By Bryan Shaw, Corporate Partner, specialising in private equity at Fox Williams
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Imagine this? You have spent months, perhaps even years, searching for the right acquisition opportunity. After countless conversations, dead ends and due diligence exercises, you finally find the business. The Letter of Intent is signed, momentum is building, and everyone is focused on getting the deal over the line as quickly as possible.
Ask your investor for law firm recommendations?
The next step is to appoint solicitors. Naturally, you turn to your investors for recommendations. Rather than simply suggesting firms they know and trust, however, the lead investor proposes something that appears both practical and cost-effective: using the same law firm to advise both the investors and you as the Searcher.
At first glance, the suggestion can seem entirely sensible. Sharing advisers may appear to reduce duplication of work, streamline negotiations and save legal costs at a stage where budgets are already under pressure. Given that both parties are ostensibly working towards the same outcome (i.e. completing the acquisition successfully) the arrangement can feel collaborative and efficient.
Warning Signs – conflicts of interest
But while the interests of Searchers and investors are aligned in broad commercial terms, they are rarely identical. In practice, the relationship is more nuanced, and the legal issues that arise during a transaction often expose fundamental differences in priorities.
Investors are principally focused on protecting their capital, managing downside risk and securing strong governance rights. Searchers, by contrast, are not only acquiring a business, they are also committing themselves to becoming the future operator, leader and long-term steward of that company. Their concerns therefore extend beyond financial returns and into issues of autonomy, operational flexibility, incentive alignment and long-term personal upside.
Many of the most heavily negotiated aspects of a search deal involve areas where the interests of investors and Searchers may diverge significantly. Equity allocation, vesting structures, ratchets, leaver provisions, investor consent rights, board composition, drag and tag provisions, exit timelines and future dilution protections can all become points of tension. Terms that provide investors with greater control or enhanced downside protection may simultaneously reduce the Searcher’s flexibility or economic upside.
What happens if your law firm is conflicted?
A solicitor acting for both sides faces an inherently difficult position. A law firm cannot provide fully independent advice to two clients whose interests may conflict, particularly when negotiations become more sensitive or adversarial. Even where everyone enters the relationship with goodwill and the best of intentions, the solicitor’s ability to advise each party robustly and independently can quickly become constrained.
There is also a significant practical risk that is often overlooked at the outset. If a conflict of interest emerges that cannot be appropriately managed, the law firm may be professionally obliged to stop acting for one or even both parties entirely. If that occurs midway through a transaction, the consequences can be disruptive and expensive. New solicitors may need to be instructed at short notice, negotiations can stall, costs can escalate and valuable momentum may be lost at a critical stage of the deal process.
For Searchers in particular, this risk should not be underestimated. Transactions are often highly time-sensitive, and any interruption can place pressure not only on the deal timetable but also on relationships with sellers, lenders and investors.
Independence is key
Independent legal advice helps avoid these issues. Having your own solicitor ensures that your interests are represented clearly and without compromise throughout the transaction. It gives you the opportunity to understand fully the commercial and legal implications of the documents you are signing, to negotiate terms from an informed position and to receive advice tailored specifically to your role as both an incoming shareholder and future operator of the business.
Just as importantly, separate legal representation can contribute to a healthier long-term relationship between Searchers and investors. Clear delineation of roles and independent advice on both sides often leads to greater transparency, fewer misunderstandings and more balanced negotiations. In many cases, it can actually reduce friction rather than create it.
None of this is to suggest that investors who recommend shared counsel are acting improperly. In many instances, the proposal is made in good faith and with a genuine desire to reduce costs and complexity. However, what appears efficient in the short term can create complications later, particularly once negotiations become more detailed and the parties’ interests begin to diverge.
For Searchers navigating the already complex process of acquiring a business, appointing independent legal advisers is therefore not simply a defensive measure – it is an important investment in protecting your position and establishing a strong foundation for the partnership ahead.
Sharing solicitors may offer short-term convenience, but when the stakes involve your equity, your governance rights and ultimately your future role in the business, independent advice is rarely a luxury. More often, it is essential.
