Are regulatory lawyers the new rainmakers?

Lexpert July Aug coverLexpert’s July/August issue is out and the cover story asks the provocative question whether regulatory lawyers are becoming more important than traditional M&A lawyers at business law firms.

Given that, among at least one of Canada’s major firms, the highest-paid partner is a regulatory lawyer (according to our writer Julius Melnitzer’s research), this may not be a stretch.

As Melnitzer points out in his feature story:

“A very important part of being a regulatory lawyer is understanding where the organization comes from in a particular jurisdiction, what its goals are, what its history is with the regulator, and how the home-country regulator interacts with various foreign regulators,” ICICI Bank Canada’s [Anthony] Coulthard says. “So although we might have four or five firms on our panel in the different jurisdictions in which we operate, our regulatory advice consistently comes from one firm and one lawyer in each of these jurisdictions.”

Simply put, changing lawyers involves giving up too much of the synergy and knowledge that has been built up over the years. “Identifying the issues and upfront risks that are inherent in regulated sectors, particularly financial services, can be quite intricate and require the services of someone who is continually monitoring the landscape,” [Borden Ladner Gervais LLP’s Prema] Thiel says. “You can’t just pick up a section of the Bank Act or the millions of guidelines and hope you can identify the issues that will steer your client to the right approach in a particular deal.”

Nor can a lawyer just pick up a client and try to sell that client to a regulator. “Even when you’re talking about a transaction no larger than $5 million, a regulatory lawyer has to have an intimate understanding of what the regulators think of the client as a purchaser of a target business,” Thiel says. “The first thing the regulator will be concerned about is the regulatory standing of the buyer and whether the buyer has the compliance regime and resources to absorb the target business.”

No surprise, then, that regulatory lawyers are top-of-mind when a deal is in the offing. “We used to be a necessary evil, but now we’re the first thing financial institutions think about,” [Torys’ Blair] Keefe says. “I tend to be involved with the client long before the M&A team is involved.”

Of course, the M&A lawyers are not fading into the background, and many still see the M&A lawyer as the key component in who gets the work, concludes Melnitzer:

Just what a client wants, however, may be a reflection of the internal resources it has. “Because we have developed Bank Act expertise internally, that part of a deal is usually led internally,” says Anthony Pagano of Toronto, Chief Counsel, M&A, at Royal Bank of Canada. “What we’re usually looking for externally in a major transaction is a seasoned M&A expert with lots of negotiating scar tissue.”

Scotiabank’s [Anita] Mackey also doesn’t believe that her organization’s “primary relationship” regarding M&A retainers is with the regulatory types. “When you’re talking M&A, I believe the M&A quarterback is still the most important lawyer, but the regulatory lawyers are definitely next in line,” she opines.

So while the hierarchical details are murky, the equation is clear: great regulatory lawyers in combination with great M&A quarterbacks, whether or not they are the same person, have become a key part of the formula that drives the deal flow to a law firm.

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