It is no longer enough to just know the law in the private equity realm, says Stephen Donovan in The Globe and Mail

April 04, 2007

Days after Ottawa's Halloween clampdown on income trusts, a team of Bay Street dealmakers flew to New York to alert a handful of private equity funds to potential Canadian trust takeovers.

Investment bankers pitch deals to ravenous private equity buyers all the time, but this group was unique because they were lawyers.

Canadian firms can no longer be complacent about private equity deals. As traditional Canadian corporate clients fall on the takeover battleground, Canada’s major firms are moving quickly to grab their share of private equity deals.

Some law firms are wooing private equity funds by aggressively promoting deals, while most are starting to share risks by taking fee cuts on unsuccessful takeovers and pocketing fee premiums on deal victories.

A few are so eager to represent the powerful acquirers that a single firm will act for multiple buyers vying for the same target.

The deal frenzy is shifting legal M&A away from long-term relationships to a more transaction-oriented practice that is seeing firms hop in and out of deals with an ever-changing group of buyers and sellers.

Stephen Donovan, co-head of Torys’ Private Equity Group, adds, "It is no longer enough to just know the law. There is a much more deliberate effort to bring deals to clients."

Private equity players may have a lot to spend, but they are very disciplined about how much they are willing to pay for legal advice. It is now common practice for private equity buyers to insist that law firms shave 10% to 20% off hourly fees if a takeover fails.

When a client wins a takeover bid, the payoff can be huge. Some private equity funds will add a 20% premium to legal fees if an acquisition succeeds, or double the fees paid after a successful bid.

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