Culture vulture: Brokering deals

Despite a booming economic interest from foreign parties, the threat of a Brexit has the potential to bring deal activity to a halt. David Webster and Douglas McPherson discuss

Whatever your personal view of the current economic and political '¨climate, the UK is an attractive place '¨to do business for overseas companies. 

According to figures from UK Trade & Investment released in June 2015, the UK remained the leading destination for foreign direct investment (FDI) in Europe (increasing its net FDI inflow by more than 50 per cent in 2014, against a global reduction of '¨11 per cent). 

The legal sector benefits particularly from this trend. Of mergers and acquisitions (M&A) deals conducted in the UK across 2013 and 2014, only '¨22 per cent were genuinely domestic; 44 per cent involved an overseas target, and 34 per cent involved an overseas buyer. During that period, the UK and Ireland were also the target for 21 per cent '¨of all European M&A deals – more than any other country or region.

There are numerous factors which contribute to the ability of UK law firms to export their services to overseas clients. These include the relative stability of the political and legal system (including the courts), and the common use worldwide of English law as a means of documenting commercial transactions. 

However, there are other factors which enable lawyers in the UK to get these deals through. Dealing with international clients requires an understanding of the cultural context in which lawyers and clients based in other jurisdictions operate.

Our recent experience is that there has been a particular upturn in interest in the UK from mainland Europe and the US. While neither should represent a complete culture shock to UK lawyers, being able to recognise and deal with differences in approach helps a transaction progress smoothly. Although trying to categorise anyone by reference to their geographic location is inevitably a generalisation rather than a hard and fast rule, there are some differences in legal culture which often arise in transactions, some of which are outlined below.

Transaction structuring

Although the basic contractual model of a '¨sale and purchase agreement will be readily understood on all sides, lawyers and clients from mainland Europe will often have serious concerns about liability arising for representations made during the negotiation/heads of terms stage. Pre-contractual liability is a far more relevant issue in most mainland European jurisdictions than in England. On the other hand, US lawyers are often uncomfortable with relatively standard fixtures of English transactions, such as general disclosures in a disclosure letter. 

Approach to negotiation

US lawyers are often concerned about setting '¨out as much as possible in writing, and covering '¨off all issues comprehensively in contractual documentation. This approach is partially motivated by the more realistic prospect of litigation arising '¨in the US.

The approach for those lawyers from mainland Europe is one more generally concerned with relatively straightforward documentation of the key points of a commercial agreement – they may be happier with a relatively short form transaction document, shorn of a lot of ‘standard’ provisions which English lawyers would expect to see. 

Nature of advisers

US law firms generally tend to be bigger '¨than their European counterparts, with the marketplace in the US dominated by larger firms operating deals teams populated by various different specialists. Although the picture has shifted in recent years as overseas entrants have moved into European jurisdictions, firms in mainland Europe are likely to be smaller and based on a ‘trusted adviser’ model. 

Partly as a result, perhaps, there is a greater expectation among US clients (and US firms) as to what they can expect from professional advisers in terms of demands on their time, speed of response, and so on.

In respect of all these factors, the general approach in the UK arguably sits somewhere in between the US and mainland European models. This perhaps mirrors the UK’s general relationship with the US and with Europe, although it is hard to precisely quantify financially the ability of the UK '¨to act as a gateway into the EU, for US businesses must also be a positive factor in the attraction of the UK for the inward investment referred to at the start of this piece.

A potential Brexit 

These issues have come into sharper focus '¨recently, given the impending referendum on a Brexit from the EU and the attendant publicity '¨and comment it has generated (including Barack Obama suggesting the UK would be better off remaining in the EU).

The extent to which this will impact on the UK’s position as a desirable destination for foreign inward investment, and the effect it will have on the domestic professional services market, will '¨only become apparent over time. At the moment, particularly given the uncertainty over timing, '¨any possible renegotiation of the EU Treaty and the basis on which the UK might withdraw (and in particular whether the UK could engineer a situation where it retained the economic benefits of the common market), it is simply impossible to make any reliable predictions. 

To date, England and Wales have avoided the Scottish experience, where deal activity largely dried up in the period prior to the independence referendum. This may simply be because we are too far away from any business decision that properly factors a Brexit into their planning. However, any referendum and the possibility of '¨a Brexit are likely to weigh far more heavily in the decision-making process of both domestic and overseas businesses as they get closer. SJ

A masterclass in international marketing

'¨The need to trade internationally is a major issue for many law firms today. This has partly been as a result of the economic factors Webster describes; partly because of IT advancements and the geographic barriers these advancements have broken down; and partly due to commercial necessity – after all, if your clients are operating internationally, can you afford not to be?  

The only trouble, when faced with a major international trip, is that many solicitors freeze. '¨It is understandable; more often than not it’s a new experience and far removed from the client-facing situations solicitors have dealt with in their careers up until this point. So, in a bid to make it slightly easier, here are some practical tips learnt first-hand.

Don’t panic

The people you speak to know you are not a local; they don’t expect you to know the ins and outs of their culture and their business practice. 

They will, however, expect you to demonstrate that you are interested in them and will remain fully attentive to their needs throughout the time you work together. Instead of worrying about local customs, ensure you live up to and deliver the promises you and your firm have set service-wise.

The Titanic strategy

The Titanic strategy can be paraphrased as '¨‘full speed ahead and ignore the icebergs’.  

The fall of the Greek economy and the '¨Chinese stock exchange were very real, and '¨will undoubtedly have a significant effect on international trade; the Brexit could become just as real and just as disruptive, but you can only work with what’s in front of you. '¨'¨Be aware

The majority of law firms’ names are still based around surnames, but if you trade under a more modern brand or have more ‘off the shelf’ product lines with unique names, double-check that their meanings will not cause offence in the territories you want to break into. Even the quickest Google search will throw up a litany of disasters large consumer brands have fallen – and continue to fall – into in this respect. 

Similarly, if you employ colours or numbers within your name or branding (probably of more concern to barristers’ chambers than law firms), double-check that they will not cause offence.

Also, stay aware of local news. If something of note has happened recently in said area, it will give you the perfect subject for small talk (and underline the fact that you’re genuinely abreast '¨of what’s going on). However, equally as importantly, it will also tell you which '¨subjects to avoid.  

Seek out experienced colleagues

With international trade on the increase, the chances of having an employee within your firm who has visited, or better yet sold in, the area you’re interested in is at an all-time high. 

Seek out any colleagues who may have that experience and have a coffee with them to learn first-hand how they found working in that country, and ask if they have any practical tips they’d be willing to impart. 

The other dimension to consider is that if your firm doesn’t have the requisite knowledge in-house, it may be worth considering making use of the many international professional networks and alliances available. SJ

David Webster is a partner in the corporate and commercial team at Russell Cooke @RussellCooke www.russell-cooke.co.uk 

 

Douglas Mcpherson is a director at Size 10 ½ Boots @BDinLaw www.tenandahalf.co.uk