Watching Your Client Overleverage an Acquisition

By Acquisitions

As counsel, is it appropriate to speak up if you believe your client is overleveraging to finance an acquisition?

Two factors must be considered to answer this question:

(1) Your capacity. You are an attorney (not an I-banker). That law-school corporate finance elective or that undergrad finance degree might have defined “leverage,” but it likely fell short of detailing highly-leveraged transactions. Realize you don’t have the background to comment on the particular deal’s finances–and that your client probably hired someone else to do just that. And if your client hasn’t hired this financial guru (the bank financing the deal doesn’t count), suggest your client find one immediately.

(2) Your role. You are an attorney (and a counselor). While you may not have the background to evaluate the acquisition’s financial terms, the better attorneys consider more than just their clients’ legal well-being. Thus, a question like “How do you feel about the financing terms?” could start an invaluable conversation for both you and your client.


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