This Wisdom of the Crowd (ACC member discussion) addresses whether a company should pay a closing bonus to outside counsel as a "thank you" at the close of a M&A transaction when the outside counsel has been paid hourly rates for service throughout the contract. This resource was compiled from questions and responses posted on the forum of the Corporate & Securities ACC Network. (Permission was received from the ACC members quoted below prior to publishing their eGroup Comments in this Wisdom of the Crowd resource.)
Question: Should a firm pay a closing (premium) bonus to outside counsel as a "thank you" on the closing of an M&A transaction where you have paid hourly rates during the matter?
Wisdom of the Crowd:
Response #1: Your outside firm is making plenty of money on your transaction when billing on an hourly basis. If you want to pay a "thank you" bonus, require outside counsel to handle the transaction on a flat fee basis. If at the end of the transaction, it appears to you that the firm was not adequately compensated for the work, maybe pay a "thank you" bonus.1
Response #2: I agree with much that has been said. When I was in private practice, the concept of a closing bonus was much more prevalent on a completed deal for a private equity firm. However in those cases, the firm typically took a significant discount on deals that did not close. It was a two way street. While I am always glad when a deal gets done, I do not believe as an ordinary part of business it makes sense to pay a closing bonus if it is not negotiated for upfront or part of some other type or relationship.2
Response #3: I think it depends on the circumstances. Here are the things I would consider:1) The length of the relationship (were they long-standing outside counsel for company and will lose the client, or were they hired to do the deal?)2) Speed and responsiveness during the transaction (were you their number one priority or were clients that were likely more "long-term" taking priority?)3) Pain and suffering (how many late nights and tight deadlines were there?)4) Was the company paying rack-rate for prior work (i.e., non-deal work) or was there a negotiated reduction of off rack-rates?5) What was the overall bill for the transaction? Was it lower than I would have expected or higher?6) Does your CEO support your recommendation (whatever it is)?3Response #4: I was asked for a "closing bonus" from counsel after the closing of a public M&A transaction. This was shortly before the GFC. I thought it was rather cheeky of them to ask. The firm did a very good job, but it was not a particularly complicated transaction nor was there any unusual circumstance that warranted extraordinary effort by the law firm nor were their rates discounted. I asked the board if they were inclined to pay the firm a bonus over and above the fees charged and they said no and were as offended as I was. If a firm wants a premium for its services then the terms and conditions should be negotiated before the transaction. If a client believes that the firm went above and beyond in getting a deal done, then it is up to the client to decide whether a "bonus" is warranted.4
Response #5: I would think that actually getting their bill paid would be a bonus enough. So many clients stiff their counsel in whole or in part when a deal doesn't go through that it's a nice change to get paid, especially when the client didn't insist on a fee cap.I'd consider a special plate of cookies or something.5
Response #6: I've seen it done once. It was a situation where the outside firm went well above and beyond expectations, with many sleepless nights and hard-earned negotiation wins during the process. The M&A advisory firm did not meet expectations, the outside counsel more than picked up the slack, and the deal would not have closed but for the outside counsel. Rather than a bonus to the firm, we went with rather generous gifts to the attorneys and support staff that were involved, with the approval of the firm ahead of time.6
Response #7: I generally agree with the sentiments expressed already. If there was some discussion of a bonus in advance, then a bonus may well be appropriate. The best scenario is a negotiated structure to pay a bonus if the deal is completed and a discount for a busted deal, but even if it was merely a more general statement that a bonus may be sought in the case of a successful deal, then the discussion is appropriate. Beyond that, if the deal involved extraordinary effort (or brilliance) on the law firm's part, beyond what would normally be expected from a firm charging whatever rates you have agreed upon, I would consider it, but only if truly extraordinary.7Response #8: In my experience, if a rate/alternative fee is negotiated, that is based upon a successful deal and top-notch ("A") quality work. So, it's hard to understand why a premium would ever be paid. Based on my history and a consulting company my company's legal department hired, the opposite is true - more companies are moving to holding back a portion of the bill to ensure the quality is as expected. It almost always is.8
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1Anonymous poster (August 6, 2016).
2Harold Herman, VP & Senior Counsel, HSN, Inc. (August 8, 2016).
3Anonymous poster (August 6, 2016).
4Anonymous poster (August 6, 2016).
5Ms. Deborah Schwarzer, General Counsel, Aeris Communications, Inc. (August 6, 2016).
6Anonymous poster (August 8, 2016).
7Mr. James Rogers, Chief Legal Officer, Cars.com (August 9, 2016).
8Mr. David Colletti Jr., Senior Director, M&A, 7-Eleven, Inc. (August 8, 2016).
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