antique widgets, I’ll come later and box them up”.  That was after we wasted a couple thousand bucks negotiating this issue! I think vendor’s lawyer should have told him strongly to abandon this position at the start, in which case both parties would have saved thousands of dollars of legal fees and closed earlier.

When I do deals with the top-notch Bay St. or other specialized business law firms, everything goes much more smoothly and my time is minimized because we don’t argue about everything, or about nonsensical positions.  They know the pros and cons of every potential issue, and the paperwork is of high quality, not from a dusty shelf.  These deals remind me why I chose to be a business lawyer, focusing on transactions.  The work is intense, fast-paced, challenging, and above all, constructive.  The parties and their counsel are usually on very congenial terms: indeed, I’ve received referrals from firms that acted for the other side of a recent transaction that I was doing.  It’s a pleasure doing deals in an atmosphere of mutual professional respect and expertise.

The point of this rant is to encourage entrepreneurs to hire a lawyer who actually knows what the hell he/she is doing when there is a proposed sale/purchase of shares or assets of a business.  That means hiring someone whose main practice focus is business law – NOT litigation, family or real estate.  The business and legal world is changing too quickly for GP’s to keep up.  They end up wasting time, running up more in fees for all involved, and at the end of the deal, everyone is mad at each other.  It doesn’t have to be this way!