by Barrie Pearson - Wednesday, 29th August 2007

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Your solicitors may have done a fantastic job handling your divorce. They may have got you out of the hole dug by your wayward adolescent children.

You have every reason to be grateful, but don't show your gratitude by letting them handle the legal work involved in selling your company unless they have demonstrably relevant experience.

Most of you will accept this. If you need convincing, though, try comparing your solicitor against two that I have selected. Then you'll see the difference for yourself.

Personal friendships and family loyalties can be just as lethal. The owner of a packaging company absolutely insisted on using a family friend to handle the legal work on the sale of his business. He flatly rejected a beauty parade.

The acquirer, on the other hand, was a FTSE-100 company and was using one of the major City law firms.

The solicitor simply did not have the experience to differentiate between the standard clauses, the broadly reasonable ones and the definite "try-ons" in the share purchase and sale agreement. Consequently, he challenged and argued every point aggressively.

The deal structure included an earn-out, which was entirely appropriate. Unfortunately, the solicitor was unfamiliar with them and his response was to advise the vendor to reject it out of hand.

Fortunately, our director involved in this transaction had previously worked as a solicitor. He had already made it quite clear that the client's choice of solicitor was the wrong one but the client had been adamant.

On this occasion not only did Goliath beat David but the vendor's solicitor became so aggressive and obstructive that the acquirer's solicitors were almost at the point of refusing to talk to him. This could well have wrecked the whole deal but my colleague was able to act as a buffer between the two sets of solicitors.

Selling a business to a management team or a venture capitalist is even more complicated from a legal standpoint.

In fact, I would insist that unless a solicitor has relevant management buy-out experience he should be rejected as unsuitable. Reason usually prevails in these instances; I have never had to face losing a fee by walking away from a deal.

Every client wants to appoint a solicitor who will be a guardian angel and who will work to an agreed budget rather than be given a blank cheque. So how do you find a guardian angel at an affordable price?

Pick horses for courses. Forget the London office of a major international law firm to act in the sale or acquisition of the typical private business.

You may meet a partner initially, but the work will almost certainly be done by a less experienced solicitor and you will be charged a City price. T

he reason is simple: as a vendor you will be seen as a one-off client, with virtually no likelihood of producing repeat business. Even as a private company making acquisitions, you are unlikely to be seen as a valuable client in the foreseeable future.

I recommend choosing a medium-sized commercial law firm - not necessarily based in London as most cities and large towns will have at least one suitable firm - with a partner who will undertake to be present at every meeting.

Ensure that the partner has recent experience of the size, nature and complexity of your transaction. Ask for a budgetary estimate to be put into writing. Before making your choice, meet at least two, and preferably three, firms.

The meeting should give you an idea of whether the chemistry and the rapport will be there. It will also give you an idea of the firm's commercial approach.

But test them in other ways. Outline the intended deal structure and ask them what amendments they would recommend and the pitfalls they would bring to your attention.

If the deal includes an earn-out, seek their advice on the protection that you should seek in the share purchase and sale agreement.

Find out about their approach to the contents of the disclosure letter. This provides important protection to the vendors and can undermine the warranties and indemnities included by the purchase in the legal agreement.

When you have made your mind up, ask for the telephone numbers of two or three recent clients for whom they have acted. Make sure you do telephone them before confirming your decision.

Barrie Pearson's sane advice was first published in September 1997.

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