Time to trim due diligence

Blame Kraft-Cadbury again. Since that politically controversial deal the Takeover Code has required that bids for UK-listed companies have to include estimates of legal fees on both the buy and sell sides.

And so today in our lead feature we reveal the first full run-down of legal fees per deal since 19 September 2011, when the new regulations came in.

Where does this transparency take us? Well, on one level we can gawk at the fees earned by Linklaters on Glencore. We can squint at the variety of firms that appear in the list and make some suppositions about the shape of their practices. And most of all, we can lament the fact that this list is not retrospective.

More importantly, our research begs a series of fundamental questions that law firm M&A teams will need to answer. What are corporates actually paying for? What do they actually need? How do you balance an appropriate level of quality with client expectations? How do you define quality?

For the biggest issue facing corporate practices now is how to get away from legal advice defined primarily by pagination. Several corporate teams are beginning to wrestle with this issue – not on an abstract basis, but practically.

However, there’s an embedded timidity among firms on this issue. Odd, really, since there’s a consensus that the whole question of due diligence is in need of re-interrogation; what so many firms see as gold-plated service morphs into an unwanted and expensive product that is little more than a data dump. Rather like Ulysses, a due diligence report is something to put on the shelf unread, only a lot more expensive. Instead, M&A advice is crying out for a recalibration of risk that does not simply pile on warranty after warranty or require costly data rooms. The fact that Premier Foods GC Andrew McDonald brought data rooms in-house for his company’s divestment trail speaks volumes about the way clients view this element of legal service.

The questions have been lurking for a while, but in a world of overt disaggregation they are invested with some urgency. The biggest question corporate lawyers need to ask their clients now is: what can you do without? It’s no longer a game of additional services, but of subtraction. Do the maths.