Cross-Border Transactions And The Globalization Of Legal Services

Monday, January 1, 2007 - 01:00
Richard R. Willis

The evolving global marketplace and the speed with which information, people and goods move across the globe continues to change the way businesses deliver services. As companies obtain goods and services from vendors in various countries, integrate them into their own products and services and sell what they produce in the global marketplace, they're seeing their operations expand in ways never imagined.

To meet growing demands, companies are opening multiple offices around the globe and, in many cases, opting to gain a foothold by acquiring local entities or local businesses. As a result, companies need to retain legal counsel with both geographic capability and local substantive expertise. This counsel will need to assist in negotiating and documenting transactions involving parties in multiple countries that typically have varying, and sometimes conflicting, legal, regulatory, and taxation environments.

To overcome challenges associated with cross-border transactions, companies are reconsidering the issues that impact the selection of transaction advisors, including geographic footprint, multiple country capability and expertise in the many substantive legal issues typically inherent in any M&A transaction.

Some law firms with substantive expertise in cross-border transactions have chosen to bypass the "global footprint" approach by developing a series of close and effective working relationships with top-tier local firms in key markets. While these firms may lack multiple international offices, they can deliver seasoned expertise in leading cross-border transactions and managing local counsel. These firms typically have significant cross-border expertise and extensive networks of local counsel with transactional experience in substantially all jurisdictions.

In essence, these law firms serve as a "legal management office" or "LMO," providing project and transaction coordination services that a traditional project management office typically provides in other contexts. These firms focus on understanding the company's legal and business needs and being a single source of accountability for the company. They manage all of the constituent elements required to bring the transaction or project to a successful conclusion. Effectively, these firms are a new genre of M&A boutique practice, dedicated to complex multinational mergers, acquisitions and other corporate projects.

The concept of an LMO is based upon the traditional design of a project management office serving as a hub of centralized management, with the lawyers representing and advising the company both in a traditional legal capacity (a lead counsel role) and in a consulting capacity. The lawyers guide and oversee outside advisors and, to a lesser extent, internal company resources. Traditionally, in-house counsel has assumed primary responsibility for managing outside counsel, and certainly within the LMO model, in-house counsel continues to retain responsibility for "core" management functions. These core functions include, among other things, retention decisions (often based on LMO recommendations) and project budgeting. An LMO, however, facilitates the ability of in-house counsel (who may have limited time and/or limited experience with cross-border transactions) to focus on strategic issues driving the transaction and outsource the day-to-day operational management of the transaction to the LMO.

The benefits of an LMO are better appreciated when the issues that are common to cross-border transactions are considered. Cross-border transactions typically have a higher level of complexity and offer challenges that are not often found in single-jurisdiction transactions. Compounding this complexity is the initial "unknown" as a company enters into a new, foreign market. There is also a heightened level of management scrutiny often occurring in cross-border transactions. Common issues include:

Cultural differences can have a profound impact on the course of cross-border transactions and may influence business negotiations in significant and unexpected ways. From potential local language complications (did they really say what you heard?) and how people view the role of the individual, to the importance of time and relationships, a variety of cultural factors must be taken into consideration. Although style and business practice are becoming more uniform, persisting differences reflect wide diversity of cultural values and social and business customs - from entertaining and gift-giving to attire and non-verbal communication. For example, North Americans usually prefer to maintain at least a foot of separation from people they don't know well, while Latin Americans seem more comfortable standing less than a foot apart, which they view as a sign of trust and friendship. Issues can also arise with different views on the importance of punctuality and the need to meet tight schedules and deadlines. Following appropriate local protocol is an important sign of respect for people and their culture. Advice from people experienced in the local culture is a very effective tool to bridge cultural differences.

From a purely legal perspective, typical issues involve multiple legal and regulatory regimes (some of which may conflict with one another); civil law versus common law issues (which drives decisions around choice of law, dispute resolution and even the form and type of transaction documentation); corporate governance considerations, nuances of local law; lack of commonly established or accepted market conditions or norms; export controls, unique timing requirements (e.g., statutory waiting periods, creditors' rights periods, regulatory filings, notarial peculiarities, and clearance periods); and the need to engage specialist professional advisors (e.g., indirect taxation or VAT experts).

