A new report warns that law firms advising on take-private deals risk alienating their existing clients if they fail to manage conflicts of interest properly. The study, conducted by legal consultancy firm Acritas, found that 60% of corporate counsel would consider dropping a law firm that represented a private equity firm in a take-private transaction involving their company.
Conflict of Interest Concerns
The report highlights that take-private deals, where a public company is acquired and taken private, often involve private equity firms that may have conflicting interests with the target company's management or board. Law firms representing both sides can face accusations of divided loyalties. According to Lisa Hart Shepherd, CEO of Acritas, “Law firms need to be very careful about how they handle these situations. If they don't, they risk losing the trust of their clients.”
Impact on Client Relationships
The survey of 200 senior corporate counsel revealed that 45% had experienced a conflict of interest with a law firm in the past two years. Of those, 30% said the conflict arose from a take-private deal. The report advises law firms to implement robust conflict-checking procedures and to be transparent with clients about potential conflicts. “Firms that fail to do so may find themselves on the losing end of client relationships,” Shepherd added.
Market Trends
The number of take-private deals has surged in recent years, with a record $150 billion in such transactions globally in 2021. This trend is expected to continue, putting law firms under increasing pressure to manage conflicts. The report suggests that firms should consider creating separate teams or using ethical walls to prevent conflicts. However, some experts argue that the best approach is to avoid representing both sides altogether.
