Ever since the CEE market opened for private practice CEE lawyers have sought to work on international mandates in collaboration with international lead counsels. Apart from the obvious (we take an oath to serve justice, but it is no secret that we also in fact work for money), the benefits of this cooperation also include the opportunity to draw on the international counsel’s expertise, particularly in transactional work. Such cooperation has greatly influenced the work of local counsel. Those who seized the opportunity had a steep learning curve and developed their practices to a level that is generally referred to, mostly in lawyers’ own pitches, as reaching an “international standard.”
It is thus only natural that transactions of a particular importance and/or significant value, which an international client in earlier years would have engaged international counsel to lead, can now be handled independently by local counsel. And, where the parties on both sides of the table and their respective counsels have a comparable level of expertise in transactional work – they “speak the same language” – both the workflow and communication are smooth, and the exchanged drafts (as to structure, wording, and provisions) are generally based on internationally established standards and easily comprehensible to all sides.
However, a fair portion of the transactions happening across CEE do not take place among experienced international players. As our markets are characterized primarily by inbound investment, many deals involve international investors acquiring local businesses. The sell-side impatiently looks forward to finalizing the transaction but tends to underestimate the scope of and the timing of the transaction process. Local businesses and their owners may have achieved tremendous success and impressive results. However, for many of them the sale of their business or the taking on of a joint venture partner would be the first (and likely only ever) transactional experience. At the outset, they often do not anticipate the volume of work and the time required on their side to prepare for the due diligence process, nor do they expect that a share purchase, joint venture, or shareholders’ agreement created “according to international standards” would go beyond the type and scope of agreements they have processed in the past. Despite being new to the process, a vast number of local businesses still do not recognize the benefit of and are not willing to spend on hiring external counsel with relevant expertise.
As a result, we have repeatedly seen CEE sellers entering into a transaction supported only by their or target’s in-house counsel. Such lawyers have, no doubt, greater knowledge about the specifics of the operational business than any transactional lawyer may gain during the process – which is why they remain a valuable source of support throughout the process. However, not having gone through such a transaction before, in-house counsel are often overwhelmed by the type of and scope of transactional documentation they are expected to comment on and negotiate regarding, within (what else?) the shortest time period.
Even those local sellers who do recognize the benefit of external advice often tend to hire lawyers they know personally and thus trust, regardless whether such trust-worthy lawyers have the necessary background (and, as is often required, foreign language capability) to efficiently advise through the process. To avoid misunderstandings, no lawyer’s qualification is being underestimated here. But a sound litigation lawyer can be as misplaced in an M&A process as a top M&A lawyer is having to plead before court.
It is situations like this, CEE counsels who have trained for years to deliver transactional work at “international standards,” however defined, may misjudge the reality in their own markets. Work product that is considered standard in M&A can easily be perceived by the local counterparty as hostile, particularly in the absence of specialized counsel of its own. Standard due diligence request lists are often considered “far too broad” and to put a “disproportionate burden” on the sell-side. A standard-draft SPA, with structure and contents that are usual in M&A processes, may be considered “unacceptable” and “overkill.”
Sensitive CEE transactional lawyers should thus not lose sight of the markets in which they operate and should be able to make a reasonable advance judgement of the deal set-up. It may be less challenging to work on a complex deal with experienced international parties than on a mid-size transaction in which counsel has to balance between meeting international client expectations by delivering at “best international standards” and addressing in a properly comprehensive manner the needs of a potentially less-experienced local counterparty. This balancing act is not taught at law school. It is a skill specifically helpful, as I tend to believe, when practicing in CEE. A skill that a successful CEE transactional lawyer should develop and employ in this exciting job.
By Alexandra Doytchinova, Managing Partner, Schoenherr Sofia
This Article was originally published in Issue 5.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.