One part of the job that is often challenging (especially for new bankers) is reading legal docs - IOI, LOI or purchase agreement being the most likely you'll encounter. No one teaches you how to do it, and it is REALLY hard to learn. Below are some high impact / low effort ways to look real smart real fast.
Step 1. Precedents:
Get a contract from a deal that recently closed and use that as a reference (bonus points if you can get more contracts to compare against - bankers are ALWAYS running comps). Allows you a reference to determine what terms are "market". As you get more experience, you won't need to rely on other people's deals and can refer to your own.
Step 2. Run the following searches:
Days, months, years
Anything that has a time component, compare that to market. x number of days to provide notice for this, or y number of months in order to process that. Anything that varies from other contracts may be "off market".
Notes to Draft (NTDs), "[" and blanks
Anywhere there is a NTD or a "[" indicating a placeholder or a blank space usually means someone needs information to complete it. You will look like a hero if you can give some guidance for what is needed to get this closer to the finish line (+10 points if you can provide a VDR reference for the required DD item). See how past deals filled in those blanks and figure out what makes sense here. A perfect example is networking capital peg - see below.
Networking Capital Peg
This is a textbook area where the banker and accountants are expected to fill in the gaps (and potentially negotiate a position). As you get experienced, you will know which levers to pull. It also goes a long way if you know what positions buyers and sellers will take (and, academically, why), what market is, and what makes sense. Also, attention to detail. Don't just let people argue academically about what "should" happen or what is "market" but also know how much $ is impacted. A bunch of times I've told both buyers and sellers (both as clients and counter-parties) - this is a small amount of money: Stop wasting your time trying to just "win".
Materiality Thresholds
Disclosure schedules will be governed by materiality thresholds. For example, buyer will likely want to see as many contracts as possible. Depending on the business, to give 100% of the contracts will likely be onerous and prohibatively difficult. So you'll set a threshold that says you will give all contracts above a certain amount. This is usually a significant number that allows all the contracts fitting in the threshold to represent a significant amount of revenue: 60%, 80%, 90% - whatever makes sense in the context of your deal. For example: seller may have 1,000 clients (long tail - lots of small clients), a materiality threshold of $10M represents the top 100 clients and 90% of revenue; $20M represents the top 50 clients and 80% of revenue; $50M represents top 10 clients and 60% of revenue. Knowing the thresholds, number of clients, percentages and being able to give advice on this matter is gold and totally doable for a motivated junior banker.
Hope this helps. Go get 'em.
U da man! Legal docs are by far the biggest pain point for me as an analyst.
Great post, thanks for this.
Ability to parse legals is a very very underlooked skill and one every junior banker should develop.
Awesome post. Will add for the corporate bankers reading this that everything here applies to credit agreements as well. Look at covenants, conditions prior to closing, security, pricing, contractual terms, and compare with historic/industry peer credit agreements.
Bookmarked. Definitely good color.
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