Conflicts and Independence When the Attorney Runs the Process

The conflicts check moves earlier

In a traditional sale engagement, the conflicts check runs once, against one buyer, when the LOI is signed and the firm is engaged. If the buyer is a client, the firm either obtains consents or declines.

In a process engagement, the firm may touch forty or sixty prospective buyers before an LOI exists. The conflicts check must run against the entire list before the client approves it, and it must run again each time the client adds a name. This is a procedural change more than a substantive one. The firm's conflicts database is the same, but the timing and the volume differ.

A practical approach is to run the full prospect list through conflicts as soon as the platform generates it and before the client reviews it. Names that return a hit are flagged for the partner, who decides whether the relationship bars contact, requires a consent, or is immaterial under the firm's applicable rules. The client sees the list with the firm's annotations and makes the final call on who stays. The firm should document that review in the file.

When a prospective buyer is a current or former client

The most common conflict is a buyer the firm has represented. In the lower middle market, private equity funds are repeat players, and a firm with a transactional practice may have worked for several of them on the buy side.

If the buyer is a current client of the firm in an unrelated matter, the firm's own rules and its state's professional conduct rules govern whether the firm can represent the seller against that buyer, and on what consents. Under ABA Model Rule 1.7, direct adversity or a significant risk of material limitation can create a concurrent conflict, and informed consent confirmed in writing is only one part of the rule's conditions. [1] The firm should apply the rules that govern its work, not assume that a generic consent resolves the issue. Practical options may include seeking informed consent from both parties, excluding the buyer from the list, or, if the buyer is clearly the best fit and consent is refused, bringing in separate counsel for the LOI and purchase agreement while the firm continues to run the process if that structure is permitted.

If the buyer is a former client, the question is whether the earlier matter is substantially related, whether the buyer's interests are materially adverse, and whether the firm holds confidential information that would be relevant. ABA Model Rule 1.9 addresses those factors and restricts use or disclosure of protected former-client information. [2] A firm that represented a fund on an acquisition three years ago in a different industry is in a different position than one that negotiated that fund's standard purchase agreement form last year.

None of this is new to a transactional attorney. What is new is that the firm now encounters the question dozens of times per engagement, early, and must have a routine for it.

Two seller clients in the same market

A firm with several owner clients in one industry may find two of them thinking about selling at once. The buyer universe overlaps. The same strategic acquirer may be the best fit for both.

This may be a true conflict of interest between two clients, and the firm should treat it as one until its governing rules and facts support a different conclusion. Options include disclosing the situation to both clients and obtaining consent to represent both with information walls between the teams, sequencing the processes so they do not overlap in time, or declining one engagement. Which option fits depends on the facts, the firm's size, and the clients' views. A solo practitioner cannot build an information wall; a 40-lawyer firm may be able to.

The point for practice design is that the firm should know this situation is possible before it happens and should decide in advance how it will handle it. A firm that runs multiple concurrent processes on one platform can see the overlap in its own pipeline, which may be an operational advantage over discovering it from a buyer who mentions the other deal.

Independence from the outcome

Conflicts of interest between clients are one category. Conflicts between the firm's interest and the client's are another, and the process engagement creates one that the documents-only engagement does not: the firm has invested months of preparation and may want the deal to close.

The fee structure is the first safeguard. A fee earned by work performed, paid regardless of outcome, means the firm's revenue does not depend on closing. The second safeguard is the decision authority clause in the engagement letter: the client decides which buyer, which offer, and whether to proceed, and the firm advises. The third is procedural: the attorney's advice on each IOI and on the LOI should be written, should state the alternatives, and should include the option of not proceeding.

The firm should also be careful about relationships with buyers that go beyond representation. A firm that regularly receives referrals from a particular fund has a reason to want that fund to win the auction. That reason should be disclosed to the client when the fund appears on the list, and the firm should be prepared to explain why its recommendation is on the merits.

The software provider and third parties

A process engagement introduces a platform provider into the relationship. The firm should confirm the provider's financial interests, compensation arrangements, and data-use terms, and should reflect material terms in the platform agreement and engagement letter so the client knows them.

The same discipline applies to any other third party the firm introduces: a quality of earnings provider, a tax advisor, or a lender. The firm should confirm with its own counsel how the federal M&A broker exemption and applicable state rules treat the activities it takes on and any compensation from third parties in connection with a client's sale. A lawyer's independence can also be affected when someone other than the client pays for representation, so the governing professional-conduct rules should be checked before accepting third-party compensation. [3]

A conflicts procedure for process engagements

A firm can write this procedure in a page. At engagement, run conflicts on the client and its principal owners as usual. At buyer list generation, run conflicts on every name before the client sees the list, flag hits, have the partner review them, and annotate the list. At each list addition, repeat. At IOI stage, confirm no new conflict has arisen with any bidder that advanced. At LOI, run the standard check against the chosen counterparty. Throughout, disclose referral relationships with any bidder to the client in writing.

A partner can draft that procedure this week and run it on the next engagement. Software prepares, organizes, matches, and tracks; the attorney and the client decide and act, and the conflicts procedure is one of the places where the attorney's judgment is the only thing that works.

How Acquivo Pro fits

Acquivo Pro generates a prospect list for the conflicts check and tailors it to the client from the data room, the website, and the questionnaire. Because every client's process runs in a single pipeline on one login, a firm can see when two of its own clients' buyer lists overlap. The attorney reviews the list, decides which names can be contacted, and controls every buyer communication.