The negotiation process itself can be impacted by cultural differences in the processes that determine a "yes" or "no" response - or that "maybe" really means "no" - and the parties who will be involved in the negotiations (it may not be the person who has decision making authority), and the outside influences (oftentimes political) on the parties that may shape or impact the ultimate outcome of the transaction.

Cross-border transactions may have complex timing requirements that can come into play due to local regulatory or statutory constructs, including required regulatory reviews (e.g., competition/antitrust regulators), the need for "comfort" rulings on unsettled issues and mandatory waiting periods (e.g., creditor notice periods). Reconciling these considerations to cause, for example, a multi-jurisdictional transaction to contemporaneously close in multiple jurisdictions is often a feat in itself.

Given the complexities inherent to cross-border transactions, what then does an LMO offer that cross-border companies may find compelling? The answer is that an LMO offers companies the opportunity of selecting a firm with substantive, cross-border expertise, project management proficiency and access to the "best of breed" counsel needed for a particular business transaction. In this way, a company can engage both a lead negotiator that understands the company's business, and at the same time can retain and rely on services from law firms that are among the best in a particular area.

In addition, an LMO provides a single point of accountability for the performance of local counsel - a point of contact that is both familiar to the company and responsible for interfacing with local counsel to ensure key tasks are completed timely and efficiently. The result is that although a company may have multiple local firms retained in a four-country transaction, the management of those firms is left to the LMO.

The LMO serves the additional function of coordinating not only legal counsel, but all outside advisors and, to the extent the company so desires, internal resources as well. In that regard, to the extent auditors, tax advisors, substantive experts (e.g., environmental consultants, actuaries, or other advisors) are required to effectuate a transaction, the LMO can serve in a coordination role throughout the project and assist the company in ensuring that all of the advisors are working efficiently and in unison towards the project goal.

It is important, however, not to understate the role that the LMO has in negotiating the overall transaction. The LMO does not merely fill a "coordinating" role. Rather, the LMO proactively manages the transaction toward a successful conclusion. The company interfaces with the LMO and they both, in turn, interface with the opposing parties regarding legal document negotiation. Local counsel is then relied upon in a supporting role to provide local legal analysis to ensure that the documentation and positions taken are consistent with the requirements of local law.

Companies engaged in cross-border transactions are increasingly considering the benefits afforded by an LMO. In short, an LMO offers the company, whether large or small, a trusted legal advisor that can add value through its own legal expertise as well as through an experienced network of the "best of breed" firms that can best represent the company's interest in the specific countries involved.

Luis A. Aguilar is a Partner at the Atlanta office of McKenna Long & Aldridge LLP. His broadly-based practice concerns general corporate and business law, international transactions, investment companies and investment advisors, securities law, and corporate finance. He focuses on corporate governance, public and private offerings (IPOs and secondary offerings), mergers and acquisitions, and other aspects of federal and state securities laws and regulations. Mr. Aguilar's previous experience includes serving as General Counsel, Executive Vice President and Corporate Secretary of INVESCO, one of the world's leading independent institutional investment companies with over $380 billion in assets under management in the U.S. and international markets. He also served as INVESCO's Managing Director for Latin America and as a member of its board of directors and management committee. In addition, he is an original member of the Advisory Council of Hemisphere, Inc., an organization established by the Governor of Georgia to position the state as the prime gateway for trade and investment among the countries of the Western Hemisphere. He can be reached at (404) 527-8470. Richard R. Willis is a Partner at the firm's Brussels office, where he focuses on the general corporate representation of both publicly and privately held companies, specializing in mergers and acquisitions and joint ventures and strategic alliances. He has extensive experience with complex international acquisition transactions that are often coupled with long-term strategic relationships among the parties. In this regard, he has served as lead counsel in a variety of acquisitions and/or strategic alliances throughout North America and Europe, including Ireland, Mexico, Norway, Poland, Spain and the United Kingdom. He can be reached at (32) 2 278 12 64.

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